Will ICO Deregulation be Realized? Future Cryptocurrency Situation as Seen from JCBA’s ICO Regulation Proposal


The JCBA has announced their “Recommendations on new ICO regulations.”  With regards to the cryptocurrency ICO market, there has been no clear legal development, and it is desirable to create a mechanism to secure the confidence of investors.  With this proposal, new regulations in the domestic ICO market will be developed which may be the first step in creating a sound investment environment.

In this article, I will investigate the contents of the JCBA’s “Recommendations on new ICO regulations” in more detail.  Also, let’s consider what kind of impact will be brought about by the development of the domestic ICO market.

<h2> JCBA (Japan Cryptocurrency Business Association) announces new proposal for domestic ICO regulation </h2>

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The JCBA (Japan Cryptocurrency Business Association) announced new recommendations on domestic ICO regulation on March 8, 2019.  The JCBA has 16 major exchanges in Japan participating in the exchange of opinions and information with governments and businesses for the purpose of developing the cryptocurrency industry.

In the “Recommendations on new ICO regulations” announced by the JCBA, the following four views are stated, and it can be expected to have a major impact on the government’s cryptocurrency regulation and rule development in the future.

・Organize issues for sound expansion of cryptocurrency that can be handled by domestic exchanges

・The distinction between tokens subject to regulation under the Financial Instruments and Exchange Act and tokens subject to regulation regarding settlement

・Regulation on security tokens

・Regulation on utility tokens

(Reference: <a href = “https://cryptocurrency-association.org/news/main-info/20190308-001/” target = “_ blank” rel = “no referrer noopener” aria-label = “Japan Cryptocurrency Business Association, 8/3/2018, “Recommendations for New ICO Regulations” (opens in a new tab) “> Japan Cryptocurrency Business Association, 8/3/2018,” Recommendations for New ICO Regulations “</a> about)

<h2> Reading the future cryptocurrency market from JCBA’s ICO regulation proposal </h2>

Under current domestic law, the issue of tokens by ICO is considered to be a cryptocurrency exchange business.  A cryptocurrency exchange business cannot be registered unless it is subjected to strict examinations such as internal compliance and security in accordance with the FSA rules.  Therefore, domestic ICOs lawfully conducted from January 2018 is zero.

However, in the case of overseas ICO cases, there are many cryptocurrencies such as Ethereum and Ripple that have opened new markets with financing using cryptocurrency.  Therefore, in Japan, the scope of the current regulations is broadened, and ICO-specific regulations are required to be developed.

In the “Recommendations on new ICO regulations” announced by the JCBA, the main focus is on creating new rules for such domestic ICO regulations.  While ICOs have certain risks, it is also possible for new business models to be limited in terms of regulation, which may delay the progress of technologies such as Fintech and IoT.

Now, let’s look at the contents of “Recommendations on New ICO regulations” more concretely.  We will predict what kind of impact it will have in the future cryptocurrency market in Japan.

(Reference: <a href = “https://cryptocurrency-association.org/news/main-info/20190308-001/” target = “_ blank” rel = “no referrer noopener” aria-label = “JCBA, 8/3/2018, recommendations on new ICO regulations (opens in a new tab) “> JCBA, 8/3/2018, recommendations on new ICO regulations </a>)

<h3> About cryptocurrencies handled by domestic exchanges </h3>

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There are many people who have the impression that the traded cryptocurrencies on domestic exchanges are much smaller than those on overseas exchanges.  Zaif handles the largest number of cryptos in the country, and there are only 13 total types including tokens (as of March 14, 2019). However, in the case of overseas exchanges, there are not only 100 types, but there are as many as 500 types among which there are more than 1,000.

The more cryptocurrencies on an exchange, the more investors can invest in a wide variety of cryptocurrencies.  In other words, the diversification of funds proceeds and contributes to the alleviation of risks. Cryptocurrency handled by domestic exchanges have not changed since the year before this material was presented.  Therefore, JCBA recommended that the new exchange treatment of domestic exchanges be resumed to provide users with appropriate access opportunities.

<h3> About Stable Coins </h3>

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When legally controlling ICOs, it is always necessary to position stable coins.  Stable coins are linked to the value of a specific legal currency (such as the US Dollar), and are cryptocurrencies with extremely low risk of price fluctuations.  Typical brands include Tether.

In the case of the United States, there is already a legal framework for stable coins, and there is also an environment in which highly stable coins can be issued using a trust scheme.  However, in Japan, the framework has not been clearly decided whether to regulate them as cryptocurrencies or to regulate them as currencies being able to be exchanged as a stable coin.

A legal and regulatory framework is urgently needed to promote the domestic distribution of stable coins.

<h3> About Security Tokens and Utility Tokens </h3>

Tokens issued by ICO are classified into two types: “security token” and “utility token.”

The “security” of security tokens has the meaning of a “security.”  This token is a security token when it is used to support real-world value, but it is almost impossible to find in current ICOs because they are necessary to ensure timely disclosure of information and investor protection. Hmm.

A utility token is a currency that translates into a “useful currency.”  For example, if a token is used as a “voucher” to use products or services provided by the ICO project, this utility value of the token is applicable.

With regards to security tokens, it is necessary to position them as whether they correspond to a single-term security or a binary-term security, and of course we must also set up the rules of regulations.  With regards to utility tokens, if strict regulations are applied as much as security tokens, ICOs may become practically impossible to implement thus some balance is required. As these laws have not been prepared in Japan, the JCBA recommendations have set the stage for defining the framework.

<h2> Summary </h2>

It has been about one year since the Coincheck uproar which occurred in January 2018.  The volume of cryptocurrency trading is finally recovering and the number of investors expecting a large market pump is also increasing.  However, unless the rules and regulations that allow investors to trade with peace are in place, the negative image of the past will not be dispelled.

With the recommendations from the JCBA, we expect that the overall market will grow moderately, as the number of issues on domestic exchanges increases and the framework for ICOs can be established.