Japan’s Crypto Exchanges Face Pressure as Binance Dominates Market
When Binance Japan launched on August 1st, it immediately offered 34 different cryptocurrencies for trading. Although this is less than 10% of the total number listed on Binance’s global exchange, it positions Binance Japan as the leading platform in terms of variety for crypto traders in Japan. While this is good news for Japanese consumers and Binance, it spells trouble for smaller cryptocurrency exchanges in the country.
According to Norbert Gehrke, founder of the Japan FinTech Observer newsletter, smaller exchanges outside of the big players like bitFlyer, bitbank, and Coincheck will likely struggle and many may fold. Currently, there are 29 registered cryptocurrency exchanges in Japan, with the number of tokens listed varying greatly. Smaller exchanges often offer only one to five tokens, including major cryptocurrencies like Bitcoin and Ethereum, as well as a few altcoins.
The global cryptocurrency market has been facing challenges in recent times, with a significant downturn and loss of investor sentiment. Over the past 18 months, an estimated $2 trillion has been wiped off the once $3 trillion market. While larger exchanges in Japan remain competitive globally, smaller exchanges are struggling due to low liquidity and difficulties differentiating themselves from their peers.
Many of these smaller exchanges were established two to three years ago during a period of high interest and funding availability. However, the prolonged crypto winter and Binance’s entry into Japan have accelerated their decline. The smaller exchanges are dealing with reduced volumes and prices, as well as significantly lower commission rates.
In light of these challenges, it raises the question of how many cryptocurrency exchanges Japan really needs. According to Gehrke, Japan could sustainably support three to five exchanges. The current situation is particularly difficult for smaller exchanges, and they are not finding crypto trading profitable anymore.
While Binance’s entry into Japan could have positive effects for struggling exchanges, it also poses risks. Binance is a well-known name with significant regulatory challenges internationally. If something goes wrong, it could have severe consequences for the entire industry. The situation is considered high risk, and currently, buying and selling cryptocurrencies is not profitable for many exchanges.
Binance’s relationship with Japan is complicated. The global exchange is registered in the Cayman Islands and has previously faced reprimands from Japan’s Financial Services Agency (FSA) for operating as an unregistered exchange. However, Binance established Binance Japan KK last year by acquiring the Sakura Exchange BitCoin platform and transferring its registration to the Tokyo region.
The FSA acknowledged its previous warnings to Binance but had no reason to prevent the acquisition of Sakura Exchange BitCoin as a means for Binance to re-enter Japan as a registered entity. Binance Japan is now in the process of transferring its Japanese customers from the global platform to the domestic one.
Despite Binance’s regulatory issues in other countries, existing regulations in Japan should protect Japanese investors in the event of any operational risks. If Binance Japan complies with Japanese regulations and keeps 100% of Japanese customer assets in a cold wallet, a situation similar to the collapse of FTX would occur, where Japanese investors were protected from catastrophic losses.
In conclusion, Binance’s dominance in the Japanese crypto market presents challenges for smaller exchanges, which are already struggling to survive. While Japan could sustainably support a few exchanges, the current environment is tough, with reduced trading volumes and prices. Binance’s entry into Japan brings both opportunities and risks, and its regulatory challenges internationally could have far-reaching consequences. However, existing regulations in Japan should protect investors in case of any operational risks.
