How Japan Is Creating a Template for Cryptocurrency Regulation

Some countries in Asia are feeling the pain of inadequate cryptocurrency regulation, while others, like India, China and South Korea, have taken an uncertain or hostile stance to cryptocurrency. In contrast, Japan is building a clear framework for how virtual currency exchanges, and soon initial coin offerings (ICOs), should operate there. In doing so, Japan is becoming a hotspot for virtual currency exchanges that can afford to comply with its strict rules, while also creating a regulatory template for the rest of Asia to follow.  

Japan has always been friendly to cryptocurrency, but it took an early hit in 2014 when Tokyo-based cryptocurrency exchange Mt. Gox became the target of the largest bitcoin hack ever. The exchange was handling 70 percent of all of the bitcoin transactions in the world when, after a series of messy complications, it abruptly stopped trading in February 2017. Following that, 650,000 bitcoin worth $390 million at the time (or $6 billion at today’s value) were reported missing.

In response to the massive virtual currency heist, the Financial Action Task Force (FATF), the Paris-based international body that creates policies to combat money laundering, issued its “Guidance of Risk-Based Approach to Cryptocurrencies” in 2015. The 46-page report recommends that countries license virtual currency exchanges and subject them to the same rules and oversight as any other financial institution or money transmitting business.

New Laws, Big Changes

Prompted by a desire to protect consumers and the FATF’s recommendations, Japan revised its Payment Services Act. The new law, which went into effect in April 2017, does two things. First, it legally defines virtual currency as a form of payment. (Japan still does not define bitcoin as legal tender, but acknowledges that you can use it to purchase things with.) Second, the law requires any virtual currency exchange that wants to do business in Japan or solicit its citizens to register with the country’s Financial Services Agency (FSA).  

Because existing exchanges needed time to bring their operations up to date with the new standards, the FSA gave all exchanges that were in operation before the law went into effect a six-month grace period to apply for a license. Any exchange that applied for a license within that period was allowed to continue operating for an indeterminate period of time while their application was still pending. These exchanges fall under a special category of “quasi-operators,” meaning they are not fully licensed operators, just somewhere in between.

Under the new law, virtual currency exchanges in Japan are now required to be accountable to their customers. They have to keep customer assets separate from the assets of the exchange, maintain proper bookkeeping, undergo annual audits, file business reports and comply with strict know-your-customer and anti-money-laundering rules, and more.

First Licensed Exchanges

Registering as an exchange in Japan is a long, involved process that can take up to six months. The FSA licensed the first 11 exchanges in September 2017. In early December 2017, it licensed another four, and at the end of December 2017, it licensed the 16th exchange. At that time, 16 quasi-operators still had applications pending and were in the process of upgrading their internal operations. Then, in late January 2018, disaster struck. Coincheck, one of the quasi-operators, was hacked, resulting in the loss of $530 million worth of NEM tokens.

The Coincheck theft prompted heavier oversight. The FSA began conducting on-the-spot inspections for all quasi-operators to look for security gaps, and in March 2018, the FSA sent out punishment notices to seven exchanges, even requiring two to halt operations for 30 days.

According to Asia News Network, the FSA is grappling with how to handle its quasi-operators. Shutting unqualified operators down too quickly could cause customer backlash, but, at the same time, the FSA needs to make sure the proper security checks are in place.

Japan’s plan is to pass on part of the work of overseeing virtual currency exchanges to a self-regulating body (SRO) that functions similarly to how the Financial Industry Regulatory Authority (FINRA) works in the U.S.

To that end, in April 2018, the Japan Virtual Currency Exchange Industry Association launched. The new group, comprised of the first 16 licensed Japanese virtual currency exchanges, will have the power to create and enforce rules and set fines, and eventually develop standards for ICOs.

Legalizing ICOs

After tackling virtual currency exchanges, Japan is now moving on to the ICO market. The process began in October 2017 when the FSA issued a statement warning investors about the volatility of ICO tokens and the risk for fraud. In that statement, the FSA also clarified that, depending on how an ICO is structured (and whether its token has the characteristics of virtual currency or an investment), it may fall within the scope of the Payment Services Act or the Financial Instruments and Exchange Act.

In April 2018, the Center for Rule-Making Strategies at Tama University released a list of guidelines for regulating ICOs. The government-backed report states that ICO projects should clearly spell out how they plan to distribute funds. It also outlines rules for tracking the progress of a project, confirming the identity of buyers and restricting insider trading. According to Bloomberg, the proposal will be deliberated by Japan’s FSA and could become law in a few years.

