Japan’s Financial Regulator Exploring Crypto ETFs After Abandoning Futures

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Japan’s regulator, the Financial Services Agency (FSA), has reportedly abandoned its plans that would have seen crypto-based derivatives listed for trading in the country.

Sources close to the agency have however intimated that the watchdog is considering the approval of exchange-traded funds (ETFs) – products that track the crypto asset class.

Most will view the decision to prohibit instruments such as Bitcoin futures in the country as a big blow to the crypto ecosystem, given that Japan offers one of the largest markets for the crypto industry.

However, as sources say, an impending approval for ETFs in Japan may well restore investor confidence and increase appetite for digital assets after the $500-million hack that rocked Japan’s Coincheck in January last year.

Japanese regulators ‘gauging ETF market’

According to a source quoted by Bloomberg, the FSA is considering ETFs by first gauging investor interest in crypto funds.

In December, the country’s financial regulator dropped its earlier decision that sought to have the securities law revised to allow for the launching of crypto futures and options on the country’s top financial exchanges.

The decision to abandon these plans are said to have been informed by the fact the regulator felt futures and options would achieve very little except to help fuel speculation within the industry.

Regulators in Japan have adopted this stance against crypto derivatives at the end of a lengthy internal investigation into the Coincheck attack and how the agency failed to thwart the heist.

The regulator’s decision to abandon plans for crypto derivatives also comes a little over a year after Bitcoin futures were listed on both Cboe Global and CME Group.

Interest in the instruments has continued to grow, with open interest recorded at $81 million. However, institutional demand is still limited.

More powers to self-regulatory bodies

As well as deciding against crypto derivatives, the FSA has vowed to increase supervision over initial coin offerings by placing most ICOs under its securities laws. The watchdog will also give attention to self-regulatory bodies, according to them more oversight powers.

Additionally, the FSA announced that it would cap the leverage that crypto brokers can offer to reduce effects of too much speculation in the crypto industry.

According to the Bloomberg source, the regulator’s conclusions are likely to be the basis for a bill that the country’s Liberal Democratic Party will submit before March. As noted by the source, the bill could become law by 2020.

Other than the amendments to the securities law via the Financial Instruments and Exchange Act, FSA’s recommendations are also likely to lead to a few changes to the Payment Services Act.

ETFs are crypto’s “holy grail”

The approval of an exchange-traded fund has long been seen as the holy grail of crypto, capable of giving the asset class increased legitimacy for the institutional investor.

While the crypto community feels that the time is ripe for an ETF, regulators in the U.S. and Europe have rejected several bitcoin ETF proposals.

Among several reasons, regulators have cited price manipulation and security for the underlying assets as grounds for shooting down these proposals.

In November, the U.S. Securities and Exchange Commission (SEC) Chairman Jay Clayton acknowledged that these roadblocks stopped the agency from approving an exchange-traded fund.

 “Those kinds of safeguards don’t exist in many of the markets where digital currencies trade.”

Notably, however, Switzerland saw the launch of the first such crypto product after the launch of the Amun Crypto Basket Index ETP.

Unveiled in November, the ETP trades under ‘HODL’ ticker and has attracted nearly $6 million, with an average daily turnover of just under $1 million.


Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.

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