Ex-Goldman Trader’s Bitcoin Exchange to Fill Mt. Gox Void
By Pavel Alpeyev July 22, 2014
A sign reading “Bitcoin Accepted Here” is displayed next to a cash register at a restaurant and bar in Tokyo. The ruling Liberal Democratic Party has taken a hands-off approach to the virtual currency which it sees aiding Prime Minister Shinzo Abe’s push to spur venture funding for innovation, a June report by the LDP’s special committee on IT strategy shows. Photographer: Yuriko Nakao/Bloomberg
Yuzo Kano quit Goldman Sachs Group Inc. (GS:US) twice: once for a rival bank, the second time to open Japan’s first bitcoin exchange since the collapse of Mt. Gox.
When Kano, 38, left his job as a derivatives and convertible bonds trader in December, bitcoin had climbed to a record $1,151. Three months later, it was worth half that after a $530 million heist at Tokyo-based Mt. Gox bankrupted what was once the virtual currency’s largest exchange.
“That’s one less competitor for us, but it also left many Japanese with a very negative impression of bitcoin,” Kano said in an interview in Tokyo on July 17. “We already had a company then and felt it was up to us to rebuild the trust.”
STORY: Mt. Gox Chief Executive: Bitcoin Heist Wasn’t Just Hacking
Since Mt. Gox closed in February, acquiring the digital currency in Japan meant going to the city’s only bitcoin ATM machine or arranging a person-to-person deal. Kano’s bitFlyer website allows anyone with a Japanese bank account to buy and sell the coins. The service began in April and eschews the trading options used by other exchanges in favor of a simple interface that would appeal to beginners, Kano said, declining to give subscriber numbers.
While Mt. Gox, operated by a Frenchman residing in Tokyo, catered mostly to foreigners, its bankruptcy was widely covered by domestic media. That has tended to scare off Japanese individuals, who Kano says are already averse to risks. Not so the nation’s government. The ruling Liberal Democratic Party has taken a hands-off approach to the virtual currency which it sees aiding Prime Minister Shinzo Abe’s push to spur venture funding for innovation, a June report by the LDP’s special committee on IT strategy shows.
Kano raised 160 million yen ($1.6 million) from a Japanese venture capital firm to start bitFlyer in what he says was the country’s biggest investment in bitcoin to date. He is now seeking to raise cash from an overseas fund so the company can offer the service outside of Japan by year-end, he said.
“If we have another fiasco like Mt. Gox, it’s game over,” Kano said, speaking in his company’s sparsely-furnished, glass-walled office a few blocks away from the Japanese parliament. “There needs to be monitoring to prevent that from happening.”
Kano’s company is also seeking to set security standards and personal identification guidelines for bitcoin trading in the Asian nation, through the Japan Authority of Digital Asset, which groups bitFlyer with CoinPass and the Japanese unit of Kraken, a San Francisco-based exchange.
Mt. Gox Vacuum
Trading of the digital currency may expand as new entrants seek to take advantage of the vacuum left by Mt. Gox. BitOcean, a Chinese startup, joined with New York-based Atlas ATS Inc. to bid for the assets of the defunct exchange operator and the two companies plan to start a bitcoin platform in Japan by August, Nan Xiaoning, the Beijing-based founder and chief executive officer of BitOcean, said in an interview on July 15.
Kraken is also planning a Japanese-language website for bitcoin-yen trading, Chief Executive Officer Jesse Powell said in an interview with Kyodo News in March. The exchange currently accepts dollars, euro and the Korean won.
Bitcoin fetched $618.71 or 459.45 per euro as of 9:13 a.m. in Tokyo today, according to CoinDesk Bitcoin Price Index.
Unlike most of its rivals, which link buyers and sellers together, bitFlyer is the counterparty for either transaction, Kano said. That allows for deals to be concluded instantaneously and without complicated price-setting mechanisms that can be off-putting to newcomers, he said.
“That’s a major advantage we have over other exchanges, but it also means we take on the risk,” he said. “Controlling that risk is something you can’t do without experience.”
Kano first joined Goldman Sachs in 2001 after graduating from Tokyo University with a Master’s degree in fluid dynamics. The branch of physics studying movement of liquids and gases gave Kano an appreciation for complex systems and the programming skills needed to simulate them, he said.
After 3 1/2 years as an analyst he left to join BNP Paribas SA to learn how to trade. His second stint at Goldman Sachs lasted 6 1/2 years.
“There is no stability in working for Goldman and doing something on my own has a greater upside,” Kano said. “I like complex systems, that’s why I became a derivatives trader. Now it’s bitcoin.”
(An earlier version of this story was corrected to show Kraken accepts euro.)
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