Bitcoin’s price plummeted earlier today as Japanese regulators ordered exchanges to beef up their anti-money laundering practices. At one point, the price of bitcoin hit a four month low of $6,092.28, as reported by CNBC, before bouncing back above $6,200.
bitFlyer, the largest cryptocurrency exchange in Japan, suspended the creation of new accounts after receiving the order from regulators. The ban on new accounts will continue until bitFlyer completes its changes.
Japanese regulators gave identical orders to five other exchanges. The five exchanges plus bitFlyer were targeted after regulators were disappointed with their existing anti-money laundering protections. In any case, the price of bitcoin dropped 9% in just a few hours on Friday, hitting its lowest level since February 6. Other cryptocurrencies experienced similar drops.
The order was from Japan’s Financial Services Agency. It specifically targets the anti-money laundering (AML) and counter terrorist financing (CTF) practices used by Japan’s exchanges. The agency spotted weaknesses within the practices used by the six targeted exchanges, which is why they issued the order.
“Our management and all employees are united in our understanding of how serious these issues are,” explained bitFlyer in a statement, “As well as how serious we are in responding to them going forward.”
“In order to maximize our efforts towards building a suitable service and improving on the issues identified, we have temporarily suspended account creation for new customers of our own volition.”
It’s Not All Bad News
The market typically reacts to regulations with panic. Enhanced regulations and scrutiny typically lead to a drop in the price of bitcoin and other cryptocurrencies.
In the short run, regulations can be a bad thing. The suspension of new accounts at exchanges like bitFlyer will temporarily stop the flow of money into the marketplace. bitFlyer is the largest cryptocurrency exchange in Japan, and Japan has a large number of bitcoin users – so this will obviously affect markets worldwide.
However, in the long run, increased regulation can be good for the cryptocurrency industry. It gives exchanges a more organized framework within which to work.
“In the long term, it builds a better ecosystem and makes sure this is a legitimate asset class,” said Brian Kelly, founder and CEO of BKCM in a statement to CNBC. “This is part of making sure exchanges are up to snuff.”
One of the reasons bitcoin’s price has fallen in 2018 is the lack of new buyers. The skyrocketing price in 2017 was fueled by new money funneling into the crypto industry. In 2018, this new money has dropped off significantly. The price of bitcoin has dropped from a near-$20,000 high in December to a low of around $6,000.
Japan Continues To Lead The Way In Crypto Regulation
Japan has consistently led the way in cryptocurrency regulation. The country was the first to adopt a national system to regulate cryptocurrency trading, for example. Japan introduced this system after high-profile breaches like the Mt. Gox hack.
This past March, Japanese regulators also issued punishment notices to multiple exchanges. Regulators forced exchanges to stop business altogether after the theft of $500 million from the Japan-based Coincheck exchange.
Now, Japan continues to lead the way in cryptocurrency regulation by ensuring exchanges remain compliant with anti-money laundering regulations. Bitcoin critics often point to money laundering as one reason why bitcoin facilitates criminal activity.
In any case, today’s regulatory announcements are leading to losses across the cryptocurrency industry. Bitcoin and Ethereum dropped by approximately 9%, while XRP shed 7% of its value. Bitcoin Cash and Litecoin were two of the hardest hit cryptocurrencies, dropping by 11% apiece.