Japan considers allowing banks to hold and trade Bitcoin

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The Financial Services Agency of Japan is studying the possibility of allowing banks to hold and trade cryptocurrencies such as Bitcoin for investment purposes, which would change the country's long-standing regulatory framework for the banking industry.

On October 21, according to Japanese media reports, the Financial Services Agency plans to establish a system that will allow banks to buy and sell cryptocurrencies just like stocks and government bonds. The agency will soon launch discussions through a working group within the Financial System Council, an advisory body to the Prime Minister.

This move aims to respond to the increasing popularity of cryptocurrency trading as a financial product both domestically and internationally in Japan. However, the Financial Services Agency also plans to impose specific regulatory measures to ensure the financial soundness of banks.

Reportedly, domestic cryptocurrency trading in Japan is expanding. According to data from the Financial Services Agency, as of the end of February, the number of cryptocurrency accounts in Japan had exceeded 12 million, an increase of about 3.5 times from five years ago.

Banks may be able to directly provide trading services

The Financial Services Agency will also consider allowing banking groups to register as crypto asset trading service providers, which is a necessary condition for offering cryptocurrency trading and exchange services.

The report notes that by allowing reputable banking groups to enter this market, the Financial Services Agency hopes to create an environment that makes it easier for individual investors to participate in such investments. This may bring more institutional-level compliance and credibility to the cryptocurrency market.

As the trading of cryptocurrencies as financial products continues to grow in Japan and abroad, regulators are seeking to establish a system framework that adapts to market developments.

Current regulatory framework restricts banks

According to reports, based on the regulatory guidelines revised by the Financial Services Agency in 2020, banking groups are currently, in effect, prohibited from purchasing cryptocurrencies for investment purposes. This restriction stems from the high volatility risk of cryptocurrencies.

Cryptocurrencies such as Bitcoin, which lack underlying asset support, have price volatility far exceeding traditional financial products such as stocks. Large holdings of such assets may lead to losses in the event of sharp price declines, thereby deteriorating the banks' financial health.

Even if banks are allowed to hold and trade cryptocurrencies in the future, the Financial Services Agency is expected to continue to impose regulatory measures that take into account their potential impact on banks' financial health.

The working group is expected to discuss the establishment of a risk management framework for cryptocurrencies. Regulators need to find a balance between open market access and maintaining financial stability.

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