Japanese Regulator Considering Crypto ETF Approval

Japan bitcoin cryptocurrency Bloomberg exchange traded fund

The Financial Services Agency in Japan is reported to be considering approving crypto ETFs, in a move that would open the market to increasing involvement from institutional investors.

Reporting sources close to the matter, Bloomberg said the agency is currently in consultation with institutional investors over backing an exchange traded fund, with the regulator said to be actively considering whether to give the green light.

The Japanese government is reported to be drafting legislation to be presented in March, which would amend existing rules, as well as introducing a new self-regulation regime for the sector by 2020.

At present, regulated institutions have difficulties investing in cryptocurrency in the same way as individual investors, over concerns about security, legal structure and market integrity, not to mention the legal restrictions governing banks and other institutions.

Were crypto ETFs to be granted FSA approval, these would provide institutional investors with a means of taking positions in cryptocurrency markets – considered by crypto analysts to be a precursor to mass mainstream adoption.

However, Bloomberg noted that the FSA has shelved plans that would have created exchange traded derivatives tied to cryptocurrency asset values, over fears this could lead to widespread speculation.

Japan has seen a number of high-profile hacks of cryptocurrency exchanges in recent years, including the $533-million hack of the Coincheck exchange.

Similarly, the hack of Mt Gox in 2014 sent shock waves through the industry, significantly undermining bitcoin and crypto markets at the time, and prompting the government to take further action around the cryptocurrency sector.

The pro-ETF approach is in stark contrast to the position taken in the U.S., where regulators have rejected as many as nine alternative proposals for a crypto-pegged ETF. 

The U.S. Securities and Exchange Commission has yet to permit any of the proposed listings “to prevent fraudulent and manipulative acts and practices,” given the current lack of regulation around much of the cryptocurrency sector.

If a crypto ETF wins approval in Japan, it would create an international precedent that could ultimately see other countries following suit.

With some institutions already notably keen to proceed with investing in an ETF, it remains to be seen whether the Japanese model can win acceptance.