Economy & Tech

Is It Time to Buy Bitcoin as the Yen Weakens?

More than one in ten Japanese adults own cryptocurrency, with bitcoin the most popular. But North Korean hackers and other criminals are out to exploit them.

Published

2 weeks ago

April 24, 2024

Duncan Bartlett, Diplomatic Correspondent

Bitcoins (file photo)

A question beckons about Japan's greatest financial mystery. Does Satoshi Nakamoto still hold around a million bitcoins, which he created in the early days of cryptocurrency? If he does have the bitcoin assets, that would make him easily the richest person in Japan — and indeed, one of the richest people in the world.

Perhaps Mr Nakamoto could be called upon to help the Bank of Japan, which is struggling to counter a sharp fall in the yen against the American dollar and other currencies.

A national financial rescue — led by superhero Nakamoto — might make an exciting plot for a manga story. But it's hard to envisage it happening in real life.

For one thing, it's not clear that Bitcoin (the network) was actually created by one person. Although a computer programmer using the name Satoshi Nakamoto appears to have done groundbreaking work, he's never appeared in public.

Many experts have concluded that Satoshi Nakamoto is therefore actually a pseudonym used by someone else, or by a group of people. Furthermore, it's not certain that the Bitcoin pioneers were either Japanese or of Japanese heritage. The chances are that they were American.

Furthermore, there's no proof that the founders of Bitcoin have hoarded a fortune. They may have spent their money long ago.

Of course, it's a nice idea to imagine that a secretive crypto billionaire passes unnoticed through the streets of Tokyo. But it seems akin to hoping that a pirate captain has buried a treasure chest under Shinjuku Station.

Hype and Hope

Cryptocurrency, by its very nature, generates myths. It only functions as a financial instrument because people choose to believe in its value, not because of any intrinsic worth. No government or central bank will ever vouch for a crypto-asset.

Nonetheless, people who have held onto bitcoin over the long term have reaped incredible gains. For example, if you invested in bitcoin when it was first launched in 2009, your returns could well be worth millions or billions of dollars, because the initial value of the asset was $0.

"It's the best-performing asset of the last decade for sure," Daniel Polotsky, CEO of CoinFlip, one of the largest bitcoin ATM companies in the United States, told CNBC.

At present, the bitcoin market is particularly buoyant, after US regulators gave approval for stock market funds to invest directly in bitcoin. The asset has risen more than 100% in the past six months. It surged to a record high of $73,800 USD in March.

This is largely down to hype. It is in the interest of everyone who owns any bitcoins to insist the value will keep rising. "Bitcoin is going to be worth more in the future than it is today," claims Asher Genoot, chief executive of Hut 8, a US crypto miner. The theory is that an increase in demand — combined with a reduction in supply — will keep pushing up the value.

Targeting Japan

Banks and financial institutions are in on the game. Nomura has established a subsidiary called Laser Digital which helps institutional investors buy bitcoin and other crypto assets. It plans to expand throughout Asia from a base in Tokyo.

Figures published in 2023 suggest that about 11% of Japanese adults own cryptocurrency. Bitcoin was the most popular, followed by Ethereum.

Anyone who has held cryptocurrency assets will know that the price fluctuates widely. Many people lost out by buying bitcoin a few years ago and then selling it during the prolonged slump that preceded the current boom.

Regulators urge people to be cautious about entering this volatile market. Japan's Financial Services Agency has warned that "specialized fraud still remains high" and the National Police Agency is investigating several huge thefts.

North Korea is blamed for heists. Hackers from a state-sponsored group called Lazarus are said to be behind an infamous attack on a Japanese crypto exchange called Coincheck when $534 million in crypto was stolen. Another exchange, Zaif, lost ¥7 billion JPY ($51.4 million) in 2018. The company has since shut down.

Bankman-Fried's Japan Scam

The so-called "crypto king" Sam Bankman-Fried was sentenced to 25 years in prison earlier in 2024 for defrauding the customers of his now-bankrupt firm, FTX.

His lavish lifestyle included a penthouse suite in the Bahamas and a yacht, although he claimed he was guided by righteous ethics. During his trial, it emerged that Japan helped boost Bankman-Fried's fortune.

He made money by buying bitcoin in the US and then immediately selling it in Japan. The profits were converted back into American dollars.

Bankman-Fried said at the time: "You have to put together an incredibly sophisticated global corporate framework in order to be able to actually do this trade. That's the real task, the real hard part. But it was doable, and you could scale it, making literally 10% per weekday, which is just absolutely insane."

Later, John Ray, who was appointed to sort out the mess at FTX after Sam Bankman-Fried filed for bankruptcy wrote: "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here."

Clear Warnings

Given the moribund performance of the yen, it is understandable that many Japanese people, as well as foreigners who hold yen in their bank accounts, may be looking for other assets to invest in.

Cryptocurrency companies are aware of the situation and are pushing their services aggressively. There are around 30 crypto exchanges registered with Japan's Financial Services Agency (FSA). Their websites aim to reassure customers that everything is above board, whitewashing the sector's murky reputation.

However, some web users who have logged onto cryptocurrency sites have been intercepted by a stark warning in English, placed by Britain's Financial Conduct Authority.

"The performance of most crypto assets can be highly volatile," says the regulator, "with their value dropping as quickly as it can rise. You should be prepared to lose all the money you invest."

The authority makes the point that the market is largely unregulated and is beset by risks such as cyberattacks, financial crime, and firm failure.

"You should do your own research before investing. If something sounds too good to be true, it probably is."

Author: Duncan Bartlett, Diplomatic Correspondent

Mr Bartlett is the Diplomatic Correspondent for JAPAN Forward and a Research Associate at the SOAS China Institute. Read his other articles and essays.