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Asia & Australia,  Bitcoin,  Cryptocurrencies

Bitcoin and other cryptos are down heavily because of Japan

FSA cites 6 exchanges while MtGox’s legal proceedings take new turn

Japan delivered a one-two punch to HODLers of bitcoin on Friday, knocking BTC prices down 8 percent and similarly pummeling most of the cryptocurrency complex.

First came news that regulators served six of Japan’s largest crypto exchanges with “business improvement orders”. Financial Services Agency (FSA) has been displeased with how these exchanges are implementing anti-money laundering procedures.

QUOINE, bitFlyer, Bit Bank, BTC Box, Bit Point, and Tech Bureau were all told publicly to fix their internal controls. bitFlyer, the world’s sixth-largest bitcoin exchange according to CoinMarketCap, responded by announcing, “To ensure this process is completed quickly and effectively, we will be voluntarily and temporarily suspending the onboarding of new customers.”

Meanwhile, what could be good news for those who lost money in MtGox could be bad news for the rest of the cryptocurrency world.

That’s because new legal proceedings begun Friday in Japan mean creditors in the now-defunct exchange could be paid back in bitcoin rather than cash. In other words, the market worries that several hundred thousand bitcoins will flood the market in the next few months

MtGox was the biggest hack and exchange failure in bitcoin’s history. Back in 2014, some 850,000 bitcoins were hacked from what was then the largest bitcoin exchange (about 200,000 were later recovered). At the time, those coins were worth roughly $450 million. Since then, bitcoin prices have shot up about tenfold.

As posted on the MtGox website on Friday by trustee Nobuaki Kobayashi, “the Tokyo District Court issued an order of the commencement of civil rehabilitation proceedings for MTGOX. As a result, the previously ongoing bankruptcy proceedings were stayed.”

What’s the difference? As Kobayashi explained later in the statement:

“In bankruptcy proceedings, non-monetary claims are converted into monetary claims based on the valuation as at the time of the commencement of bankruptcy proceedings. In contrast, in civil rehabilitation proceedings, non-monetary claims are not converted into monetary claims at the time of commencement of the civil rehabilitation proceedings. Therefore, in the civil rehabilitation proceedings in this matter, claims seeking a refund of Bitcoins (“Bitcoin Claims”) will also not be converted into monetary claims after the commencement of the civil rehabilitation proceedings.”

Translation: creditors may get back some amount of bitcoin rather than cash. The concern is that down the road those creditors will dump whatever bitcoins they win back.

Kobayashi was previously reported to have been liquidating hundreds of millions of dollars worth of MtGox bitcoins. However, in Kobayashi said in an FAQ at toward the end of his statement:

“At present, nothing has been determined regarding the sale of Bitcoin and cryptocurrencies split from Bitcoin (collectively, “Bitcoin, etc.”) in the future.”

But that clearly wasn’t enough to allay the market’s fears.


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Lawrence Lewitinn, CFA was the founding editor in chief of Modern Consensus. Disclosure: Lewitinn owns no cryptocurrencies in his portfolio.