424B3: Prospectus [Rule 424(b)(3)]
Published on April 10, 2025
PROSPECTUS |
Filed Pursuant to Rule 424(b)(3) |
COINCHECK GROUP N.V.
Primary Offering of
4,860,148 Ordinary Shares Underlying Warrants
Secondary Offering of
127,895,040 Ordinary Shares
129,611 Warrants to Purchase Ordinary Shares and
129,611 Ordinary Shares Underlying Warrants
This prospectus relates to the offer and sale by us of (i) up to 4,730,537 of our ordinary shares with a nominal value of one eurocent (EUR 0.01) each (“Ordinary Shares”) that are issuable by us upon the exercise of 4,730,537 Public Warrants (as defined below) that were previously registered, and (ii) up to 129,611 Ordinary Shares that are issuable by us upon the exercise of 129,611 Private Warrants (as defined below).
This prospectus also relates to the offer and sale from time to time by the selling securityholders named in this prospectus (collectively, the “Selling Securityholders”) of
(A) up to 127,895,040 Ordinary Shares, comprising
(i) up to 4,195,973 Ordinary Shares (the “TBCP Ordinary Shares”) that were issued to TBCP IV, LLC (the “Thunder Bridge Sponsor” or “Sponsor”) in exchange for (i) 3,547,918 shares of common stock of TBCP IV, LLC and (ii) 648,055 outstanding placement units held by the Thunder Bridge Sponsor that were issued in connection with the private placement that closed simultaneously with the closing of Thunder Bridge’s initial public offering pursuant to the Placement Unit Purchase Agreement, dated June 29, 2021, between Thunder Bridge and Thunder Bridge Sponsor;
(ii) up to an aggregate of 122,587,617 Ordinary Shares (the “CNCK Ordinary Shares” and, together with the TBCP Ordinary Shares, the “BCA Ordinary Shares”) received by the Coincheck Shareholders in exchange for their existing equity interests in Coincheck, Inc. in connection with the completion of the Business Combination, including (1) up to 109,097,910 Ordinary Shares that were received by Monex Group, Inc., (“Monex”) (2) up to 9,700,464 Ordinary Shares that were received by Koichiro Wada (“Koichiro Wada”), and (3) up to 3,789,243 Ordinary Shares that were received by Yusuke Otsuka (“Yusuke Otsuka” and, together with Thunder Bridge Sponsor, Monex and Koichiro Wada, the “BCA Selling Securityholders”);
(ii) up to an aggregate of 1,111,450 Ordinary Shares (the “Next Finance Acquisition Shares”) received by the former holders (the “Next Finance Shareholders”) of all of the issued and outstanding shares (the “Next Finance Shares”) of Next Finance Tech Co., a corporation under the laws of Japan (“Next Finance Tech Co.”) in exchange for their equity interests in Next Finance Tech Co., Ltd.;
(B) up to 129,611 Private Warrants, and
(C) up to 129,611 Ordinary Shares issuable upon the exercise of the Private Warrants.
We are registering the offer and sale of these securities to satisfy certain registration rights we have granted. The Selling Securityholders may offer all or part of the securities for resale from time to time through public or private transactions, at either prevailing market prices or at privately negotiated prices. These securities are being registered to permit the Selling Securityholders to sell securities from time to time, in amounts, at prices and on terms determined at the time of offering. The Selling Securityholders may sell these securities through ordinary brokerage transactions, in underwritten offerings, directly to market makers of our shares or through any other means described in the section entitled “Plan of Distribution” herein. In connection with any sales of securities offered hereunder, the Selling Securityholders, any underwriters, agents, brokers or dealers participating in such sales may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, or the Securities Act. We are registering these securities for resale by the Selling Securityholders, or their donees, pledgees, transferees, distributees or other successors-in-interest selling our Ordinary Shares or Private Warrants or interests in our Ordinary Shares or Private Warrants received after the date of this prospectus from the Selling Securityholders as a gift, pledge, partnership distribution or other transfer.
All of the securities offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. We will not receive any proceeds from the sale by the Selling Securityholders of the securities being registered hereunder. With respect to the Ordinary Shares underlying the Warrants, we will not receive any proceeds from such shares except with respect to amounts received by us upon exercise of such Warrants to the extent such Warrants are exercised for cash. Assuming the exercise of all outstanding Warrants for cash, we would receive aggregate proceeds of approximately $55.9 million. However, whether warrantholders will exercise their Warrants, and therefore the amount of cash proceeds we would receive upon exercise, is dependent upon the trading price of the Ordinary Shares. Each Warrant will become exercisable for one Ordinary Share at an exercise price of $11.50. Therefore, if and when the trading price of the Ordinary Shares is less than $11.50, we expect that warrantholders would not exercise their Warrants. The Warrants may not be or remain in the money during the period they are exercisable and prior to their expiration and, therefore, it is possible that the Warrants may not be exercised prior to their maturity, even if they are in the money, and as such, may expire worthless with minimal proceeds received by us, if any, from the exercise of Warrants. To the extent that any of the Warrants are exercised on a “cashless basis,” we will not receive any proceeds upon such exercise. As a result, we do not expect to rely on the cash exercise of Warrants to fund our operations. Instead, we intend to rely on other sources of cash discussed elsewhere in this prospectus to continue to fund our operations. See “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
Our Ordinary Shares and Public Warrants are listed on the Nasdaq Global Market (“Nasdaq”) under the symbols “CNCK” and “CNCKW,” respectively. Holders of Ordinary Shares and Public Warrants should obtain current market quotations for their securities. On April 8, 2025, the last reported sale prices for our Ordinary Shares and Public Warrants on Nasdaq were $4.37 per share and $0.49 per warrant, respectively.
