US$400m NEM loss spooks investors

SHADOW OF MT. GOX::Crypto-friendly Japan is not likely to impose an extensive clampdown, but it will be interesting to view its regulatory response, an analyst said

Bloomberg

Sun, Jan 28, 2018 - Page 16

The disclosure that one of Japan’s biggest cryptocurrency exchanges lost about US$400 million in NEM tokens is spooking investors in a nation still wary of such venues four years after the collapse of Mt. Gox.

After hours of speculation on Friday night, Coincheck Inc said the coins were sent “illicitly” outside the venue.

Cofounder Yusuke Otsuka said the company did not know how the 500 million tokens went missing, and the firm is working to ensure the safety of all client assets.

Coincheck said earlier it had suspended all withdrawals, halted trading in all tokens except bitcoin, and stopped deposits into NEM coins.

“We know where the funds were sent,” Otsuka said during a late-night news conference at the Tokyo Stock Exchange. “We are tracing them and if we’re able to continue tracking, it may be possible to recover them, but it is something we are investigating at the moment.”

The disappearance likely ranks among the biggest losses or thefts of investor assets since the advent of digital currencies with the launch of bitcoin in 2009.

The Japanese Financial Services Agency (FSA) said in a statement it is “looking into the facts surrounding Coincheck.”

NEM, the 10th-largest cryptocurrency by market value, fell 11 percent over a 24-hour period to US$0.87 as of 2:30pm yesterday Tokyo time, according to Coinmarketcap.com.

Bitcoin on Friday dropped 3.4 percent and Ripple retreated 9.9 percent, according to prices available on Bloomberg.

“I’m shocked,” Takeshi Fujimaki, an opposition Japan Innovation Party politician who once served briefly as an adviser to billionaire investor George Soros, said on Twitter.

He wrote that he has an investment of more than ¥10 million (US$92,000) worth of bitcoin in Coincheck.

In Japan, one of the world’s biggest markets for cryptocurrencies, policymakers have introduced a licensing system to increase oversight of local venues, seeking to avoid a repeat of the Mt. Gox exchange collapse that roiled cryptocurrency markets worldwide in 2014. At that time, the theft of bitcoin was estimated at about US$450 million, although the figure was revised down later.

Coincheck had applied with the agency for a license as an exchange and was able to continue operating under the FSA’s rules while awaiting a decision. As a result, Coincheck falls under the supervision of the agency, an official said.

Cryptocurrency exchanges, many of which operate with little to no regulation, have experienced a spate of outages and hacks amid the trading boom that propelled bitcoin and its peers to record highs last year.

“What’s the lasting impact? It’s hard to tell,” ADM Investor Services International global strategist Marc Ostwald said. “Japan is one of the most pro-crypto trading countries among the G20. In Japan they don’t really want a wholesale clampdown, so it will be interesting how Japanese regulators respond to this, if they indeed do.”

Like bitcoin, NEM is a cryptocurrency built on top of blockchain, but it uses a more environmentally friendly method to confirm transactions, its Web site says. Bitcoin mining requires significant computing power, while NEM says it does not.

Coincheck, founded in 2012, had 71 employees as of July last year with headquarters in Shibuya District, an area popular with start-ups that was also home to Mt. Gox, Coincheck’s Web site says.