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When Binance Japan began trading on Aug. 1<\/a>, it immediately offered 34 coins. That\u2019s less than 10% of the total number<\/a> of different cryptocurrencies listed on Binance\u2019s global exchange, the world\u2019s largest. But for Japan, the number is significant. It puts the new Binance Japan platform at the top of the national pile in terms of variety for crypto traders.<\/p>\n While that\u2019s good news for the Japanese consumer and for Binance \u2014 under legal and regulatory fire<\/a> in various locations across the world, including the U.S., the U.K. and Europe \u2014 it\u2019s bad news for the plethora of small cryptocurrency exchanges that make up Japan\u2019s own bloated crypto trading market.<\/p>\n In Japan, \u201cif you want access to the most coins, now you need to go to Binance,\u201d said Norbert Gehrke, a former Wall Street banker and founder of the Japan FinTech Observer newsletter, in an online note. \u201cEveryone else (i.e., the smaller exchanges outside bitFlyer, bitbank, Coincheck, \u2026) are screwed anyway and many should fold.\u201d<\/p>\n As of Aug. 31, when the list<\/a> was last updated, there were 29 cryptocurrency exchanges registered with Japan\u2019s Financial Services Agency (FSA). The number of tokens listed by each exchange varies considerably. But a number of Japan\u2019s smaller exchanges offer as few as one to five tokens, with Bitcoin and Ethereum generally featuring alongside a smattering of other major altcoins such as XRP, Matic and ADA.<\/p>\n The global crypto downturn has been unkind<\/a> to exchanges around the world, particularly since the collapse of U.S.-founded exchange FTX in November of last year. Investor sentiment has soured, with an estimated US$2 trillion wiped off a once US$3 trillion market over the course of the past 18 months.<\/p>\n And while Japan\u2019s bigger crypto exchanges remain globally competitive \u2014 bitFlyer, Coincheck and bitbank often rank inside the world\u2019s top 25 exchanges in terms of trade volume \u2014 smaller exchanges, already struggling over a lack of liquidity and an inability to differentiate themselves from their peers, are faring far worse.\u00a0<\/p>\n See related article:<\/strong> <\/em>Binance: One year on from FTX\u2019s downfall<\/a><\/p>\n Some started life two to three years ago when Japan\u2019s near-zero interest rates and an explosion of venture capital interest in crypto meant funding for projects was cheap and readily available. \u201cThe volumes were high, the prices were high,\u201d said Gehrke. \u201cWhy not give it a shot?\u201d\u00a0<\/p>\n But now, amid a period of extended crypto winter, Binance\u2019s official arrival on Japanese shores \u2014 plus the attendant fanfare that goes with it \u2014 has only accelerated their decline. \u201cNot only are volumes down, but prices are down,\u201d said Gehrke. \u201cCommission rates are also down significantly. I just can\u2019t see them surviving.\u201d<\/p>\n Assuming the strongest and the fittest do make it through the current bear market cull of crypto businesses, how many cryptocurrency exchanges does Japan \u2014 a country with a notoriously low tolerance for high risk investments at the best of times \u2014 actually need?<\/p>\n \u201cI\u2019ll be generous and say Japan could do with three to five,\u201d said Gehrke.<\/p>\n \u201cBuying and selling cryptocurrencies just isn\u2019t profitable anymore,\u201d said the chief executive officer of one small Japanese exchange. \u201cOf course, if there were millions of customers, things might be different.\u201d\u00a0<\/p>\n For now, however, business is so bad that the CEO asked not to include their name or the name of their company in this article for fear of things getting worse. Binance\u2019s re-engagement with Japan, they said, could have a lot of positives for struggling exchanges, if just as a way of \u201cbrightening up\u201d the market and restoring lost interest among investors.\u00a0<\/p>\n On the flip side, they said, Binance is such a big name and arrives in Japan on the back of so much bad press<\/a> that, if something goes wrong, it could be \u201cvery bad\u201d for the industry. \u201cThe situation is pretty high risk,\u201d they said.<\/p>\n Binance Global is registered with a holding company in the Cayman Islands. Officially operating in 45 different countries \u2014 although reportedly available in far more \u2014 the exchange\u2019s website<\/a> claims it has over 150 million users worldwide, enjoying a daily transaction volume of US$65 billion. But its relationship with Japan is complicated. It previously received two separate reprimands from the FSA in 2018 and 2021 for operating as an unregistered online exchange.<\/p>\n In November last year, Binance fast-tracked its official entry into the country. It bought<\/a> the Sakura Exchange BitCoin platform and transferred that exchange\u2019s Osaka-region registration over to the Tokyo capital region, forming Binance Japan KK. The move is part of an industry-wide expansion<\/a> effort toward the Asia Pacific, where recent regulatory action and a favorable political climate in places like Hong Kong, Singapore and Japan have opened the region up as a crypto growth market at a time of increasing U.S. opposition to the industry.