Japan Exchange Operator Considers Rules to Manage Crypto Holdings by Listed Companies: Report

Japan

Japan Exchange Group is contemplating new measures to regulate the growing trend of listed companies holding digital assets, spurred by concerns about investor safety following losses from the recent crypto accumulation boom.

Key Takeaways:

Japan Exchange Group is weighing regulations on listed companies holding cryptocurrencies.
New audits may be required for companies adopting significant crypto positions.
Several firms have halted crypto purchases due to regulatory feedback.
Market volatility has raised concerns among regulators about shareholder protection.
Hong Kong is implementing stricter scrutiny on crypto treasury listings.

Rising Concerns Around Crypto-Linked Companies

According to a Bloomberg report, the Tokyo Stock Exchange operator is considering updating its guidelines on backdoor listings, which would involve stricter requirements for companies that invest heavily in cryptocurrency. Currently, no final decisions have been reached.

The report mentions that, for the past two months, three listed companies have suspended their plans to purchase cryptocurrencies following feedback from JPX. These firms were cautioned that their ability to raise funds could be restricted if they pursued a strategy focused on acquiring digital assets.

Increased Scrutiny of Crypto-Linked Stocks

While JPX does not have a blanket ban on corporate crypto holdings, a spokesperson indicated that the exchange is keeping a close eye on companies that pose potential risks and governance issues, with the aim of safeguarding shareholders and investors alike.

Recently, stocks of companies that have amassed large crypto holdings have fallen significantly after previously surging earlier this year, leading retail investors to face considerable losses. For instance, Strategy Inc., known for its Bitcoin holdings estimated at around $66 billion, has seen its stock price drop nearly 50% since mid-July.

Across Asia, exchanges are becoming more cautious. In Hong Kong and other regional markets, there has been resistance to new listings of companies holding digital asset treasuries. Currently, Japan stands out with 14 public companies that hold Bitcoin, making it the leader in Asia in this regard.

Regulatory Responses to Market Fluctuations

Backdoor listings typically allow a company to go public through a merger instead of the standard initial public offering (IPO). JPX is already restricting such listings and is considering extending this prohibition to companies that transition their primary business model toward cryptocurrency accumulation.

Recent market downturns in Japan have intensified this regulatory discussion. Metaplanet, Japan’s largest crypto asset treasury (DAT) operator, has seen its stock plummet more than 75% from its peak in mid-June after a dramatic increase of 420% earlier that year.

Metaplanet switched its focus from hotels to cryptocurrency in early 2024 and has amassed over 30,000 Bitcoin, which places it among the largest public Bitcoin holders worldwide. Convano, a nail salon company aiming to acquire 21,000 Bitcoin, has also seen its stock value decline by about 60% since late August.

The pressure on companies is not solely affecting Bitcoin treasuries. On-chain analysis has drawn attention to Evernorth, a vehicle focused on XRP, which incurs around $78 million in unrealized losses shortly after building its position. The volatility is impacting even larger firms like Strategy.

Hong Kong is also tightening its listing regulations. Reports indicate that HKEX has questioned at least five applicants wishing to qualify as core crypto treasury companies, emphasizing that listed businesses need to be viable and sustainable. The exchange's framework necessitates that cryptocurrency operations are integrated in a meaningful way while capping excessive holdings in liquid assets.