Japan’s top financial regulator is showing hesitancy in approving crypto-based exchange-traded funds (ETFs), diverging from the more lenient approach taken by regulators in other countries.

Challenges for Crypto ETF Expansion in Japan

The commissioner of Japan’s Financial Services Agency (FSA), Hideki Ito, stressed the importance of careful deliberation before allowing crypto-related ETFs in the country. Ito expressed concerns that crypto assets might not contribute to the stable and long-term wealth creation for the Japanese people.

While global regulators have softened their stance on ETFs investing in cryptocurrencies like Bitcoin and Ethereum, Japan seems to be adopting a cautious stance. The FSA wants to remain pro-technology but is wary of promoting widespread retail investment in crypto assets.

Past Exchange Failures Leave a Mark

The FSA’s cautious approach stems from Japan’s troubled history with cryptocurrency exchanges and security breaches. Incidents like the Mt. Gox exchange collapse and the recent $305 million heist at the DMM Bitcoin exchange have left scars on the industry.

Given these challenges, the FSA is proceeding slowly in approving crypto-linked ETFs, prioritizing careful evaluation over swift actions. While not ruling out the possibility entirely, Ito emphasized the need for more thorough discussions.

Bitcoin, the largest cryptocurrency by market value, has shown resilience by climbing back to $58,330 after a recent dip amidst global economic uncertainties. US-based ETFs linked to Bitcoin have played a role in supporting the price, with fresh inflows recorded in recent trading sessions.

Notably, these inflows indicate institutional confidence in the long-term potential of cryptocurrency, especially evidenced by the absence of outflows from index funds other than Grayscale’s Bitcoin Trust (GBTC).

Image source: DALL-E, chart from TradingView.com