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Could Japan Be Over-Regulating The Cryptocurrency Space In The Country?
Japan is one of the most important countries for virtual currencies. Not only for the large trading activity that takes place in the country, but also because there are several companies located there.
Although the cryptocurrency market in Japan is growing and has been growing in the last years, the country might be taking too hard regulations to control it. According to a report released by The Block, when the finance minister of Japan was Nobuchika Mori – who has also worked as commissioner of the Financial Services Agency (FSA) – the market grew rapidly.
However, since he left his position and the government, regulatory agencies started to regulate the market with tighter rules. This is clearly something that could not be positive for the crypto space. Over-regulation is not the answer to the lack of them.
For example, in October, the FSA allowed players in the market to self-regulate themselves. Specifically, they’ve received the status as self-regulated entities. Due to the fact that Japan experienced different hacks to different exchanges, a senior FSA official explained that it is necessary to have an appropriate regulatory framework and ensure stability in the space.
Although the FSA provided an important degree of self-regulation on the market, the organization has also imposed a new regulatory framework. The regulatory agency informed that crypto wallets should be regulated in the same way as exchanges. Those wallets that are not be registered will not be able to operate.
Wallet holders are those who have their private keys. However, it might not be possible for wallet services providers to manage users’ payments. A solution would require wallets to have know Your Customer (KYC) verification and all the information from users.
It is clear that the government wants to avoid money laundering in the country but sustain the momentum of the local cryptocurrency sector. For example, the government started to work side by side with other countries in order to prevent the utilization of virtual currencies that focus on privacy such as Monero (XMR), Zcash (ZEC), or Dash.
There are different countries that are trying to establish themselves as crypto and blockchain leaders. Some of them are Switzerland, South Korea, Singapore or Malta. This shows that there is a very competitive regulatory landscape all over the world. There are countries that want to attract new investments, and flexible and clear regulations are helping those nations to grow.
If Japan starts imposing several new regulations that make it difficult for companies to settle their operations in the country or start a business, this might not be good for Japan. At the moment there are no top 10 Japanese cryptocurrency exchanges. At the beginning of the current year, the cryptocurrency exchange Coincheck experienced a hack that resulted in the loss of around $500 million worth of XEM tokens. This could also have played an important role in influencing future policies and regulations in Japan. In fact, after the hack, the government started to evaluate how to improve the ecosystem. In order to do so, it said that crypto exchanges that want to keep operating must have a license to do so.
During the last week, a lawmaker called Takeshi Fujimaki proposed a simplified process for paying taxes related to virtual currencies. The main intention is to help investors declare their taxes and revitalize the market once again.
According to a report provided by Business Insider, the rise in the value of Bitcoin could have added 0.3% to Japanese GDP growth. The analysts behind this report work for Nomura and say that the wealth effect that this growth in Bitcoin created will be boosting consumer spending.
Having a clear regulatory environment and regulations is something that Japan must do. However, over-regulating the market is not the solution and could harm the industry rather than help it grow.
As The Block wrote,
“The policies that the Japanese government has been proposing in the past few months are contradictory. The Japanese market expanded when Nobuchika Mori took an open-minded approach to virtual currencies and regulations. If Japan wants to remain an active player in the space, it will have to re-evaluate its regulatory stance and how it wants to protect investors and the whole crypto environment.”