Coincheck plotting its comeback

Less than four months after losing an unprecedented $500 million of virtual coins to hackers, Japanese cryptocurrency exchange Coincheck is plotting its comeback.

Under new leadership after a fire sale to brokerage Monex Inc., Coincheck has been spending heavily to improve security and restore confidence among clients who withdrew at least $540 million in the wake of the hack. In an interview, Monex Chief Executive Officer Oki Matsumoto said he expects the exchange to secure an official license in Japan next month. He’s also planning to bring Coincheck’s platform to America.

Matsumoto, who declined to specify a timeline for the U.S. expansion, has a lot riding on his crypto bet: Monex shares have surged 98 percent since news of the Coincheck takeover emerged last month, the biggest gain in Japan’s benchmark Topix Index. His plans for America may strike some as odd given that the country is typically seen as less friendly toward virtual currencies than Japan, but Matsumoto predicts that may be about to change.

“Japan may seem like it’s one step ahead in crypto, but in terms of deciding what’s a security or a token and attracting institutional investors, the U.S. and Europe are moving ahead,” he said in an interview from his 25th floor office in central Tokyo.

A highly anticipated decision by U.S. authorities on whether to classify coins such as Ether and Ripple as securities, commodities, or something else will create the regulatory clarity necessary to attract more investors to cryptocurrencies, even if the move leads to more stringent oversight and a short-term selloff, according to Matsumoto.

The former Goldman Sachs Group Inc. partner sees a favorable crypto environment forming in the West, including lower taxes and growing interest from institutional money managers. He pointed to France’s decision, reported by Le Monde last month, to lower the capital gains tax rate by more than half to 19 percent. That compares with a 55 percent levy in Japan.

“At that level, it’s hard to even think of crypto as something you’d put in your portfolio,” Matsumoto said of Japan’s tax. “That means it’ll just remain a plaything for speculators.”

While Japan legalized crypto exchanges last year, the country has yet to begin formal discussions on amending its securities law to allow crypto-linked products such as futures and exchange-traded funds. The government has no immediate plans to cut the tax rate, Takuya Hirai, a member of the ruling Liberal Democratic Party, told Bloomberg in late January.

America’s regulators will likely have the biggest influence over what role cryptocurrencies play in society and the economy, Matsumoto said.

“What the U.S. decides will have a huge impact on Japan,” he added.

The Coincheck purchase has thrown Matsumoto back into the spotlight in Japan. He first came to prominence in the late 1990s after leaving Goldman to start Monex, one of Japan’s first online brokerages. Riding the euphoria of the dot-com bubble, Matsumoto promised to revolutionize Japan’s financial industry with online trading. That didn’t quite come to pass, but Monex quietly grew into a profitable business with a market value of about $1 billion.

Matusmoto discovered Bitcoin in 2013 and opened a personal trading account at Coincheck two years later. He was also introduced to the exchange’s co-founder Koichiro Wada, who helped Matsumoto set up Bitcoin payments at one of his personal businesses, a steak restaurant.

That meeting proved fruitful three years later, when Wada sought help after Coincheck was hacked. In March, after some intense negotiations, the two sides arrived at a $34 million price tag for the exchange and agreed to split profits for the next three fiscal years. Coincheck, which has reimbursed users affected by the hack, last month reported a $490 million operating profit for the year ended March, more than six times Monex’s earnings in the same period.

It’s far from clear whether Coincheck will ever return to that level of profitability. Turnover on the exchange in April was about 95 percent lower than in December — Coincheck’s busiest-ever month — after the hack spooked clients and cryptocurrency prices tumbled, according to data compiled by jpbitcoin.com and Bloomberg.

Matsumoto is undaunted.

“We can broaden our customer base at Coincheck,” he said. “In the end, we should and we can replicate the profitability they achieved before.”

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Coincheck plotting its comeback