Yesterday, Japan’s Financial Services Agency (FSA) issued warnings to unregistered overseas cryptocurrency exchanges. This highlights a broader issue: cryptocurrencies exist on the internet, without borders, making regulation on a per-country basis inherently difficult.

Crypto exchanges are now in a global race, much like how American giants like GAFAM dominate internet services. Some of the exchanges warned by the FSA aren’t just "exchanges" but comprehensive platforms offering payment and other services that attract global users and generate significant liquidity. However, not all globally licensed exchanges thrive. Even some Hong Kong-licensed exchanges, despite their ambitions, face low liquidity and are likely operating at a loss. A license alone doesn’t guarantee success.

Japan faces similar challenges. Domestic exchanges often remain limited to basic yen-crypto trading, offering little added value. Even with regulatory warnings, their competitiveness is unlikely to improve without innovation. Furthermore, Japan’s financial services, including crypto, frequently exclude foreign residents or non-residents, unlike U.S.-licensed exchanges or financial institutions in Hong Kong and Singapore that cater to global users.

The takeaway? In a borderless, internet-driven market, exchanges in smaller or insular markets face steep competition. Without significant reform and global alignment, many will struggle to survive.

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