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 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.

Kraken Raises $13 Million from Over 2,000 Investors to Expand Business

San Francisco-based digital asset exchange Kraken has reportedly completed a $13.5 million investment round through an internet-based fundraising platform, called Bnk To The Future (BF).

Notably, Kraken’s latest crowdfunding campaign is the largest investment round BF has managed. The regulated crypto futures and spot trading platform received investments from 2,263 different investors.

Kraken Seeking $4 Billion Valuation After Fundraiser

According to Coindesk, the American exchange operator had been seeking additional capital in order to increase its present valuation (as a company) past the $4 billion mark. The funds raised will also be used to make new acquisitions and also directed towards financing other initiatives that are aimed at further expanding Kraken’s business operations.

Kraken’s management has already made a few key acquisitions including a $100 million acquisition of UK-based Crypto Facilities (in February 2019), an established futures and derivatives trading platform. The US-based exchange has also acquired CryptoWatch, a financial data and trading platform.

$85 Billion In Crypto Trades Settled In 2018

As one of the leading crypto exchanges, Kraken settled trades worth a total of $85 billion in 2018. The exchange’s trading volume reportedly came from over four million traders located in 200 different countries.

In order to help Kraken further expand its line of products and services, BF has established a “Special Purpose Vehicle” (SPV) - which will allow the exchange company to receive equity from over 2,200 investors. Referred to as illiquid investments, the equity-based transactions will be facilitated through the SPV in an indirect manner.

Bypassing Current Regulatory Requirements

Acting as a single investment manager, the SPV will accumulate funds contributed by all parties interested in holding a stake in Kraken. Notably, Kraken’s decision to raise capital in this manner will allow it to avoid having to register as a public company - which existing U.S. regulations require under the 1934 Securities and Exchange Act.

Although Kraken’s investors will not be shareholders, they will be entitled to a certain return on investment (ROI) if the US-based exchange offers its shares via an initial public offering (IPO). However, the shares must be acquired through a different organization and potentially also through Kraken itself if it decides to opt for a Management Buy-Out.

High-Risk, Speculative Investment

Commenting on the initiative, BF’s management cautioned:

This is a high risk high returns platform – please understand this before investing.

Meanwhile, Kraken added that investors would be able to reduce risk as they would be acquiring a preferred share class with the ability to liquidate their funds. However, the American exchange did acknowledge it was a speculative investment.

An email sent to the initiative’s investors suggests that staking funds in Kraken’s business would have the following advantages:

CryptoWatch Premium membership, the ability to leverage shares for margin collateral, priority service from our client support team, invitation to Kraken’s exclusive investor chat room, subscription to Kraken’s Daily Hash newsletter and OTC Daily report, bi-annual Kraken investor update, beta access to new Kraken products and features, limited edition Kraken swag, [and] 5% investment rebate in KFEE.

Will Only Make Money If Kraken Sells for Over $4 Billion

According to an analysis by BF, a $1,000 investment in the company’s project would be worth around 48 future shares from a total of 201,612,210. If Kraken gets valued at $4 billion, then the 48 shares purchased would give the holder only a 0.00002380808% stake.

BF’s analyst further noted:

And that’s about the sum that you invested. But as you are in the “preferred share class” you get your investment back even if Kraken sells only for $112 million. Only if Kraken sells for more than $4 billion we will make money.