



Just last year, Japan was at the heart of the global Bitcoin community. After China banned cryptocurrency exchanges, Japan remained relatively friendly, with more than a dozen licensed exchanges.





What a difference a year makes. Japan’s openness was challenged earlier this year when hackers stole more than USD$500 million from the Japanese exchange Coincheck. The hack spooked regulators, who became squeamish about giving new licenses to exchanges, temporarily slowing the development of the market.





But Japan hasn’t given up on blockchain.





In fact, Tokyo is now showing some signs of openness. Despite the hack, Coincheck will receive an exchange license, the Nikkei Asian Review reported on Dec. 19. And Japan’s Financial Services Agency is preparing to introduce revised regulations for initial coin offerings to ensure greater transparency and investor protection, according to Jiji Press.





The reason for the apparent thaw may be that Tokyo is keen to establish itself as a financial hub. It seems to have concluded that to do that, it needs to embrace blockchain and crypto.





Paradoxes abound, of course. It is a bit strange to see a decidedly risk-averse economic system seeking to lead the charge into the financial unknown. And Japan has been the site of the globe’s two biggest crypto heists –- Coincheck in early 2018 and Mt. Gox in 2014.





Yet might Japan, by pushing steadily forward, help revive the ICO market in 2019?





Not everyone is so optimistic. Tokyo-based attorney So Saito told LongHash: “I don’t think that there will be lots of ICOs in Japan next year.” Chaos in markets is one reason. Another is the complete absence of ICOs in Japan this year. Saito explained that there have been no legal ICOs in Japan this past year because the FSA requested registration for the selling of ICO tokens, but then didn’t allow any such registrations. This has caused entrepreneurs planning ICOs to look elsewhere.





As the FSA recalibrates ICO regulations, it finds itself on the frontlines of a central dilemma: how to pull cryptocurrencies into the conventional financial system without killing their unique qualities and utilities. The driving philosophy over the last decade has been that the marketplace will decide how cryptocurrencies are used, traded, settled and ultimately protected. But the spate of heists in recent years hasn’t left investors feeling secure.





“In the long run, my view is that good regulation is healthy,” says Ken Yagami, Japan country head at crypto wealth management firm SwissBorg.





It remains unclear where the FSA will come down. According to Jiji, the FSA will “require business operators issuing their own cryptocurrencies to be registered with the agency.” It also plans to revise exchange, financial instruments, and payment laws, with bills submitted for January’s parliamentary session.





The timing of the FSA’s formal announcement remains unclear. In April, a government-backed study group unveiled general guidelines for ICOs, including measures to identify investors, fight money laundering, protect equity holders and keep track of projects’ progress.





“We can easily imagine that any new ICO regulations would lean towards very stringent ones that create high hurdles for new entrants,” Yagami says.





Looking at how the virtual currency application process has evolved may provide some clues about the future of ICOs in Japan. The country now requires “strict measures,” in Yagami’s words, in areas like know-your-customer, anti-money-laundering, the segregation of different accounts, managing private keys, and ensuring sufficient staff coverage. “I expect new ICO regulation to be similar –- and that the requirements will become extremely challenging.”





That may be just what Japan needs. Kathleen Chu, a Tokyo-based blockchain consultant, says “a surge in capital raised from ICOs in 2017 demonstrated the power of decentralized ledger technology. Even so, it will take some time for lawmakers and the general public in Japan to understand and accept such technology. Regulations on ICOs, when done right, can potentially boost the market and encourage more market participants.”





Some suggest that the FSA alone can not dictate best practices. “The industry itself will build credibility,” argues Nozomu Nakazato, a Tokyo-based ICO consultant at World Peace Coin. In other words, it’s up to the the cryptocurrency community, not the government, to define the future of Japan’s blockchain development.





William Pesek is a former columnist for Barron’s and Bloomberg and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.”