Japan is still fine-tuning oversight of its virtual currency exchanges, and its ICO framework may take a few more years to develop. But, by putting clarity around an industry that has long operated with little or no oversight, Japan is setting the stage for a future when cryptocurrencies will play a larger role in society.

Augur Price Rallies 10%, Defies Market Downturn After Binance Listing

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The Augur price (REP) saw huge gains Friday after Binance listed the token for trading. In wake of the down market for cryptocurrency, Augur is the only top-100 coin or token to post a 10% gain over USD for the day.

Augur’s trade volume has ballooned roughly 1900% since May 10 (in USD). The price has also increased about 26% since the close of day May 10, from $44.28 to $55.93 as of this writing. The marketcap has increased roughly 11% to $615,232,200.

Augur Price Chart | Soure: WorldCoinIndex

Binance announced the new listing overnight Thursday. Augur’s trading volume and price immediately ratcheted up. Binance is the world’s largest cryptocurrency exchange, with the firm reporting 7.9 million total users on March 15.

Binance is moving full steam ahead with listing ERC20 tokens like Augur. This comes at a time when its competitor Coinbase is slow to list them, despite a recent announcement to support them. The exchange offers trading for 312 cryptocurrencies, according to CoinMarketCap, but has come under more regulatory pressure recently. The exchange still enjoys a large influx of new user registrations.

Still in beta phase, Augur is a “a decentralized oracle and prediction market platform.” The token is one of the first in the field of prediction markets and influenced other projects that followed.

While Augur has received criticism in the past for security concerns and delays, the project is gaining traction with new development.  A weekly development update on May 9th touts new completed development features and clearer road map.

“The team has been working on Augur App this past week, a small electron application that packages Augur Node and the Augur UI so you can use Augur locally with an Ethereum node of your choosing. It will take care of running Augur Node in the background and auto-deploy the Augur UI locally in your browser. This will allow for users to have a single-click solution for using Augur locally,” the update said.

The update goes on to highlight a tentative road map for new development.

“We have our deployment timeline (tentatively) set internally. We’re working out final tasks regarding the deployment process, REP migration, and some code complete features this week,” the update said.

This solid development progress comes on the heels of continued good news for the project, such as a grant for the bounty program.

Time will tell when the project will exit the beta phase, which it has stayed in for quite some time. However, with development efforts solidifying and new exchange listings, the outlook could be improving.

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China Gov’t Will Publish Cryptocurrency Analysis Amid ‘Lack Of Independent Ratings’

The Chinese government announced it will publish a monthly “independent analysis” of cryptocurrencies and blockchain projects at a Beijing conference May 11.

According to two press releases accompanying the announcement, the Chinese Ministry of Industry and Information Technology’s department China Electronic Information Industry Development (CCID) will analyze 28 cryptocurrencies, including Bitcoin, Ethereum, Litecoin, Monero, NEO, QTUM, Ripple, and Zcash, to name a few. The press release states that ranking information for all 28 projects will be published “in the next few days.”

“First-rate domestic experts and scholars” will contribute to the project, which creators have dubbed the ‘Global Public Chain Assessment Index.’ According to the CCID release, the goal of the Index is to “evaluate the technological capability, the usefulness of the application and the innovativeness of the project, [as well as the] development level of the projects to profoundly understand the trend of blockchain technology innovation.

The impetus for the Index’s creation, they say, is a “lack of completely independent assessment/rating” for crypto assets and blockchain projects.

The assessment appears to overlook efforts by international ratings agency Weiss, which this year issued somewhat controversial verdicts on major cryptocurrencies including Bitcoin, Ethereum and Ripple.

As cryptocurrency trading remains banned in China, the initiative also represents an arguably surprising move to generate publicity for crypto assets. Regarding the government’s position, the CCID press release focuses on the technology underlying cryptocurrency:

“This independent analysis of cryptocurrencies and global public blockchain technology demonstrates the confidence of the Chinese Government in the technology, and will act as a guide for government, enterprise and research institute.”

Earlier this week, Beijing also stated it would cement nationwide blockchain standards using a dedicated committee by the end of 2019.

In the private sector, Chinese multinational communications giant Huawei Technologies Co. has announced that mobile phone users will be able to download Bitcoin (BTC) wallets on Huawei device starting today. Holding crypto and using it as a form of payment is still reportedly legal in the country.

Facebook May Issue Its Own Cryptocurrency: Report

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Social media giant Facebook is exploring the benefits of releasing its own cryptocurrency, financial news outlet Cheddar reported on Friday.

