Kristian Rouz – Japanese banking conglomerate Mitsubishi UFJ Financial Group is working to set up a hedge mechanism for investors seeking to safeguard their bitcoin holdings. This comes amid rife volatility in bitcoin trading, and the concerns of the entire cryptocurrency market being a potential bubble.
Mitsubishi is the world’s second-largest banking corporation, and it already has experience dealing with a bitcoin crisis. Back in 2014, bitcoin crashed six fold, from $1,200 to $200 per coin, on the Tokyo-based exchange Mt. Gox, erasing significant volumes of investment capital.
In order to prevent a similar scenario on a larger scale – given the higher value of bitcoin now – Mitsubishi’s trust and banking units are seeking ways to diminish the costs of a possible downturn in bitcoin trading. Such a strategy would also help the Japanese financial watchdogs making their regulations more coherent, as the Bank of Japan (BoJ) sees bitcoin in a favorable light.
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"Customers will feel peace of mind knowing that a trust bank is managing their assets," Noriyuki Hirosue, CEO of Tokyo-based cryptocurrency exchange Bitbank said.
Mitsubishi says it will keep the ledger of bitcoin transactions on its records. In the event of a bitcoin exchange failure or wrongdoing by market participants, the ledger will be used to guarantee the bitcoin holders of other users of the affected platform.
However, Mitsubishi plans to impose a fee for its services, which will be paid by cryptocurrency exchanges. Many of these platforms are fairly obscure start-ups, and they might seek to bolster their reputations amongst traders by having a proper backing from a respectable financial institution.
Bitcoin, for its part, is holding steady throughout the Christmas holiday season, having stabilized at just above $15,000 per coin after its wild fluctuations between $20,000 and as low as $12,000 per coin over the past ten days.
Most investors are confident such price swings will continue throughout the next year, but the overall sentiment of cryptocurrencies is rather bullish due to their main feature, which is limited supply.
"I think we're going to see bitcoin hitting the $60,000 mark, but I also think we're going to see bitcoin hitting the $5,000 mark," Julian Hosp of cryptocurrency advisory TenX said. "The question is though, 'Which one is it going to hit first?'"
Mitsubishi’s hedging scheme will allow the Japanese financial industry to capitalize on the volatility of the bitcoin market by significantly reducing risks to trading. Japan’s bitcoin exchanges are currently processing over 40 percent of global cryptocurrency trading.
Additionally, Mitsubishi will allow its clients to keep their bitcoin holdings separate from the trading platform’s assets. This will prevent shocks similar to those caused by the collapse of South Korean exchange YouBit earlier this month, and a massive security breach at the Slovenian platform NiceHash. In both cases, user holdings were wiped out. Under Mitsubishi’s scheme, user holdings will be safe.
Mitsubishi will also scrutinize and put under surveillance those accounts engaged in suspicious activity. This is particularly relevant amidst the rise of cybercrime targeting bitcoin assets. For instance, a late-night sale of significant volumes of bitcoin will be flagged as suspicious activity aimed at rocking the market, and will not be processed immediately.
This will also reduce the volatility in bitcoin’s value somewhat, as its recent moves were triggered by sales and purchases of large volumes of cryptocurrency within short periods of time.
Japan seeks to use the blockchain technology to its advantage, as its economy has struggled with disinflation and excessive reliance on exports for over two decades. The BOJ has embraced the idea of making additional financial gains through technology, and the nation’s private sector gets the green-light to come up with potentially lucrative initiatives related to cryptocurrencies.