Why Japan's Decision to Allow Crypto Sector to Self-Regulate is Significant

Japan, the largest cryptocurrency exchange market by daily trading volume, has allowed the local crypto market to self-regulate, demonstrating trust towards the country's cryptocurrency-related businesses.

The decision of the Financial Services Agency, the main financial watchdog of the country, comes in a period in which two of the biggest digital asset exchanges in its local cryptocurrency market were hacked by an unknown group of hackers.

On Oct. 24, the FSA officially approved the Japan Virtual Currency Exchange Association, a consortium established by 16 licensed crypto trading platforms in the country, to establish guidelines and various regulatory frameworks to eliminate money laundering, insider trading, and implement strict Know Your Customer systems.

Subsequent to the $40 million security breach of Zaif, a major digital asset exchange in Japan, local analysts expected the government of Japan to impose strict regulation to combat hacking attacks, potentially by requiring exchanges to obtain insurance, implement more thorough security measures, and enhance internal management systems.

Contrary to the expectations of local companies, the government of Japan allowed the cryptocurrency exchange market to self-regulate for the first time in the nation's history, showing a high level of trust and respect towards the local market.

Providing local exchanges with more responsibility over their actions, operations, and investors.

At the time, the FSA stated that cryptocurrency exchanges will not be able to obtain licenses to operate as regulated financial institutions unless anonymous cryptocurrencies are delisted and encouraged G20 to discuss the presence of Monero, Zcash, and Dash on leading exchange.

"It should be seriously discussed as to whether any registered cryptocurrency exchange should be allowed to use such currencies. It's nearly impossible for Japan to handle the problem alone. Even if trade is restricted to only domestic transfers or monitoring is enhanced, it's still not enough to counter money laundering. It would be best if all the group of 20 industrial and emerging nations and regions would take the same steps toward prevention."

Significance of JVCEA. Japan is the first and the only government in the global market to create a national licensing program to regulate and oversee cryptocurrency exchanges.

The JVCEA will encourage local cryptocurrency exchanges to prove to the FSA and Japanese financial authorities that the digital exchange market is mature, liquid, regulated, and transparent enough to facilitate investment in cryptocurrencies from both local retail and institutional investors.