Regulation
Japan’s fast and timely approach to cryptocurrency regulation is paying off
Japan is laying regulatory groundwork to accelerate Web3 adoption
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Japan has been a rare exception when it comes to regulating cryptocurrencies. After the catastrophic collapse of Mt. Gox in 2014, a Japan-based company, the government moved quickly and promptly to crack down on what was considered an overly risky industry. introduced strict rules for operators, placing them under the supervision of the country’s financial regulator.
This decision means that ten years later, Web3 in Japan is evolving very differently from the startup culture that has characterized the industry in other countries. Instead, we are seeing a more widespread trend of large companies leveraging their entry into Web3 through strategic M&A and investment.
To date, the banking giant Softbank has been one of the most active players, acquisition a controlling stake in cryptocurrency trading platform BITPoint in 2022 and becoming a key investor in a dedicated Web3 venture capital fund initially set up by Deutsche Bank. However, the latest newsthat Sony is preparing to launch a rebranded cryptocurrency exchange called S.BLOX, following a 2023 acquisition of local platform Whalefin, has created a stir in the cryptocurrency community.
I recently spoke with Mai Fujimoto, co-founder of INTMAX, who had just returned from the Japan Blockchain Week Summit she hosted in early July. She confirmed that based on the lineup of this year’s event, the enterprise move to Web3 is becoming a trend:
“This [Sony] It’s just one example. We just hosted many speakers from big companies [at Japan Blockchain Week]that has been a standout on the Web3 conference circuit. I believe this is unique in Japan. In the US, Coinbase and Base Chain have significantly contributed to Web3 penetration in the country, so we can expect similar synergies to occur in Japan as well.”
Sota Wanatabe, CEO of Startale Labs and founder of the Astar network, which is already collaborating with Sony on the development of its own blockchain, also sees this as just the beginning of an evolving movement:
“This development signals a serious commitment to Web3 by major Japanese companies. Large companies typically need a year or two to implement such initiatives. With Web3 set to become a national policy in Japan in late 2022, we expect significant developments beyond proof of concept to emerge soon.”
It refers to a detailed national Web3 strategy initiative launched in 2022 by Prime Minister Kishida Fumio, which saw tax reforms, the introduction of specific rules for assets such as stablecoins and NFTs, and a relaxation of rules allowing investment funds to hold digital assets as part of their portfolios.
However, the stringent and extensive rules mean that starting a digital asset offering from scratch is not necessarily an easy feat. Daiki Moriyama, director of gaming-focused blockchain Oasys, believes this could be a key driver of M&A appetite. He explains:
“While the proliferation of Web3 increases the potential for industry synergies, establishing a cryptocurrency exchange and obtaining the necessary licenses from scratch requires significant time and financial investment. Therefore, entering the market by acquiring existing cryptocurrency exchanges in a quasi-bailout capacity presents a promising strategy.”
From a smaller operator’s perspective, Japan’s stringent regulations can make compliance costs prohibitive for profitable small businesses; therefore, partnering with larger operators is a more viable way to sustain a brand and tap into the potential of a large, established global audience.
Oasys’ Daiki Moriana also points out that the entry of players like Sony is also symbolic for the industry’s reputation, as it has the potential to significantly improve social perception of a sector once viewed with skepticism.
Japan is indeed a case study in how even perceived relatively rigid regulation can still provide much-needed certainty to established companies. In this case, it is proving to be an effective foundation for a strategic path to Web3 through acquisitions and investments, with the potential to drive adoption in new audiences and verticals.