“I invest all my savings in bitcoin”: Like Mai Fujimoto, aka “Miss Bitcoin” on social media, many Japanese are infatuated with the most famous cryptocurrency, now recognized as a means of legal payment in the country. In December, over 31% of global bitcoin transactions were denominated in yen, behind the dollar (44%) but far ahead of the South Korean won (18%) and the euro (6%), according to jpbitcoin.com, a Japanese site specializing in compiling industry data. The share of Japanese investors in the market has strengthened considerably since last year’s ban on cryptocurrency trading in China.
Tokyo has taken the opposite path. A law that came into force in spring 2017 has recognized bitcoin and other virtual currencies as legal means of payment, while strengthening the transparency and financial soundness requirements of local market operators. This favorable regulation prompted already established Japanese online service groups to embark on the new niche, as thousands of businesses across the country began accepting bitcoin payments, often to buzz the local media.
“The participation of big companies, the feeling of security coming from the green light of the government and the media exposure really brought completely new groups of people to the bitcoin market in Japan last year,” says 29-year-old Koji Higashi, a specialist in the sector and himself an investor in the virtual currency.
Mai Fujimoto, 32, has been an adept of bitcoin since 2012. “At the time, I was looking to create an online donation platform for the education of children in developing countries (…) and then I realized how expensive it was to send money abroad,” she explains. “When I learned that I no longer had to go through the banks if I was using bitcoin payments, I was really impressed,” says the entrepreneur. “I have been investing all my savings in bitcoin and other cryptocurrencies for almost a year (…) I have no more savings in the bank,” she says with a laugh.
Nothing, however, predicted bitcoin to be so successful with the Japanese, known for their low appetite for risk, their predilection for savings and cash payments. The first momentum of bitcoin in Japan was halted in 2014 by the resounding bankruptcy of the Mtgox Tokyo trading platform. The company’s former CEO, the Frenchman Mark Karpelès, has been on trial in Tokyo for data manipulation and embezzlement since last summer, accusations that he refutes.
“Many Japanese are very conservative in terms of risk, but on the other hand, we have retail trading in the foreign exchange market, and many individuals are trading high amounts in this market,” observes Yuzo Kano, CEO and co-founder of bitFlyer, today the main bitcoin trading platform in Japan.
The many Japanese speculators on the foreign exchange market are also getting more involved with crypto-currencies such as bitcoin, according to analysts from Deutsche Bank. The prolonged low interest rate environment in the country, as a result of the Bank of Japan’s ultra-loose monetary policy, has also spurred more profitable alternative investments, says Kano, a former Goldman Sachs employee. This choice is not rational, but comes rather from a follow-up effect, however, argues Koji Higashi. “Everyone is doing it now and I’ve heard that we make a lot of money with it, so I have to do it too,” he says to summarize the state of mind.
However, while beneficial in some aspects, the official recognition of virtual currencies in Japan could also hinder the currency’s growth: any profit from transactions on these markets will be considered as another source income, subject to a high tax rate, of the order of 55%. “This is a big issue that is shaking the environment right now,” Higashi said. “Many investors are struggling to calculate the amount that will be taxed,” he says, predicting “a lot of tax evasion scandals in the near future”.