28 Jul Tracking the Japanese cryptocurrency sector
Cryptocurrency and distributed ledger technology (DLT) are continuing to grow in popularity all around the world.
Bitcoin (BTC) and other cryptocurrencies are transitioning into the mainstream in a number of countries. Regulatory issues are slowing this transition, but the general upward trend globally is an increasing acceptance of digital currencies.
DLT (also known as blockchain technology) is also expanding into different industries. So, what is happening with cryptocurrency in Japan
Japanese cryptocurrency sector is on an upward trajectory
Engagement in cryptocurrencies is increasing in Japan too, including among major companies and investors. Experts believe that the upward trend for cryptos will continue in Japan, but there are challenges including an aging population and regulatory changes.
If we look at statistics from between October 2020 and February 2021, we can see a significant upward trend to the number of transactions made with cryptocurrencies. The stats are from the Japan Virtual and Crypto Assets Exchange Association (JVCEA) and cover members of the association. Some of the major Japanese exchanges such as Rakuten and bitFlyer are both JVCEA members.
In October 2020, 73 million yen’s worth of cryptos were traded. By the end of February 2021, this increased to 417 million yen. The highest number of cryptocurrency units traded came in January 2021 at around 28.5 billion.
By March 20201, transactions dropped to 11 billion units, but despite this drop trading for this year so far is much higher than levels in 2020. Last year averaged about six billion units every month. It’s likely that cryptocurrency transactions in Japan will continue to stay higher than 2020 figures in the medium term due to a number of favourable business developments in the sector.
Positive movements within the sector from major businesses
Positive signs could be seen for cryptocurrency growth in Japan when e-commerce company Rakuten announced changes. The announcement shared plans that, as from February 2021, crypto assets bought on the Rakuten Wallet (its own proprietary e-wallet), could be used to directly increase the user’s Rakuten cash balance with zero fees.
In other words, Rakuten ensured that cryptocurrencies could be used indirectly for everyday transactions in Japan. This is obviously a major step forward for cryptocurrency going into the mainstream in Japan and is a positive indicator for the future of the sector.
Another positive sign was a transaction made by video game publisher Nexon in April 2021. Nexon is a publicly listed company, and with this transaction became the first in Japan to invest in cryptocurrency. The company bought 1,717 BTC for around $100 million.
This decision from Nexon will inevitably encourage other major firms in Japan to make their own investments in cryptocurrencies. The knock-on effect of this is that BTC and other cryptos will become more widely accepted as a legitimate form of value.
Yet another positive sign for the sector is the fact that Japan-based exchange DeCurret announced that its new special advisor is former Financial Services Agency (FSA) boss Endo Toshihide. This will be beneficial for the sector’s efforts to develop a common settlement framework and secure cryptocurrency exchanges. DeCurret is one of the leading exchanges in Japan’s crypto sector and I think that we will see Endo’s appointment going a long way to legitimise the sector and develop more effective regulatory standards.
Challenges for Japan’s crypto space for the long-term
There are, of course, challenges ahead for the crypto ecosystem in Japan over the long term. In 2020, the social networking start-up VALU which was based on blockchain tech, closed. Its closure was in anticipation of harsher regulations for cryptocurrency managers.
This suggests that to encourage more Japanese firms to offer crypto linked services could be held back if the much-needed regulatory reforms aren’t made sooner rather than later.
Japan is still behind its immediate geographical neighbours in the use of cryptocurrency. According to a survey from Statista in 2020, just 4% of people living in Japan owned or used cryptos. In China it’s 7%, India 9% and in Vietnam up to 21%. Therefore, there is plenty of space for major growth in cryptocurrency usage in Japan.
However, the population could slow this down. There is a decreasing number of young people in Japan, and given that crypto users are usually under 30, this could lead to numbers falling.
Another societal challenge in Japan is the love of cash payments, particularly among the large population of older people. Pre-pandemic, according to the Ministry of Economy, Trade and Industry (METI) cashless payments accounted for just 26.8% of transactions. However, since COVID-19, this tide has started to turn and more and more people are accepting the move away from cash.
Investors should keep an eye on future developments
I think that there is no doubt that cryptocurrency growth will continue in Japan in the short and medium term. However, for the long-term, we could see new regulations slowing innovation within the burgeoning ecosystem of Japanese crypto start-ups. And, for the longer term there is a chance that the aging population could slow down this sector.
Despite these challenges, the cryptocurrency market in Japan remains positive. Competition among the diverse range of crypto exchanges in the country along with acceptance and investment from huge companies like Rakuten are all very positive signs for this sector.
We need solutions to cover cryptocurrency regulations and to deal with the volatility in order for Japan’s cryptocurrency sector to reach its true potential. If these regulatory changes aren’t made, then we could see the sector diminish over the long-term. Investors must keep a close eye on the trajectory of cryptocurrency in Japan to ensure they don’t lose out.