\u00a0<\/p>\n Japan\u2019s Prime Minister Fumio Kishida has referred<\/a> to nationwide adoption of Web3 \u2014 a new phase of the internet built on decentralized blockchain technologies, cryptocurrencies and non-fungible tokens (NFTs) \u2014 as a key socioeconomic growth strategy. Pro-crypto government figures and industry advocates routinely point<\/a> to the strength of Japanese regulation as reason for foreign investment by foreign firms, now including Binance, in Japan\u2019s Web3 industry.\u00a0<\/p>\n \u201cIt is likely that Binance attempting to create a new exchange in Japan would have taken years if it ever got somewhere,\u201d said Mark Karpeles, former CEO of the collapsed Tokyo-based crypto exchange Mt. Gox. \u201cTaking over an existing exchange gives them a shortcut into this very closed market.\u201d\u00a0<\/p>\n The ease with which Binance was absolved of past run-ins with the FSA in order to get a license prompted some Japanese exchanges to call out a double standard. There is a feeling, said Tokyo-based fintech lawyer So Sato, that Binance\u2019s fast and loose approach to the rules has allowed it to amass huge sums of money, pushing it to the front of the line as the world\u2019s largest crypto exchange.\u00a0<\/p>\n \u201cSome of their rivals feel that they were able to get a license here using that money,\u201d Sato said.<\/p>\n The FSA, when asked about Binance\u2019s re-entry into Japan, acknowledged that it had warned the company about operating as an unregistered exchange in the past. But a spokesperson for the regulator said that it had no reason or, indeed, authority to prevent the purchase of Sakura Exchange BitCoin as a way for Binance to re-engage with Japan, this time as a registered entity.\u00a0<\/p>\n Full steam ahead then for Binance Japan, as national director Takeshi Chino and his newly assembled team work through the process of transferring Japanese Binance Global customers over from the international platform to its domestic counterpart. Or not quite, given that Binance Global and its leadership structure, including CZ \u2014 whose alleged role in the FTX collapse has seen his actions come under the microscope \u2014 remain under intense regulatory and legal scrutiny<\/a> elsewhere.\u00a0<\/p>\n In the U.S., both the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) have charged Binance with operating as an illegal exchange. The U.S. Department of Justice is also reportedly preparing an investigation into violations of international Russia sanctions.\u00a0<\/p>\n Elsewhere, criminal investigations into Binance\u2019s operations are ongoing in Australia, France and, most recently, Brazil, while regulatory issues in Canada and a host of EU countries have seen the country beat a hasty retreat from those jurisdictions. On Monday, Binance said<\/a> it will stop accepting new U.K.-based customers in compliance with the country\u2019s new rules on overseas crypto promotions.<\/p>\n Asked if Binance Japan users should be worried about Binance Global\u2019s legal trevails overseas, Sato said that existing regulation should protect Japanese investors in the event of an existential risk to operations. \u201cIf we assume that Binance Japan is obeying Japanese regulations by keeping 100% of Japanese customer assets in a cold wallet, the situation would be similar to the FTX collapse,\u201d he said.\u00a0<\/p>\n On that occasion, regulations ringfenced<\/a> Japanese FTX investors from the catastrophic losses incurred by crypto traders in other jurisdictions as the exchange folded<\/a>. \u201cEven if Binance Global went bankrupt, I think Japanese customer assets would be protected. Of course there will be some effect, such as a two or three month delay in withdrawals, as there was in the FTX case. But the assets themselves will be protected,\u201d Sato said.\u00a0<\/p>\n High profile hacks on Mt. Gox<\/a> in 2014 and fellow Japanese exchange Coincheck<\/a> in 2018 led to the cumulative loss of billions of dollars worth of crypto at today\u2019s valuations. In the aftermath, authorities came down hard on the industry, incorporating crypto assets into the regulations<\/a> of its other financial systems from 2020. Those regulations require heavy investment in customer security and compliance.<\/p>\n The rigidity of regulation has led some international exchanges to question Japan\u2019s viability as a profitable cryptocurrency market. U.S.-based exchange Kraken \u2014 where Takeshi Chino worked before joining Binance \u2014 left<\/a> the country in January. Coinbase is also reportedly considering an exit<\/a> due to the high cost of maintaining a licensed exchange amid low demand in the country.<\/p>\n Those requirements exert an outsized strain on Japan\u2019s smaller exchanges, many of which are no longer commercially viable.\u00a0<\/p>\n \u201cDefinitely, there\u2019s an oversaturation in the number of retail crypto exchanges compared to the demand,\u201d said Justin Dhingra, chief strategy officer at Tokyo-based Web3 services platform Crypto Garage. \u201cThe question is: who are the active ones? I would say only around three are really making money. Last year, everyone was losing money. The rest are either for sale or they\u2019re dormant.\u201d\u00a0<\/p>\nWorld\u2019s biggest exchange<\/strong><\/h2>\n
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