Japanese Exchanges ‘Punished’ By FSA Regulators

  • FSA suspended trading on 2 Japanese exchanges for 30 days
  • 5 Japanese exchanges were found to have inadequate security and most produce a security audit by March 22nd

The Japanese Financial Services Agency (FSA) stated on Thursday 8th that it has suspended two cryptocurrency exchanges. Each suspension is a month long and starts from today. The suspension has been ordered as the result of poor security and compliance standards.

Bit Station and FSHO were the exchanges that had trading halted for a month. However, 5 other exchanges came under fire from the FSA and must produce and submit a ‘Security Improvement Plan’ by March 22nd. 

The FSA found these five exchanges to have insufficient security measures. Those five exchanges are Tech Bureau, GMO Coin, Mister Exchange, Bicrements as well as Coincheck.

Coincheck

Coincheck suffered one of the worst cyber heists in history in late January this year. Over $500 million in NEM were stolen. It is thought that the heist prompted Japanese regulators to conduct more thorough checks of all crypto exchanges in the country. The Coincheck CEO Koichiro Wada even agreed with the FSA decisions and said that the current systems:

“Weren’t in keeping with the expansion of our business”

Coincheck CEO Koichiro Wada

Coincheck said a hacker used malware to infiltrate the network, the hacker then proceeded to steal an encrypted key which was used to transfer coins out of the exchange. Despite claiming to store the majority of their funds in ‘cold storage’, the coins were stolen from ‘hot wallets’ which are exposed to the internet making the coins more vulnerable.

Unregistered Exchanges

According to an article from Reuters, many of the exchanges in Japan are unregistered with the FSA. 

“It’s problematic that these 16 unregistered exchanges have been able to continue trading... In the first place, should they have been allowed to operate while their applications for registrations are still incomplete?”

Sanae Takaichi

It is not just the unregistered exchanges that have been deemed to fall short in security measures. The FAS found that GMO Coin, a registered exchange, was suffering system glitches frequently and the exchange was unable to identify the root cause of the glitch. It is the FSA's hope that, by ordering security reports for March 22nd, another possible Coincheck scenario can be avoided.

Trans-Fee Mining Exchanges Saw Trading Volumes Rise 124% in April, Report Reveals

Cryptocurrency exchanges using the controversial trans-fee mining (TFM) revenue model have seen their trading volumes rise by 124% in April of this year, a month that saw cryptocurrency exchanges overall see their volumes increase.

According to CryptoCompare’s April 2019 Exchange Review, cryptocurrency exchanges using the controversial revenue model, which some see as a ‘disguise ICO’ over its nature of rebating transaction fees in the form exchange tokens, have been succeeding as the market recovers.

The report reveals that FCoin, a cryptocurrency exchange that hit a $5 billion daily trading volume after introducing the TFM model in June of last year, saw its trading volume increase by 300% to $37.1 billion throughout the month, making it the largest crypto exchange by trading volume.

FCoin’s was followed other exchanges using the TFM model, including CoinBene and ZBG, which saw their volumes grow 51.5% and 81% to $27 billion and $16 billion respectively.

TFM Exchnages' trading volume growthSource: CryptoCompare Exchange Review

Cryptocurrency exchanges that don’t use the trans-fee mining model also saw their trading volumes grow. OKEx and ZB were the second and third largest cryptocurrency exchanges by trading volumes, registering $35.1 billion and $32.4 billion after seeing their volumes rise by 12.4% and 18.5% respectively.

Overall, exchanges that charge fees traded a total of $52 billion in April, as their volumes rose by 30%, while TFM exchanges traded a total of $115 billion, as their volumes rose by a total of 124%.

Notably, CryptoCompare’s Exchange Review from December of last year showed that exchanges using the TFM model were gaining market share, presumably thanks to incentives given to traders. At the time, Binance was the leading cryptocurrency exchange.

The trend may be concerning for traders, as data has shown exchanges using the controversial model have poor traffic to volume ratios. This means that to see cryptocurrency prices by 10% on these platforms it would take a relatively small amount of their trading volume, compared to other exchanges.

This lack of stability comes from traders being incentivized to trade large amounts in order to rake in token rewards, and could easily lead to ‘flash crashes’. An analysis of CoinBene’s order books in February of this year showed an order taking up 0.3% of its daily trading volume could lead to a 10% price drop. In comparison, Kraken would need an order of 30% of its daily volume to lead to such a drop.