• Regulatory concerns meant the JPY-BTC trading pair was previously off limits to foreign traders
  • The market is considered hard to access because of a strict regulator, which makes stablecoin issuance difficult

BitFlyer announced today that it has gotten regulatory approval to open the bitcoin-Japanese yen trading pair to traders in the United States. 

The exchange says that its bitcoin/yen spot market posted over $30 billion in trading volume during the first quarter of 2021, or roughly 40% of the total market. 

“BitFlyer’s bitcoin/yen market is one of the largest bitcoin to fiat markets in the world. In fact, our Q1 volume was equal to or greater than the bitcoin/yen markets of exchanges like Bitstamp, Kraken, Gemini and more,” Joel Edgerton, chief operating officer of BitFlyer, told Blockworks in an interview. “Many institutional clients are aware of the importance that this particular market and Japan as a whole have on the industry, and consequently have tried to access it for some time. However, due to the regulatory constraints, this hasn’t been easy.”

Although the bitcoin/yen trading pair is one of the world’s largest by volume, it’s largely walled-off from foreign investors.

Historically, this has made for some arbitrage opportunities as very few investors could actually trade in both markets. FTX founder Sam Bankman-Fried is probably the best known trader to capitalize on this opportunity, as he explained in an interview on Blockworks’ Empire podcast, but it was also a heavily capital intensive process fraught with regulatory and counter-party risk.

“Opening this market is a direct response to demand from institutional and sophisticated traders who want to access this huge liquidity pool that has been available to Japanese clients only, and the unique trading opportunities it presents,” Edgerton continued.

There are “very interesting pricing dynamics” in the market because of the significant retail flow on the bitcoin/yen trading pair, Edgerton explained.

One peculiarity of the market in Japan, much like Korea, is the lack of interest traders have in stablecoins. In an earlier interview with Blockworks, Oleg Smagin, global business manager at Korean digital assets platform Delio, said that a combination of regulatory complications and cheap money transfer fees means that the market hasn’t taken off in-country. 

“This environment makes companies think twice before experimenting with stablecoins, especially because the government here has never been positive about this idea,” he told Blockworks.

In Japan’s case, it is purely an issue with a conservative regulator not providing clarity. 

“Stablecoins in Japan haven’t scaled due to the lack of regulatory clarity around them. Therefore, pretty much all the bitcoin volume is traded against fiat in Japan,” he told Blockworks. “The situation is similar to what it is with the Korean won: It’s hard to access that market, and because of the unique trading opportunities it presents, sophisticated traders and institutional clients want to access it.”

At the same time, Circle is said to be preparing to expand into Asia and is hiring in multiple Asian financial hubs.

Last week, Circle raised $440 million from Fidelity Management and Research Company, Marshall Wace, Willett Advisors, Intersection Fintech Ventures, Atlas Merchant Capital, Digital Currency Group, FTX, Breyer Capital, Valor Capital Group, Pillar VC, as well as Michael J. Price and Friends. However, it’s not known if Circle’s expansion into Asia will focus on USDC, or regionally denominated stablecoins.

Edgerton expects that with this new onramp to the Japanese crypto market, US-based institutional interest is sure to follow. 

“We became the first exchange to get licenses in Japan, EU, and the US precisely for this: to break down the walls that the current regulatory framework across jurisdictions and traditional banking infrastructure have created. BitFlyer is connecting the global cryptocurrency market in a compliant way,” he continued. 

  • Blockworks
    Reporter
    Sam Reynolds is a Taipei-based reporter, covering digital assets and regulation throughout Asia. Before joining Blockworks he was an editor at Forkast News and an analyst with IDC.