Citing anonymous sources familiar with the matter, senior reporter Alex Heath said that the company — whose $533 billion market cap is a $140 billion larger than the current cryptocurrency market cap — is holding serious, high-level discussions about directing the focus of its blockchain research team toward releasing its own cryptocurrency.

Heath said:

“Sources say that Facebook is specifically interested in creating its own digital token, which would allow its more than two billion users to facilitate transactions without government-backed currency. Facebook is also looking at other ways that it could use this core blockchain technology that underpins these popular cryptocurrencies like bitcoin and ethereum.”

He added that the company is also evaluating how it can use blockchain technology to improve identity verification and secure its backend infrastructure — perhaps even including how it manages customer data.

As CCN reported, Facebook announced last week that it had created a new team dedicated to researching blockchain technology. That team is led by Facebook executive David Marcus, who is also a sitting member of the Coinbase board of directors.

Marcus, who formerly served as president of PayPal, is an outspoken advocate for cryptocurrencies, and his experience at the digital payments firm makes him an ideal choice to oversee Facebook’s potential foray into this space.

The venture would likely see Facebook make “strategic acquisitions” in the cryptocurrency industry as it seeks to build out its blockchain infrastructure.

Discussions are still preliminary, and if Facebook does decide to issue its own cryptocurrency it will likely be “years away.”

Facebook would not be the only social media platform to launch its own cryptocurrency. Telegram says that it has raised $1.7 billion through an initial coin offering (ICO) to launch a “third-generation blockchain” called the Telegram Open Network, while chat app Kik is creating a blockchain token called Kin.

Facebook, Heath said, does not currently plan to hold an ICO, both because the company has billions of dollars on its balance sheet and because selling the token could have negative repercussions on the firm’s already-battered reputation. Instead, the firm may airdrop the coins to its users or reward it to them in some other manner.

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Bitcoin Loses $9K Support As Markets React To S. Korea Investigation, Mt.Gox Sell-Off

Bitcoin prices fell to three-week lows of around $8,540 on May 11, as markets reacted to a flash investigation of South Korean exchange Upbit and a fresh Mt.Gox funds liquidation.

Data from Cointelegraph’s price tracker and Coin360 shows BTC/USD dipping sharply over the past 24 hours, with major altcoin assets posting considerably higher losses of up to 18 percent.

Traders appeared to deliver a knee-jerk reaction to news that Upbit, Korea’s largest cryptocurrency exchange and a subsidiary of communications giant Kakao, had received a visit from the country’s Financial Supervisory Commission (FSC).

According to local media, authorities suspect Upbit had “deceived customers” by providing false information about its balance sheets.

At the same time, executives in charge of refunding users of former Japanese exchange Mt.Gox have evidently sold a new chunk of about 8,000 BTC (about $70 mln at press time) in four batches of 2,000 BTC. Such actions in the past had reportedly affected global prices several times since November.

As of press time Friday, Bitcoin had lost around $800, or 8.5 percent, in the past 24 hours, hitting the lowest price the coin has seen since April 20.

Across altcoin markets, Ethereum (ETH) posted near 12 percent losses, while Ripple (XRP) and Bitcoin Cash (BCH) fared worse, both losing about 17 percent over the same period.

COIN360

Market visualization from Coin360

While some local sources took to social media to suggest the price dip was an “overreaction” on the part of cryptocurrency holders, the episode is a test for Korean exchanges, which only recently returned to the listings of popular price tracker resource CoinMarketCap.

Previously, the major crypto price tracker had removed key South Korean exchanges from its price average computations over what it described as an “extreme divergence” between prices listed there and on exchanges in other countries.

Cryptocurrency Market Sees $50 Billion Loss, Bitcoin Price and Tokens Down Significantly

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The cryptocurrency market has declined by more than $50 billion over the past 24 hours, as the bitcoin price declined by more than 8 percent and other major cryptocurrencies along with tokens experienced an intensified movement on the downside.

Bitcoin Price at $8,500

Over the past 24 hours, the bitcoin price has dropped by more than 8 percent mainly due to two major factors: police raid into the headquarters of major South Korean exchange UPbit and the selloff of 8,000 bitcoin by the Mt. Gox trustee.

As CCN reported, the Seoul police along with the Korean Financial Intelligence Unit (KIU) and Financial Services Commission (FSC) have initiated an investigation into South Korea’s biggest cryptocurrency exchange UPbit with allegations of fraud and illicit movement of client funds to the accounts of the exchange’s executives.

The local police has yet to release its final report on the case and is expected to confirm its findings on Monday next week.

“We have secured hard disks and accounting books through confiscation. Analysis is expected to take days,” the authorities said, adding that the final report on the UPbit case will be released next week,” said local financial authorities.

