Binance, the world’s biggest cryptocurrency exchange, and Kraken, a major US and Europe-based cryptocurrency trading platform, have officially announced that they are pulling out from the Japanese cryptocurrency exchange market in April.

Overly Strict Regulations

For many years, the Japanese government has been one of the few authorities to express enthusiasm towards the cryptocurrency sector and blockchain technology. Japan was the first country in 2017 to impose a national licensing program designed specifically for cryptocurrency exchanges, acknowledging trading platforms as regulated financial service providers to ensure they receive sufficient service from banks and financial institutions.

Due to the government’s efforts to improve the local cryptocurrency market, exchanges within Japan began to prosper, recording hundreds of millions of dollars in quarterly profit and expanding to other regions such as the US.

According to cryptocurrency market data provider CryptoCompare, Japan still remains as the largest bitcoin exchange market with more than 36 percent of the market share. With adoption of cryptocurrencies by some of the most influential local conglomerates such as electronics retailer Bic Camera, airline Peach, and hotel chain Capsule, the cryptocurrency market of Japan is rapidly growing.

As Tokyo-based technology journalist Yuji Nakamura reported, Coincheck, formerly Japan’s largest cryptocurrency exchange, recorded a staggering $150 million quarterly profit in late 2017, prior to its $500 million hacking attack.

“Before it was hacked, Coincheck made almost as much money as TSE, which operates Japan’s stock and futures markets. My guess is Coincheck could have fetched $6 – 8 billion valuation,” said Nakamura.

But, it is important to acknowledge that the Japanese cryptocurrency exchange market has been able to demonstrate significant success due to the government’s imposition of practical policies and regulations. While protecting investors, the Financial Services Agency (FSA) of Japan focused on facilitating the growth of businesses by providing them with licenses to operate as financial institutions.

As of recent, the Japanese government and its financial authorities have started to become more strict with exchanges and cryptocurrency businesses. In March, Binance formally announced that it is relocating to Malta after the company received a letter from the FSA of Japan.

“We received a simple letter from JFSA about an hour ago. Our lawyers called JFSA immediately, and will find a solution. Protecting user interests is our top priority,” said Binance CEO Changpeng Zhao at the time.

Less than a week after the incident, Binance permanently relocated to Malta, with a personal welcome from its prime minister Joseph Muscat. “Welcome to Malta, Binance. We aim to be the global trailblazers in the regulation of blockchain-based businesses and the jurisdiction of quality and choice for world class fintech companies,” said Muscat.

In late April, major cryptocurrency exchange Kraken also announced that it is officially ceasing operations in Japan due to excessive regulatory pressure from local authorities and the FSA.

Yo Sub-kwon, the founder of CoinSetter, a cryptocurrency trading platform based in Canada acquired by Kraken, said, “they are going to pull out temporarily and go back to the FSA when they are ready to register with them.”

Although the efforts of the Japanese government to ramp up its efforts to better regulate the market are understandable given that more than $500 million were stolen from the country’s biggest exchange, the pressure from the FSA is forcing major cryptocurrency exchanges to move out of Japan, which could ultimately lead to large losses for the cryptocurrency sector of the country.