Japan’s stricter existing crypto regulations allowed the company to meet the FTX crisis head-on and salvage user funds—highlighting the benefits and costs of tight crypto regulations.
- Crypto exchange FTX caused one of the largest collapses in crypto history on November 11 when it filed for bankruptcy, leaving millions of investors without access to their funds.
- The only part of the company that has returned assets is FTX Japan, which has allowed for $175.4 million in withdrawals for 10,000 users and clients, Forbes reports.
- Japanese requirements include companies keeping their assets separated from customer assets, facing regular audits, limits on investor borrowing, and keeping 95% of customer funds in offline liquidity.
- The Japanese government continues to create crypto legislation in a “forward-looking” manner, regarding technologies like blockchain and web3 as innovative and full of potential.
- However, the country’s strict rules and high unrealized gains taxes have shied many investors and startups away from Japan.
The U.S. remains at a notable crossroads in its approach to cryptocurrency. Much of the law is currently vague in its execution. Financial regulators still need to make their stances on the legality of certain forms of crypto investing clear, leaving startups and investment companies floating in limbo as to whether their services are legal.
The Japanese government has been at the forefront of crypto regulation since its creation, with the country having suffered two of the largest crypto hacks in history in the years prior to crypto becoming more widespread. The Japanese Financial Services Agency tightened regulations on exchanges, successfully curbing crashes like FTX and protecting consumers.
“The drama and shakeup that the U.S. is experiencing around Sam Bankman-Fried, FTX, the Bahamas situation are not relevant in Japan,” Crypto Council for Innovation CEO Sheila Warren tells Forbes.
However, the Japanese government has, in some regards, traded safety for innovation. Forbes notes that several U.S. exchanges like Kraken and Coinbase have been shut down in Japan by “market conditions” and that crypto investors with deep pockets have shied away from developing crypto projects by a 30% tax on unrealized gains. While the government is eager to embrace these technologies, the general hostility towards startups and developers is creating a difficult market to navigate.
“Suppose you issue 100 tokens, each worth $1 million. Even if you don’t realize gains, you will need to pay $30 million next year. Practically no startup founders can issue a token … Japan loses entrepreneurs that could build $100 million businesses because of those barriers,” says game designer Shinnosuke Murata.