Japan exploring stricter rules for digital asset treasury companies as losses mount

Japan’s main stock market operator is looking at ways to slow down the number of listed companies that buy and hold crypto, as worries grow about investor losses tied to the cryptocurrency buying spree.

The company that runs the Tokyo Stock Exchange is examining several possibilities, including making its backdoor listing rules tougher and asking companies to go through new audits, according to sources close to the situation who spoke on condition of anonymity because the plans haven’t been made public. The sources say no final decisions have been made yet.

Three Japanese companies that trade on the exchange have put their plans to buy cryptocurrencies on pause since September after facing resistance from Japan Exchange Group, one source revealed. These companies were warned that their ability to raise money would be limited if they went ahead with buying crypto as part of their business plans, the source added.

Right now, the stock exchange doesn’t have any broad rules stopping listed companies from piling up cryptocurrency. However, a spokesperson for Japan Exchange Group said in an email to Bloomberg that the organization is “monitoring companies that raise concerns from a risk and governance perspective, with a view to protecting shareholders and investors.”

Crypto treasury stocks face sharp declines

The type of crypto-holding stocks that follow the model created by Michael Saylor’s Strategy Inc. saw big gains earlier this year but have since dropped dramatically, leaving everyday investors facing major losses. Strategy, which has built up a Bitcoin collection valued at roughly $66 billion, has seen its stock price fall by about half since mid-July.

Meanwhile, stock exchanges in Hong Kong and other parts of the Asia-Pacific area have pushed back against efforts to create new digital asset treasury companies, or DATs. Japan stands apart with 14 listed Bitcoin-buying firms, more than any other Asian country, based on information from BitcoinTreasuries.net.

What backdoor listings mean for crypto firms

A backdoor listing happens when a private company becomes publicly traded through a merger or takeover, skipping the traditional Initial Public Offering route. Japan Exchange Group already doesn’t allow backdoor listings, and sources say it’s now looking at whether to extend that ban to companies already on the exchange that change their main business focus to collecting cryptocurrency.

The push for tougher oversight came about because of concerns that Japanese investors have lost money from the recent drop in local digital asset treasury company stocks, sources said.

Metaplanet Inc., which is by far Japan’s biggest digital asset treasury operator trading in Tokyo, has watched its stock price crash more than 75% from its peak in mid-June. This came after the stock had jumped about 420% earlier in the year. The company has gathered more than 30,000 Bitcoins after switching its business from running hotels to cryptocurrency in early 2024, making it the fourth-biggest public Bitcoin holder in the world.

Convano Inc., a nail salon business that plans to buy 21,000 Bitcoins, has seen its shares fall roughly 60% since late August.

Claim your free seat in an exclusive crypto trading community - limited to 1,000 members.