The sell off of cryptocurrencies by South Korean traders on UPbit along with the possible sale of 8,000 bitcoins by the Mt. Gox trustee led bitcoin and the rest of the cryptocurrency market to fall.

The Mt. Gox trustee previously stated that it is not in its plans to sell off parts of its 200,000 bitcoin holdings until late September. But, it moved more than 8,000 bitcoins to external wallets, triggering a domino effect across major cryptocurrency exchanges.

Market Turns Red

The entire market has fallen on May 11, without any exception. Even tokens such as ICON (ICX), Ontology (ONT), EOS, OmiseGo (OMG), and Ziliqa (ZIL), which have recorded massive gains against both bitcoin and the US dollar over the past two weeks, have recorded large losses in the range of 5 percent to 20 percent.

Gifto (GTO), STORM, Dent, Status (SNT), and other tokens which recorded 30 to 50 percent gains over the past month fell by more than 20 percent.

As shown in the graphic provided by Coin360, the entire market has demonstrated significant losses over the past 24 hours.

Ran Neuner, the producer of CNBC’s CryptoTrader, who has offered extensive coverage of the South Korean cryptocurrency market this week, stated that local investors believe traders on UPbit sold their cryptocurrencies on the platform with the intention of moving them to other platforms or cryptocurrency exchange. As such, investors expect the market to rebound soon.

“Korea: This selling is coming from people taking their funds out of Upbit as they are concerned. These people are crypto investors and won’t leave crypto — they will go to other exchanges and buy there. expect a huge bounce,” said Ran.

As the market did in previous Mt. Gox sell offs, the cryptocurrency market is expected to rebound swiftly especially if police reports that are expected to be released next week show that UPbit did not engage in any suspicious or criminal activity.

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Mining Will Propel Bitcoin Price To $36k In 2019, Says Latest Fundstrat Research

New research from Fundstrat Global Advisors places Bitcoin prices at $36,000 by the end of 2019, co-founder Tom Lee revealed Thursday, May 10.

Analysis of the relationship between Bitcoin mining costs and price by Fundstrat’s Quantamental Strategist Sam Doctor has led the market research firm to predict the cryptocurrency’s range will fall between $20,000 and $64,000 by 2019 year end.

The calculations focused on Bitcoin Price to Mining Breakeven Cost Metric, known as P/BE, which Doctor says has “proven a reliable long-term support level.”

“We expect the mining economy to grow over the next several years, and project a BTC price of ~$36,000 by year end 2019 based on the historical average 1.8x P/BE multiple,” an executive summary of the findings uploaded to Twitter by cofounder Tom Lee reads.

The price target is broadly in line with Lee’s own recent prediction of $25,000 by the end of 2018.

Remaining bullish on Bitcoin has characterized both Lee and Fundstrat in recent months, a previous survey in April revealing that 82% of institutional investors believed prices had already “bottomed out.”

The survey also contained a prediction question, with the highest number of respondents opting for a range of between $10,000 and $20,000 by the end of this year.

South Korea’s Biggest Cryptocurrency Exchange Investigated by Local Police, Market Drops

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UPbit, South Korea’s biggest cryptocurrency exchange, was investigated by local police and 10 investigators after its headquarters in Seoul were raided. Chosun, the country’s biggest mainstream media outlet, reported that the South Korean authorities are suspecting UPbit of illicitly moving customer funds to the account of its executives.

Investigation Ongoing

On May 10, the Seoul local police and 10 investigators from the Korean Financial Intelligence Unit (KIU) and Korean Financial Services Commission (FSC) raided the headquarters of UPbit and seized their offices to conduct an official investigation into the suspicious movement of funds from the UPbit cryptocurrency exchange to the personal accounts of UPbit executives.

Chosun along with other mainstream news networks including Hani reported that the South Korean police is extensively investigating allegations of fraud and the illicit movement of funds from client wallets.

The general reaction from the cryptocurrency community in South Korea and the global cryptocurrency space has been that UPBit executives should not have had the motivation to commit such crimes given that cryptocurrency exchanges have generated hundreds of millions of dollars in profits on a quarterly basis since early 2017.

upbitUPbit, South Korea’s largest cryptocurrency exchange, has been raided by local police.

The investigation into UPbit is still ongoing and the local police is yet to release its finalized report on the situation. But, as it did with Coinnest, if the South Korean authorities discover clear evidence in the movement of client funds to external accounts, it could result in the exchange either permanently or temporarily shutting down.

