Crypto-ETFs In Japan Require ‘Cautious Consideration,’ Warns Regulator

According to a recent Bloomberg report, Japan’s top financial regulator is pumping the brakes on approving crypto-based exchange-traded funds (ETFs), taking a more conservative stance than regulators in some other countries.

Crypto ETF Expansion Faces Headwinds In Japan

Hideki Ito, commissioner of Japan’s Financial Services Agency (FSA), emphasized the need for “cautious consideration” when greenlighting crypto-linked ETFs in the country. Ito expressed concerns that crypto assets “do not necessarily contribute to the wealth creation of the Japanese people in a stable and long-term manner.”

Hideki Ito’s comments come from global regulators who have softened their stance on ETFs that invest directly in cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH). 

For instance, the US Securities and Exchange Commission approved the first spot-Bitcoin ETFs earlier this year after a long-running legal battle with asset manager Grayscale. 

Similar crypto ETFs have recently been launched in markets such as Hong Kong, Australia, and the UK following the successful trading of these products in the US. These exchange-traded funds have attracted substantial net inflows amounting to $19.2 billion. 

However, Japan appears intent on taking a more measured approach. Ito, a career bureaucrat who assumed the FSA commissioner role in July, said the agency wants to maintain a “pro-technology stance” but has reservations about encouraging broad retail investment in crypto assets.

Scars Of Past Exchanges Failures 

Bloomberg notes that the FSA’s caution is rooted in Japan’s checkered history with cryptocurrency exchanges and hacks. Customers of the now-defunct Mt. Gox exchange are still working to recoup tokens lost in a major breach over a decade ago. 

In addition, in June this year, the DMM Bitcoin exchange, one of the largest in the Asian country, lost $305 million in what security firm Chainalysis said was the seventh-largest digital asset heist on record.

Against that backdrop, the FSA appears intent on proceeding slowly and cautiously when it comes to approving crypto-linked ETFs that would open the door to broader mainstream investment. Ito acknowledged the regulator won’t rule out the possibility entirely but insisted more deliberation is needed.

At the time of writing, the largest cryptocurrency on the market, Bitcoin, has managed to regain the $58,330 level after hitting a 7-month low on Monday amid global economic uncertainties. 

This comes as US-based ETFs linked to BTC have significantly supported the price, with fresh inflows recorded on Wednesday’s trading session. According to Bloomberg ETF expert Eric Balchunas, after a few days of “mild outflows,” these ETFs saw net inflows of $45 million on August 7.

However, the most important aspect related to the recorded inflows is that these index funds, except Grayscale’s Bitcoin Trust (GBTC), did not record any outflows, which shows the confidence of institutions in the long-term prospects of cryptocurrency. 

Featured image from DALL-E, chart from TradingView.com