The Purpose Behind bitFlyer's Acquisition of FTX Japan

bitFlyer, a major Japanese cryptocurrency exchange, has announced the acquisition of FTX Japan, the Japanese subsidiary of the bankrupt FTX Trading. bitFlyer Holdings has acquired 100% of FTX Japan's shares, and FTX Japan will become a wholly owned subsidiary of bitFlyer.

In November 2023, reports emerged that FTX's financial soundness was questionable, causing customers to panic and even run on the bank. The company tried to calm down, but in just over 10 days, its cash flow collapsed and it went bankrupt. Its total debt is estimated to be 1.4 trillion yen to as much as 7 trillion yen in Japanese yen, and due to its large scale, it is expected that discussions on regulating the entire cryptocurrency industry will accelerate in the US Congress in the future.

Naturally, since FTX Japan is also the subject of a lawsuit in the US Bankruptcy Court, the procedure for making it a wholly owned subsidiary will require approval from the US Bankruptcy Court. Although details have not been disclosed, the acquisition price of bitFlyer is reported to be in the billions of yen. Why did bitFlyer acquire a company in such a precarious state? Regarding this matter, Yuzo Kano, CEO of bitFlyer Holdings, stated the following on the official X website:

"I believe that in the near future, institutional investors in Japan will incorporate crypto assets into their portfolios. bitFlyer plans to develop the crypto custody business as a new core business, leveraging the strong security that has been our strength since our founding. Please look forward to the new services that only our company can provide."

The main topic here is the custody business for institutional investors, and bitFlyer has invested several billion yen in this upfront investment.

In the cryptocurrency industry, a company that performs custody business is called a custodian. As I mentioned earlier, custodians will become a new collection device for the cryptocurrency industry in the future. In this article, I would like to explain why institutional investors are investing so much money in custodians.