Nasdaq, Goldman Sachs, J.P. Morgan, and Morgan Stanley have hinted at plans to launch and operate cryptocurrency exchanges in 2018. SBI Group, one of Japan’s largest financial companies, has finalized its plan to launch a cryptocurrency exchange in the summer.
The Number One Exchange
According to Business Insider Japan, SBI Holdings president and SBI Group CEO Kitao Yoshitaka has said that he is certain SBI Group will be able to evolve its cryptocurrency exchange into Japan’s leading digital currency trading platform and dominate the market.
A rough translation of Yoshitaka’s statement read:
When we do it, it will be number one in the blink of an eye so quickly, so even if a tremendous number of customers come, we can build a system that can bear it. We have to pursue safety thoroughly.
Yoshitaka and researchers at SBI Group are aware that the demand for cryptocurrencies and volumes of most exchanges have substantially decreased since December 2017, when market interest peaked. Hence, Yoshitaka’s confidence in gaining dominance over the Japanese cryptocurrency exchange market does not necessarily stem from the capital and resources SBI Holdings has, because local banks and financial institutions have acknowledged the profitability of cryptocurrency exchanges and the ability of cryptocurrency trading platforms to generate more profits than banks.
Prior to its hack, Coincheck, formerly Japan’s biggest cryptocurrency exchange, generated around $150 million in quarterly profit, surpassing that of Germany’s largest bank, Deutsche Bank. Japan-based technology reporter Yuji Nakamura said:
Before it was hacked, Coincheck made almost as much money as TSE, which operates Japan’s stock and futures markets. My guess is Coincheck could have fetched [a] $6-8 billion valuation.
As of now, SBI Holdings is valued at $6 billion, so if Nakamura is correct, Coincheck’s valuation could have equaled or surpassed that of SBI Holdings.
In the end, banks and financial institutions are entering the cryptocurrency market not because they believe it is an immature and easy market to dominate. Banks are entering the cryptocurrency market because cryptocurrency exchanges have become more profitable than banks.
Building Trust
SBI Holdings stated that in the beginning, the financial institution will focus on rebuilding trust with Japan’s investors. After the February correction that sent the bitcoin price to $6,000, investors lost trust and confidence in the market, and consequently, the volume of the Japanese cryptocurrency exchange market halved.
It is likely that SBI Holdings will first begin to target large-scale institutional investors and retail traders, rather than individual investors, to increase the volume and liquidity of the market. Gradually, the exchange will start to target the general public and improve the conditions of the market.
It will also be important to prevent hacking attacks and security breaches, as the failure to do so may lead to a loss in profitability that may not be recoverable.
Monex Chief Executive Officer Oki Matsumoto, the new owner of Coincheck, said:
Given that we expect tougher regulatory and internal measures going forward, naturally the profitability will change. However, as our entire group works toward creating a crypto exchange built on trust, it may be possible to grow our customer base even more, which would drive synergy and boost profitability.
