While Financial Services Agency (FSA) Commissioner Junichi
Nakajima has said he’s open-minded about the potential benefits that assets
such as bitcoin possess as a quick and cheap way to send cash, in Japan they
are currently mainly being used for speculation and investment, not as a means
of transferring money. New challenges are coming from a broader proliferation
of firms involved in decentralized finance, known as “DeFi,” he said.
“We need to consider carefully whether it is necessary to
make it easier for the general public to invest in crypto-assets,” Nakajima,
58, who became chief of Japan’s financial regulator last month, said in an
interview.
Unlike in the U.S., where investors now have a multitude of
ways to invest in the burgeoning asset class, Japan remains heavily restricted
by comparison. The FSA set up a study group of outside experts in July and is
expected to consider regulatory responses to DeFi in the coming months, with
investors looking to Nakajima for clues on the outlook.
Nakajima was involved in crafting Japan’s first regulatory
framework on crypto-assets, including the registration requirement for
exchanges in 2017. The country tightened up following a massive coin theft at
Tokyo-based exchange Coincheck Inc. in 2018, which revealed lax internal
controls and customer protection.
While Nakajima said the current regulatory framework on
cryptocurrency exchanges has been effective in terms of customer protection and
anti-money laundering, many of the 31 registered exchanges are struggling
financially, he said. Their business situation “is rather tough,” he said.
In the U.S., Securities and Exchange Commission Chair Gary
Gensler said regulating cryptocurrency exchanges is perhaps the easiest way for
the government to get a quick handle on digital token trading. But he’s also
concerned about new ways people are getting into cryptocurrencies, such as
peer-to-peer lending on DeFi platforms.
A recent crackdown in China on exchanges, miners and traders
left some players shifting into lesser-known tokens and decentralized storage
technologies.
Nakajima, a career bureaucrat and engineering major from the
University of Tokyo, said that unlike stocks, cryptocurrencies do not have
underlying assets and are therefore subject to big price swings. That’s one of
the reasons the regulator does not allow crypto-investment trusts, which are
considered an easy way for the public to gain exposure to the asset class.