News Analysis |
A week after the virtual currency trading agency ‘coincheck’ lost $530 Million to a robbery by international hackers; Japanese authorities conducted a raid on the agency this weekend. The raid was followed by the steep dip by the Bitcoin below $9,000 for the first time since November. All cryptocurrencies have been on sharp decline after India announced last week that it would take steps to prevent the use of cryptocurrencies.
The raid and combing of Coincheck’s headquarters in Tokyo’s Shibuya district was carried out by the Financial Services Agency, an ‘FIA’ counterpart, which had already slapped the agency with an administrative order after the digital robbery. “We have launched an on-site inspection to ensure the preservation of clients’ assets,” Finance Minister Taro Aso announced at a press briefing.
“Having said that, this narrative has been around for many weeks now and isn’t really new but it has once more raised the spectre of tighter regulation on this market.”
Japanese officials are suggesting that Coincheck lacked proper security measures and firewalls, rendering itself susceptible to theft. The hack which took place on January 26th and saw perpetrators swipe away 523 million units of the cryptocurrency NEM, surpassing the $480 million robbery that took place in 2014, from another Japanese virtual currency exchange, MtGox.
Earlier this week, Japan’s FSA gave Coincheck until February 13 to investigate the cause of the incident, reimburse clients and strengthen risk management and take the necessary preventive measures for this incident to not be repeated.
“All cryptocurrencies have been on sharp decline after India announced last week that it would take steps to prevent the use of cryptocurrencies.”
Coincheck has said it will use its own funds to reimburse all 260,000 customers who lost holdings, at a rate of 88.549 yen per NEM. The refund, which will be paid in yen, not virtual currency, will set the firm back about 46.3 billion yen ($422 million).
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Following the 2014 MtGox scandal, Japan passed a framework on cryptocurrencies that require exchanges to be regulated by the Financial Services Agency. The law went into effect in 2017. Coincheck had submitted an application to the FSA for a license and was allowed to continue operating while it awaited a decision, the agency said.
Japan is a leading market for cryptocurrencies, with nearly a third of global Bitcoin transactions in December denominated in yen, according to specialist website jpbitcoin.com.
Virtual currencies are popular elsewhere in Asia, including South Korea and China, but India’s government last week said that it would act against their use. Finance Minister Arun Jaitley announced in his annual budget speech that New Delhi is looking into “taking all measures to eliminate the use of these crypto-assets in financing illegitimate activities or as part of the payment system”.
“Earlier this week, Japan’s FSA gave Coincheck until February 13 to investigate the cause of the incident, reimburse clients and strengthen risk management and take the necessary preventive measures for this incident to not be repeated.”
Bitcoin, which soared to nearly $20,000 a unit in December, having rocketed 25-fold last year, before being hit by concerns about a bubble and worries about crackdowns on trading it, was down at $8,800 on Friday, while other digital units such as Litecoin and Ethereum have also suffered massive losses from their recent peaks.
“The panic-selling seen across all the major cryptocurrencies could be attributed to a possible regulatory clampdown in South Korea with authorities threatening to place an outright ban on cryptocurrency trading,” noted David Cheetham, chief market analyst at XTB, a publication reported.
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“Having said that, this narrative has been around for many weeks now and isn’t really new but it has once more raised the spectre of tighter regulation on this market.”