Japan continues to embrace bitcoin as a digital currency

Japan has long been renowned for its openness to new technologies and its position at the cutting edge of innovation, with Japanese creatives driving developments in industries ranging from transport to robotics. It is therefore little surprise that Japan has also displayed a strong receptiveness to the potential of cryptocurrencies, with digital currencies poised to cause the biggest evolution in the global financial system in decades. In particular, Japan has shown a willingness to embrace bitcoin as an asset, a willingness that isn't matched in many other leading economies.

New regulations

While many people flocked to bitcoin early last decade because its decentralised nature made it an appealing alternative to more traditional assets, it was inevitable that tighter regulation would be needed to achieve mass adoption of the digital currency. New cryptocurrency legislation kicked in on May 1, with Japan amending its Payment Services Act (PSA) and Financial Instruments and Exchange Act (FIEA) to strengthen authorities' power to regulate digital assets.

Cryptocurrency exchanges in Japan have suffered through a succession of scandals in recent years, but the FIEA amendment gives authorities a semblance of control over the digital asset derivatives market where regulation was previously sparse. Bitcoin remains the most widely traded of those digital currencies, with its high market capitalization and high liquidity attractive to investors.

With 23 cryptocurrency exchanges allowed to operate in Japan, a growing number of investors are likely to be wondering what is bitcoin trading and how it differs from trading on mainstream markets. Bitcoin exchanges largely operate in the same manner as their traditional counterparts; traders can buy or sell depending on whether they expect an asset to rise or fall in value, while trading CFDs presents the chance to speculate on price shifts without ever owning the asset.

The key distinction between bitcoin and other assets is what drives fluctuations. Bitcoin's invulnerability to many geopolitical developments and its comparative lack of historical data keeps the asset's volatility high, as there is still a lot of uncertainty about bitcoin's behaviour. Two factors that do influence bitcoin's fluctuations are industry adoption and public sentiment, which could both be positively affected by Japan embracing the currency.

Bitcoin's saviour?

It seems like bitcoin is waiting for one major economy to throw its weight behind the asset and embrace it as a digital currency, thereby improving public sentiment towards the crypto. It could well be Japan that proves the short-term convenience and long-term viability of bitcoin. It certainly won't be the United States under the current government, as President Trump has spoken and tweeted about his disdain for cryptocurrencies in the past.

I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity....

— Donald J. Trump (@realDonaldTrump) July 12, 2019

Trump namechecked bitcoin in a dismissive tweet in July 2019, a back-handed compliment proving bitcoin's position as the dominant cryptocurrency. Asian economics expert William Pesek suggested in the same month that Japan is integral to the survival of bitcoin, not the United States. The recent amendments to the PSA and FIEA are indicative of a government that accepts that bitcoin is here to stay.

The coronavirus pandemic may well have hastened the arrival of mass adoption, with many traders turning to bitcoin at a time when traditional assets have failed. With these new regulations emerging during the pandemic, Japan is well-positioned to handle any surge in the popularity of bitcoin.