“We have secured hard disks and accounting books through confiscation. Analysis is expected to take days,” the authorities said, adding that the final report on the UPbit case will be released next week.

Meanwhile, the exchange operator’s development team stated that the platform is still operational and will continue to service users until further notice is sent by the local police.

“UPbit is currently under investigation by the prosecution, and we are working diligently. UPbit services such as all transactions and withdrawals are operating normally. Your assets are kept securely in your account, so you can rest assured that you can use UPbit services.”

Coinnest Situation

Last month, the president of Coinnest, formerly a major cryptocurrency exchange in South Korea, was arrested for allegedly stealing user funds and allocating them to his own personal cryptocurrency accounts. According to Hani, Coinnest was once the third biggest cryptocurrency exchange in South Korea, which also operated a major cryptocurrency mining operation.

Local police and investigators discovered that the funds of clients were sent to the personal accounts of executives at Coinnest and immediately arrested its president.

Coinnest is still functioning, after its board announced that it has replaced the executive team of the company and will continue to operate as a local cryptocurrency trading platform.

Overall, the cryptocurrency market’s reaction to the investigation into UPbit could be considered as an exaggeration to an ongoing investigation and investors on the trading platform are still able to trade and withdraw their funds. But, analysts have stated that the case has led the cryptocurrency market to decline by large margins over the past 12 hours.

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S. Korea’s Largest Crypto Exchange Upbit Investigated By Police, Markets React

Upbit, South Korea’s largest cryptocurrency exchange, is being investigated by local police and ten investigators for alleged fraud, local news outlet Chosun reports today, May 11. Upbit is a crypto-only exchange run by a subsidiary of Korean tech giant Kakao, and currently the fourth largest crypto exchange globally by 24-hour trade volume.

Chosun reports that police believe the exchange has faked its balance sheets and deceived investors. South Korea’s Financial Supervisory Commission (FSC) reportedly sent ten investigators to the exchange’s head offices in Seoul at 10 am this morning, and will access the company’s computer system to audit the exchange’s virtual currency holdings.

Multiple crypto commentators on social media have suggested that the news is already impacting crypto markets, with many of the top 100 coins down today by over 15 percent.

Upbit is not the first crypto exchange to attract the Korean authorities’ attention this spring. As Cointelegraph reported in March, the Korean Financial Intelligence Unit (KoFIU) and the FSC announced a joint investigation into crypto exchanges’ corporate accounts in Korean banks, citing anti-money laundering (AML) compliance concerns.

In April, major Korean crypto exchange CoinNest’s co-founder and chief executive were detained on charges of embezzlement and fraud, for allegedly moving “billions of won” in customers’ digital assets into their personal accounts. That same month, 12 crypto exchanges were ordered to improve customer protection in their contracts.

At press time, Bitcoin is trading at an average of $8,750, down about 7 percent on the day.  Ethereum is down almost 10 percent on the day, trading at an average of $690.

Chinese Messaging Giant WeChat Shuts Down 3rd Party Blockchain App

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WeChat, a popular Chinese Super App developed by Tencent which offers multiple products like messaging, social networking and payments within the same app has blocked a third party Blockchain app.

WeChat is one of the world’s largest platform with more than 1 Billion active users worldwide. WeChat has support for ‘Mini-Programs’ where developers can create applications to run within the messaging platform. The company just suspended Xiao Xieyi, the first blockchain mini-program on the platform.

Xiao Xieyi, which was launched on Wednesday allowed users to create encrypt and create contracts on the Ethereum Blockchain without having to leave WeChat. Tencent blocked the mini-program in just one day after it was launched.

Xiao Xieyi was developed by Beijing based blockchain company called Niuco Box. Users would be able to create contracts on the blockchain for a flat fee of 3 RMB ($0.50)which would be used to pay the miners who write the contract on the blockchain.

WeChat gave the following statement on Xiao Xieyi’s suspension:

“Xiao Xieyi has been suspended due to violation of the service. We apologize, the content of the program has been suspended due to the fact that the content is not authorized on the platform.”

China took a hard stance against Cryptocurrencies this year, entirely banning their trade and ICOs. However, they are extremely optimistic about Blockchain. The government is hoping to have Blockchain standards in place by 2019 for products and services to make use of. Just last month, a $1.6 Billion fund was created to support local Blockchain startups with the help of the Government.

However, the developer claims the App was not suspended because they use Blockchain, but because they encrypt the data. Wang Dengke, the founder of Niuco Box told Securities Daily, “Mini-Programs are not allowed to have encryption features. We need to tweak the code to remove encryption, and if everything goes according to our plans, we should be back on WeChat within two days.”

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