Binance CEO Changpeng Zhao seems to have internalized Donald Trump’s Art of the Deal . The key lesson from the one-time real estate mogul’s 1987 book is that “bad publicity is sometimes better than no publicity at all.”
And if any financial product is getting bad press these days, it’s Bitcoin, a crypto-asset that Zhao’s exchange wants to popularize. Yet these two worlds are colliding as U.S. President Trump slams digital currencies as “not money,” something based on “thin air” and an innovation of which he’s “not a fan.
Zhao’s own response is quintessentially Trumpian: “The fact that [Trump] tweeted about it, and the president of the United States is talking about cryptocurrency, it’s a good thing.”
Perhaps. Yet he’s right about one thing: Trump’s government won’t be the one to decide if bitcoin and its blockchain-revolution brethren thrive. Odds are, it’s up to Japan.
Myriad paradoxes leap to mind at this mere suggestion. The developed world knows no more risk-averse or red-tape-obsessed government than Tokyo. The idea that Prime Minister Shinzo Abe’s party, which has ruled Japan with only brief interruption since 1955, is hip to financial disruption sounds fanciful indeed.
Tokyo, meantime, has been the site of two of the biggest hacking scandals to date. The city was first draped in crypto crime tape in 2014, when $450 million vanished from the Mt. Gox exchange. In 2018, hackers spirited away another $500 million from Coincheck. Earlier this month, half of Bitpoint exchange’s 110,000 customers suddenly found themselves at a loss.
Abe’s economy would seem more deserving a “CSI: Tokyo” series than a place at the center for the crypto game. And yet, that’s precisely what Japan has set out to do. While Trump’s America, Xi Jinping’s China and the vast majority of Group of Seven powers hit the brakes, Tokyo is keeping the market running.
At the moment, much of the G7’s ire is being directed at Facebook, which wants to issue a private digital currency named “Libra.” Mark Zuckerberg’s gambit provided a rate point of consensus in G7 circles, perhaps the very first of the Trump era. In Chantilly, France earlier this month, G7 officials tripped over themselves to head Facebook off at the pass.
Washington has “grave concerns” about Libra, declared Steven Mnuchin, Trump’s Treasury secretary, who called it a “national security issue.” French counterpart Bruno Le Maire said officials in Paris “fully share” those concerns. German Finance Minister Olaf Scholz wasn’t being hyperbolic when observing: “Libra is on everyone’s mind.”
Nowhere more so than in Tokyo, including Abe’s 78 year-old finance czar Taro Aso. In Chantilly, Tokyo had the most open mind at the table, with Aso stating that “users would find [Libra] useful in making international money transfers because it would be cheaper than the current system.” The question, Aso said, of whether crypto assets “will be reliable is another issue.”
What Japanese officials are signaling, in other words, is rather than slamming the door shut on Libra and other digital money innovations, let’s help shepherd the industry toward greater stability and reliability.
Only time will tell if Japan’s openness to cryptocurrencies is wise or not. But Abe’s economic team is holding two ideas in its head simultaneously. One, bitcoin and its competitors aren’t going way. In fact, blockchain-related innovation in the financial space is more likely to accelerate and broaden than retrench. Two, Japan plans to be ready when the crypto game figures out where it wants to be three-to-five years from now.
Challenge No. 1 seemed to escape U.S. lawmakers earlier this month when they hauled Facebook in for Congressional hearing. But Facebook is just the first of many proposed private currencies sure to emerge. Odds are, companies from Alibaba to Amazon to Apple to Google to SoftBank to Tesla are scrambling to introduce their own Libra offerings.
What’s to keep the People’s Bank of China from issuing its own cyber-currency? Or the Bank of Japan, for that matter? Even so, the world’s most powerful tech firms, with their deep pockets and political influence, won’t stop pushing. That’s partly why Japan, for better or worse, has resigned itself to playing a role in influencing the future of money, not trying to force any number of financial genies back in the bottle.
This pragmatic approach has Japan gunning for more regulation. At a Group of 20 meeting in late June, host Japan put cryptocurrencies on the discussion table, even shoehorning a mention into the formal communique. The G20 warned that crypto assets make money laundering and terror financing easier. Yet the document also highlighted how “technological innovations can deliver significant benefits.”
Japan is at the very center of this balancing act. Few nations are more consumed with threats from North Korea, where hackers are having great success stealing bitcoins. A United Nations report in March estimated Kim Jong-un’s regime has netted at least $571 million infiltrating crypto exchanges around Asia.
Hence, Japan’s focus on increasing transparency, know-your-customer mechanics and common-sense disclosure rules. What’s clear is that neither the G7 nor developing giants like China are comfortable with cryptocurrencies operating so far outside the conventional finance matrix. Though crypto purists object, the industry confronts a Catch 22. The key is finding a happy medium that keeps the establishment from killing the market.
And, if you’re Japan, capitalizing off it. Another paradox with which Japan is grappling: the country that brought us the Walkman, the DVD, the digital camera and the android produces so few tech unicorns. Indonesia is producing twice as many as Japan. Officials in Tokyo see the blockchain revolution as their big opportunity to catalyze a startup boom.
As Trump’s trade war slams exports, Japan is desperate to generate more economic energy and wealth from the ground up. First, of course, officials must get “CSI: Tokyo” off the air. Some good publicity would surely help. That means crafting safeguards that protect investors and limit nefarious uses without deadening crypto’s unique qualities.
That balancing might not be possible, of course. And only time will tell what might come of Zhoa’s Binance and its peers. But the fate of the crypto boom is far more likely to be decided in Tokyo than by the Art-of-the-Deal guy in the White House.