Tough times shake up Japanese crypto sector

As prices fall, competition mounts and regulators tighten the reins, crypto exchanges in Japan are feeling the pinch.

On November 5th, Japanese exchange DMM Bitcoin, a subsidiary of DMM (Japan’s leading e-commerce company), revealed an operating loss of US$2.8 million in the previous financial year.

DMM Bitcoin’s close competitor, GMO Coin cryptocurrency exchange did a little better, reporting US$2.3 million profit in the second quarter of this year, although GMO Coin’s parent company GMO Internet has revealed plans to pivot after its in-house Bitcoin mining business fell into a deficit in the second quarter of 2018.

With mining no longer lucrative for the company, it plans to shift its focus to boosting sales of mining hardware. Because GMO internet is a significant player in the local crypto mining business, the company’s actions could be critical in determining the future direction of mining in Japan.

Similarly, Remixpoint, the Japanese energy company that owns the BITPoint crypto exchange, announced recently that exchange profits have fallen short of expectations In the first half of this fiscal year, between April and September 2018, operating profit grew a multiple of 2.2 times year on year to 710 million yen, well short of the 840 million yen called for by the corporate plan. This news caused a dramatic sell-off in Remixpoint shares, which dipped so low that they were temporarily suspended on November 15th.

CyberAgent, Inc., Japan’s leading internet advertising company, established a cryptocurrency trading subsidiary — ‘Cyberagent Bitcoin’ — back in October 2017. But after the Coincheck hack and a close examination by the FSA, the company decided to delay its entry into the space before disbanding CyberAgent Bitcoin entirely in November.

Interestingly, the tenuous nature of Japan’s crypto landscape has presented opportunities for international entrants to pick up distressed assets and gain access to Japan. Japanese cryptocurrency exchange BitTrade, for example, announced on November 22nd that it will cease trading on January 18th, 2019. This comes after a new business agreement with Huobi, which will see the popular Chinese platform enter the Japanese market.

Launched in September 2016, BitTrade, is one of Japan’s 16 government-approved crypto exchanges and was formerly owned by parent company FXTF Asset Investments Private Limited (FXTF). In the move, True Joyful Limited, BVI, the main shareholder of FXTF, transferred 100% of its shares to Huobi’s Vice President of Global ‎Business Development Chris Lee, shifting all management rights to Huobi Japan Holdings.

From November 30th, new account registrations for BitTrade have been suspended, with suspension of deposits to follow on December 14; orders and transactions on December 27; and withdrawals and logins on January 18, 2019. Huobi’s new platform is currently under development, and is scheduled to open for Japanese customers after January.

Huobi Japan will assume BitTrade’s Financial Services Agency (FSA) issued license for operating an exchange trading fiat currencies against digital currencies. This license is the ‘jewel in the crown’ of the Huobi purchase, as Japan’s Payment Services Act (revised in April 2017) stipulates that all companies operating a cryptocurrency exchange must register with the FSA and ultimately become licensed. Few exchanges make the grade, however, and many have abandoned the crypto business altogether, rather than attempt to meet the requirements of the regulators.

Once China’s largest cryptocurrency exchange, Huobi was forced to leave the country in October 2017 after strict regulations were introduced on cryptocurrency transactions and ICO fundraising by China’s financial agencies. This crackdown led the majority of Chinese cryptocurrency exchanges to move their headquarters offshore.

Since settling in Singapore, Huobi has developed a broad offering in several surrounding countries — building out the Houbi Pro platform, and expanding to offer digital asset trading and cryptocurrency wallets in regions including Hong Kong and South Korea.

Other exiled Chinese cryptocurrency exchanges are now expected to follow Huobi into Japan, along with international contenders like Coinbase — contributing to an increasingly competitive landscape for crypto exchanges there.

Meanwhile, several other well-known Japanese companies have decided to enter the business by acquiring cryptocurrency operators, including subsidiaries of Japan’s leading e-commerce companies Rakuten Group and Yahoo Japan Corporation.