Various reports suggest that Japan’s financial regulator has deserted plans to permit listed derivatives based primarily on cryptocurrencies. However, the watchdog may yet support and approve exchange-traded funds that track the digital asset class. The decision to block Bitcoin futures and Ethereum options in Japan marks a major setback for investors betting on institutional demand to end a severe year-long selloff.
FSA is Reviewing Industry Interest in ETFs
Nonetheless, the possibility of ETFs tracking digital assets in Japan could revitalize extensive appetite from retail investors after at least $500 million was stolen from the Tokyo-based Coincheck Inc. a year ago. The FSA (Financial Services Agency) is at the moment reviewing industry interest in ETFs tracking cryptos and digital assets according to a knowledgeable but anonymous source.
In December 2018, the watchdog decided to abandon any plans to revise the nation’s securities law that would have authorized crypto options and futures to get listed on major financial exchanges. The listing would be done after concluding that these digital products can achieve results besides stoke speculations. The decision came after a month-long internal investigation of why the watchdog could not prevent the Coincheck heist.
The FSA decided to give oversight power to self-regulatory bodies after it dropped support for crypto derivatives. Most ICOs will be put under the scope of its securities law and cap leverage offered by crypto brokers. The conclusions will serve as a foundation for a bill the Liberal Democratic Party will submit in the current Diet session that ends in March.
The eventual goal of this bill is to become a law as early as 2020. Apart from amending securities legislation through the Financial Instruments & Exchange Act, some of the recommendations will likely cause alterations to the Payment Services Act. Japan’s decision to hold plans for crypto derivatives comes a year after CME Group Inc. and Cboe Global Markets Inc. listed futures tracking BTC.
These instruments have attracted some institutional investors with a cumulative open interest across both platforms currently at almost $81 million, according to exchange data.
Is ETFs a Holy Grail?
ETFs are Holy Grail in the crypto industry since many people hope that they could legitimize crypto products in the eyes of some investors simultaneously making them more accessible to brokerage account holders. On the other hand, European and US regulators have shot down many such proposals worrying about price manipulation and the unknown security of the underlying crypto assets.
SEC Chairman Jay Clayton said that investors expect trading in various commodities underpinning ETFs will become legitimate and free from any price manipulation risks. Switzerland was a pioneer of the ETF products when it listed the Amun Crypto Basket Index ETP in November. Up to today, the exchange-traded product averages less than $1 million in daily turnover with around $6 million worth of trade executions made so far.
An ETF listed in the significantly large and more-liquid Japanese stock market has the potential to attract more interest. These developments show that Japan is en route to legalize ETFs before the US that is still cautious in indulging in the digital assets markets.