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Business deals

Coincheck acquisition a gamble for Monex

But so far, markets like online brokerage's bet on cryptocurrency

Monex Group plans to spend several billion yen to buy cryptocurrency exchange Coincheck, which was hit by a high-profile digital money theft in January.

TOKYO -- News that Japanese online brokerage Monex Group is considering taking over cryptocurrency exchange Coincheck cheered investors, as it represented a bold push into a new business area. But the move would carry considerable risks with unknown consequences.

Reports of Monex's interest in Coincheck sent its shares limit-up Tuesday afternoon, rising 80 yen from Monday's close to finish the day at 424 yen. The stock fell sharply on profit-taking on Wednesday morning but ended the day up 5.18% at 446 yen, after posting the year's intraday high of 449 yen.

Coincheck had been looking for external support since the Financial Services Agency told it to overhaul its management system following a heist of the cryptocurrency NEM in January. Many Coincheck customers had shifted their money to other exchanges following the theft.

Investors were pleased by Tuesday's news for two reasons.

First, operating a cryptocurrency exchange can be very profitable. Some 58 billion yen ($544 million) in NEM tokens was taken from the digital wallets of Coincheck customers on Jan. 26 in the largest cryptocurrency heist ever. In March, the company said it would refund about 46 billion yen to the roughly 260,000 holders of NEM using its own funds, showing just how much money it had amassed. 

Coincheck seems to have accumulated most of the currency for the refund during the cryptocurrency "bubble" that had emerged since the spring of 2017.

While the boom has since subsided, the blockchain technology used in cryptocurrency is considered to have much promise. For investors, the estimated acquisition price of several billion yen for Coincheck was deemed to "undervalue" the exchange.

Second, Monex aims to use the Coincheck acquisition to escape from its own difficult business situation. Founded in 1999, Monex was an early pioneer among online brokerages. After nearly 20 years, however, it now trails far behind rivals in terms of profitability.

Japanese online brokerages have different areas of specialization. SBI Securities and Rakuten Securities have locked in retail investors with ultralow commissions. Matsui Securities' strength lies in margin trading. Kabu.com Securities has partnered with one of Japan's megabanks, Mitsubishi UFJ Financial Group.

Monex, on the other hand, has fallen behind, despite efforts to expand business overseas.

In October, Oki Matsumoto, president and CEO of Monex Group, became president of its brokerage unit, assuming the post he quit two years earlier to become chairman. He decided to spearhead the incorporation of blockchain technology and other rapid changes facing financial institutions.

Monex's focus on the area was demonstrated by its establishment of a cryptocurrency laboratory in January. By acquiring Coincheck, Monex aims to better compete with SBI Holdings, which is strengthening its position in blockchain technology.

But it could take time for the acquisition to bear fruit. Many financial institutions and tech companies with a strong interest in the cryptocurrency business surfaced as potential bidders for Coincheck. Yet many had second thoughts after weighing the risks of lax security and the difficulty of providing adequate support to clients, should cryptocurrency prices collapse.

"You never know what might happen," said an executive with another major online brokerage.

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