Japanese financial authority is planning to enforce rigid regulations on bitcoin and other altcoins. The action is being taken as a corrective measure after Japanese crypto market witnessed a rude shock of a theft in January at Coincheck Inc., a digital exchange operator based out of Tokyo and the exploitation of digital money in speculative investments.
The Japanese legislators came up with Payment Services Act, 2017 in order to protect the cryptocurrency investors. It arranged a registration system for traders who exchanged cryptocurrencies for Yen and other legal tenders.
However, sharp rise in the prices of digital currencies led to an increase in the speculative activity providing the Financial Services Agency with the stimulus to take responsive action.
Last year in December, Bitcoin saw a massive rise in its price when it hit the $17,700 level, which equals to ¥2 million. Though, the prices have fallen considerably this year, Bitcoin is still trading above ¥750,000.
The transactions involving the top 5 virtual currencies (Bitcoin, Ethereum, Bitcoin Cash, Litecoin, and Ripple) amounted to ¥69 trillion in the Financial year 2017, which was 20 times more than it was in 2016. The number of cryptocurrency users also reached a whopping 3.5 million.
But, the financial authorities in Japan are not so sure about the legitimacy of the digital currency. There is a feeling that cryptocurrencies have a limited use as an alternative method of payment and the main motive to use digital currency is to maximise capital gains.
The accelerated growth of crypto investments can be traced back to an increased margin trading, wherein investors with a small amount of money could earn huge profits or even suffer great losses. Financial regulatory bodies in every country has a policy of margin trading in foreign exchange (25 times leverage limit), but there’s no such provision for margin trading in the digital currency which eventually has bipolar effect on prices.
The crypto fraud at Coincheck was clearly a result of mediocre management of customers’ crypto assets.
An expert on cryptocurrency concerned about the safety of investors said, “Virtual currencies should be positioned as assets for investment, while a legal system to protect investors needs to be established as a matter of urgency.”
The FSA has therefore decided to bridge the gaps between the actual practices and the regulations regarding cryptocurrencies. It will be interesting to watch how the authorities find a middle ground and crack this hard nut.