Financial services updates

US cryptocurrency exchange Coinbase has struck a deal with Mitsubishi UFJ Financial Group, betting the Japanese bank’s vast customer base will help it secure a foothold in one of the world’s centres for digital asset trading.

The Japanese group’s 34m domestic customers will gain exclusive access to Coinbase’s services through their existing bank accounts, according to the terms of the deal. The access will allow them to deposit and withdraw bitcoin, ether and other leading cryptocurrencies, potentially converting a segment of MUFG’s ageing customer base to a realm of speculative investment they would not otherwise have bothered navigating. 

Within a few hours of Coinbase announcing the tie-up, however, efforts to stress the stability and security of crypto trading faltered when the Japanese exchange Liquid confirmed that it had been hacked, losing an undisclosed value of virtual assets estimated by some experts at up to $80m. It came after last week’s $600m crypto heist at Poly Network.

For now, Coinbase’s services will only be available to MUFG customers, though the Japanese bank said it was likely that Coinbase would extend the arrangement to customers of other banks if successful.

The partnership, which has been under discussion since MUFG became an investor in Coinbase five years ago, thrusts the US group into the already fierce competition between Japan’s 31 officially licensed crypto exchanges

Although Coinbase announced the partnership on its website, MUFG did not formally disclose the deal, and had no official statement on the matter. One person at MUFG familiar with the situation described the issue of cryptocurrencies in Japan as “sensitive”.

Coinbase’s Japanese subsidiary received permission to operate in the world’s third-biggest economy in June, securing one of the coveted licences issued by the Financial Services Agency. In April 2017, Japan surprised many when it became the first government to recognise bitcoin as a legal payment method. Later that year, the FSA broke new ground again when it officially recognised 11 companies as cryptocurrency exchange operators. 

The FSA’s unexpected position at the global forefront of crypto regulation was driven by a determination to avoid a repeat of the Mt Gox incident. The Tokyo-based crypto exchange had handled two-thirds of all bitcoin transactions before its demise. The company collapsed in 2014 after 850,000 customer- and company-owned bitcoins went missing in a disappearance that experts later concluded had been a theft.

While the FSA’s issuing of licences to an initial group of 11 exchanges imposed stricter standards and led to a protracted boom in crypto trading in Japan, confidence in the regulator’s ability to protect investors faltered in 2018 after one of the licensed exchanges, Coincheck, was raided in a virtual heist that stole $500m worth of XEM coins.

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