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Why Is Japan One Step Ahead? First Self-Regulated Crypto Market

07:45 16/11/2018
First Self-Regulated Crypto Market

We have already written about how cryptocurrencies are regulated in Japan. Due to strict regulation rules, Japan is one of the leaders in the world crypto arena, which is interesting since crypto trading conditions are not beneficial for Japanese residents. Anonymous crypto trading is prohibited, all profits must be declared. Besides, traders have to know how to pay taxes on cryptocurrency.


The Japanese cryptocurrency regulator FSA used to control the local crypto market. Working in symbiosis with the National Tax Agency, FSA successfully regulated the sphere. However, the governmental discussion of the law on cryptocurrency brought significant changes to the crypto field.


  • In April 2018, Japanese crypto platforms united and created the Japan Virtual Currency Exchange Association (JVCEA). As of the fall of 2018, the organization has 16 members.
  • On October 24, the FSA appointed JVCEA as a self-regulating association. This means that it actually transferred its power to a non-governmental organization.


Thus, Japan became the first country where the crypto sphere is controlled by a self-regulating organization (SRO). Let's see why this happened.


The origin of self-regulation in Japan


The strict regulation and control over Japanese crypto platforms could not protect investors. In 2018, there were two cases of the theft of users' crypto assets:


  • On January 26, NEM tokens were stolen from Coincheck. The total loss was valued at 530 million dollars. It caused a massive capital outflow. The management of the exchange pledged to pay damages to its clients. Only on October 30, Coincheck reopened the registration of new users and partially restored cryptocurrency trading and withdrawal.
  • On September 14, Zaif, a startup of the Japanese company Tech Bureau, Inc., was cracked. Crypto assets worth about $60 million were stolen from “hot” wallets.


Both cases were the result of insufficient crypto security measures to protect users' funds. After the January incident, the Minister of Finance of Japan ordered crypto exchanges to tighten crypto security. This led to the creation of JVCEA which took an internal control over cryptocurrency exchanges and their activities.

Japan at the origins of the cryptocurrency market self-regulation

The Zaif incident showed that there is still a lot of work to do. JSA acknowledged that it's unable to provide an effective security layer because of the intensive development of the crypto sphere. This was the reason why the whole power was passed to JVCEA.


Globally, JVCEA is the first internal organization that regulates the crypto sphere. As for Japan, it is not the first successfully operating SRO in the country.


Self-Regulation in Japan


SRO became common in Japan in the second half of the last century, after changes in the anti-trust law. This had a positive effect on the country's economy. By the 1980s, the quality of Japanese goods increased and they got popular both in the domestic market and abroad. It is noteworthy that the activities of financial exchanges are regulated by the self-regulated organization JPX-R (Japan Exchange Regulation).

Self-Regulation in Japan

The creation of JVCEA as an SRO is a natural step in the development of the Japanese crypto industry. The association has already managed to issue regulatory documents containing measures to ensure safe crypto trading. In particular, the amount of clients' funds stored in hot wallets was limited, while the leverage for margin trading was reduced to 1:4.


The development of the crypto sphere in Japan is fairly positive. Only time will tell how JVCEA will affect the activities of Japanese exchanges in the future, and whether we will witness another high-profile theft of crypto assets.

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