Japanese Regulator Exploring Crypto ETFs – Drops Plans for Futures

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Japanese Regulator Exploring Crypto ETFs - Drops Plans for Futures

Japan’s financial watchdog may approve crypto exchange-traded funds (ETFs) while it has abandoned plans to allow crypto futures.


The Financial Services Agency (FSA), Japan’s financial regulator, has dropped plans to permit listed derivatives based on cryptocurrencies. However, the FSA may give the go-ahead for exchange-traded funds (ETFs) that track digital assets.

The development which is based on information available from a person familiar with the matter was reported earlier on Monday by Bloomberg.

Shelving Plans for Futures and Options

Shelving Plans for Futures and Options

The decision by FSA to abandon derivative instruments like Bitcoin futures or Ethereum options comes as a setback for the cryptocurrency investors who have been praying for growth in demand from institutions and a price reversal.

Japan happens to be one of the early adopters of digital assets and has also put in place laws that provide legal recognition of payments made using cryptocurrencies like Bitcoin.

According to the article, the FSA has decided against pursuing changes to Japan’s securities law which would have allowed products like crypto futures and options to be listed on leading financial exchanges. The FSA believes that such products would only encourage speculation.

Japan’s decision to drop plans for crypto derivate products comes roughly a year after Bitcoin-based futures made their debut on US-Based exchanges Cboe Global Markets Inc. and CME Group Inc.

The derivative instruments have had limited demand from institutional investors. According to data available from both exchanges, combined open interest currently stands at about $81 million.

Japan's Interest in ETFs

Japan’s Interest in ETFs

According to Bloomberg, the FSA is gauging the industry’s interest in a product like ETF tracking cryptocurrencies. The approval of ETFs that track digital assets is likely to revive the appetites of retail investors.

Despite the massive decline in the crypto market in 2018, Japan remains among the top few countries by trade volumes. However, Japan has also been the victim of multiple cryptocurrency hacking incidents over the last couple of years.

Many in the crypto industry believe that digital asset-based ETFs would provide legitimacy to cryptocurrencies and make them accessible to investors with existing brokerage accounts.

The US Securities and Exchange Commission (SEC) has so far shot down multiple proposals citing concerns over the security of digital assets and market manipulation.

Switzerland became the first country in the world to approve such a product when it listed the Amun Crypto Basket Index ETP earlier in November 2018. The product, however, reportedly averages less than $1 Million in daily turnover.

Whether an ETF in the larger Japanese financial markets will evoke interest from investors will remain to be seen. In Japan, 75% of ETFs for traditional asset classes such as stocks and bonds are owned by the Central bank whereas the retail investors prefer mutual funds.

If Japan were to approve a crypto-based ETF, how would it affect the global crypto market? Sound off in the comments below.


Images courtesy of Shutterstock

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