Will the world follow Japan's lead? It all depends on Japan's confidence in Bitcoin

Japan’s efforts in Bitcoin have made Bitcoin’s influence even greater, and as long as Japan does not fail in this regard, the world’s top digital currency will always be a success. The latest example is the country’s Bitcoin exchanges complying with anti-money laundering and know your customer (KYC) regulations.

Like China, whenever Japan introduces a policy change, it will have a significant impact on the Bitcoin market.

Japan has introduced a policy recognizing Bitcoin as a legal payment method. Image source: Golden Finance

Impact of Bitcoin Price

Bitcoin has been climbing steadily since Monday, surpassing the $1,100 price range, as Japan officially recognized Bitcoin as a legal payment method last Saturday (April 1).

Bitcoin prices have fully recovered from their slump a week ago as the deadlock over bitcoin’s scaling problem intensified and demand for bitcoin among Japanese consumers was boosted after the Japanese government passed a law exempting bitcoin from taxation.

Additionally, it brings up the issue of anti-money laundering and know your customer (KYC), which has been hotly debated. Some users are in favor of it because they prefer legal exchanges that comply with the law, pay taxes as users, and provide some form of protection for users’ money.

New law strengthens Bitcoin regulation

The new law will prevent incidents similar to the Bitcoin exchange Mt.Gox from happening again. Image source: Golden Finance

After the collapse of the Mt.Gox Bitcoin exchange, the new law in Japan has been in the works for several months. The law will force all Japanese exchanges to comply with anti-money laundering regulations, just like China. This move is expected to increase trust in Bitcoin and prevent the Mt.Gox example from happening again.

Coincheck’s Kagayaki told the media:

"The total market value and usage of cryptocurrencies has increased dramatically in less than a few years, and Bitcoin and cryptocurrencies cannot be ignored. The Mt. Gox incident happened in Tokyo. I think the lesson has been learned from this incident that Japan has decided to regulate them to protect customers. And I think if this new regulation works, other countries will follow Japan's example."

Tax issues

Anti-money laundering and know-your-customer (KYC) processes will also tie governments to Bitcoin, something many have so far believed is missing for the ecosystem to become a regulated market.

For Bitsquare’s Ken Shishido, the development is the result of years of industry lobbying policymakers, rather than the government necessarily taking a proactive approach to bitcoin’s wider success.

He added that the implications of the tax had not yet been finalised, but a formal exemption from GST was a big move.

From China to Japan and beyond, it’s clear that governments are looking at Bitcoin as a financial tool. But for digital currency to go mainstream, everyday users will need to support it on a regular basis.

Why Japan is important

Japan's position in the Bitcoin market is becoming increasingly important. Image source: Golden Finance

Japan doesn’t seem to be too concerned about the general attitude of some countries towards digital currencies such as Bitcoin. The country’s confidence in Bitcoin is simply overwhelming, despite its negative history with digital currencies.

With this level of trust and interest in the currency, the success of this ongoing experiment will help demonstrate how effective legislation can be for Bitcoin.

There is still a long way to go to attract interest in countries that are still skeptical about Bitcoin, and to better educate the wider global community, especially governments, about Bitcoin.

State-recognized legitimacy always contributes to the legitimacy of Bitcoin.

For a large economy like Japan to trust Bitcoin as a payment method is a big deal. It’s a sign that could dispel some of the negativity some people have towards Bitcoin.

Shishido said:

“Not sure if other developed countries will follow this model soon, but countries and SARs like Singapore, Estonia, Switzerland, Hong Kong, etc. may do so. If some countries really consider Bitcoin as legal tender, it will bring changes to Bitcoin.”

Bitcoin's position in Japanese law is "monetary assets, exempt from consumption tax." If a country recognizes Bitcoin as legal tender, all UN countries will recognize it.

Another notable factor about Japan’s impact on Bitcoin’s price is that when the law was passed, Bitcoin’s price started to increase and actually increased. It may recover to a certain point, but it will never fall back to its original starting point.

Mexico is also taking similar steps. It is working on drafting a legal bill on fintech and making its central bank’s definition applicable to digital assets such as Bitcoin based on two sets of criteria: widespread adoption by the public, and rules and mechanisms for generating, identifying, dividing, and controlling Bitcoins.