The securities being registered for resale pursuant to this prospectus include Ordinary Shares and Private Warrants that were purchased at prices or received for consideration that may be significantly below the current trading prices of these securities on the open market, and the sale of which would result in certain Selling Securityholders realizing a significant gain. The BCA Selling Securityholders acquired the BCA Ordinary Shares covered by this prospectus at average prices ranging from ¥18.86 ($0.13) per Ordinary Share to $1.55 (¥226.25) per Ordinary Share. By comparison, the offering price to public shareholders in Thunder Bridge’s initial public offering was $10.00 per unit, which consisted of one Ordinary Share and one fifth of one Public Warrant. Consequently, certain BCA Selling Securityholders may realize a positive rate for return on the sale of their Ordinary Shares covered by this prospectus even if the market price of the Ordinary Shares is below $10.00 per Ordinary Share.
The securities being registered hereby (excluding the Next Finance Acquisition Shares) were acquired in connection with the Business Combination in exchange for equity interests held in either Coincheck, Inc. or the Sponsor, or for Private Placement Units purchased pursuant to the Placement Unit Purchase Agreement. The purchase prices paid by the BCA Selling Securityholders for the Ordinary Shares were calculated based on the sum total consideration each BCA Selling Securityholders paid for such exchanged equity interest or Private Placement Units in the amount as follow: (i) Monex Group, Inc. received 109,097,910 Ordinary Shares for an effective aggregate purchase price of ¥8,356,278,855 ($57,262,241), or ¥76.59 ($0.52) per share, based on consideration paid for the exchanged equity interest held in Coincheck, Inc., (ii) Koichiro Wada received 9,700,464 Ordinary Shares for an effective aggregate purchase price of ¥16,720,000 ($2,170,356), or ¥32.65 ($0.22) per share, based on consideration paid for the exchanged equity interest held in Coincheck, Inc., (iii) Yusuke Otsuka received 3,789,243 Ordinary Shares for an effective aggregate purchase price of ¥71,482,500 ($489,841), or ¥18.86 ($0.13) per share, based on consideration paid for the exchanged equity interest held in Coincheck, Inc. and (iv) the Sponsor received 4,195,973 Ordinary Shares (excluding 2,365,278 Ordinary Shares which the Sponsor received but forfeited and surrendered for no consideration) for an effective purchase price of $6,505,560 (¥949,356,371), or $1.55 (¥226.25) per share, based on consideration paid for the exchanged equity interest held in the Sponsor. The Sponsor also received 129,611 Private Warrants exercisable at $11.50 per share underlying its Private Placement Units.
Given the lower purchase prices that the BCA Selling Securityholders paid to acquire Ordinary Shares or Warrants compared to the current trading price of our Ordinary Shares or Warrants, these BCA Selling Securityholders are likely to earn a positive rate of return on their investment at current market prices. Based on the last reported sale price on April 8, 2025 of $4.37 (¥637.71) per Ordinary Share, the BCA Selling Securityholders would realize profits on the sale of their holdings as follows: (i) Monex Group would realize a potential profit
of ¥62,447,031,929 ($427,924,566), or ¥572.39 ($3.92) per share, (ii) Koichiro Wada would realize a potential profit of ¥5,978,771,521 ($40,970,133), or ¥616.34 ($4.22) per share, (iii) Yusuke Otsuka would realize a potential profit of ¥2,387,693,389 ($16,361,909), or ¥630.12 ($4.32) per share and (iv) the Sponsor would realize a potential aggregate profit of $11,830,842 (¥1,726,474,773), or $2.82 (¥411.52), per share. The Sponsor would also realize a value of $63,276 (¥$9,233,880) upon the sale of its Private Warrants based on the April 8, 2025 last reported sale price of $0.49 (¥71.51) of our Public Warrants. The aggregate amount of profit for such BCA Selling Securityholders would be ¥72,549,205,479 ($497,150,726). Investors who purchase our Ordinary Shares in the open market may not experience a similar rate of return on the securities they purchase due to differences in the purchase prices and the current trading price.
The Ordinary Shares being registered for resale in this prospectus represent a substantial percentage of our public float and of our outstanding Ordinary Shares. The Ordinary Shares being offered for resale by the Selling Securityholders pursuant to this prospectus represent approximately 94.3% of our total outstanding Ordinary Shares as of April 8, 2025 on a fully diluted basis (assuming and after giving effect to the issuance of Ordinary Shares upon exercise of all outstanding Warrants). Once the registration statement that includes this prospectus is effective and during such time as it remains effective, the Selling Securityholders will be permitted (subject to compliance with the contractual lock-up restrictions that apply to certain Selling Securityholders, as described under “Shares Eligible for Future Sale”) to sell the shares registered hereby. Based on the last reported sale price of our Ordinary Shares on April 8, 2025, BCA Selling Securityholders may realize profit per share ranging from ¥411.46 ($2.82) to ¥618.85 ($4.24), even though the current trading price of our Ordinary Shares is below the $10.00 offering price to public shareholders in Thunder Bridge’s initial public offering. The resale, or anticipated or potential resale, of a substantial number of shares of our Ordinary Shares may have a material negative impact on the market price of our Ordinary Shares and could make it more difficult for our shareholders to sell their Ordinary Shares at such times and at such prices as they deem desirable. Additionally, even if the price of our Ordinary Shares declines substantially, some Selling Securityholders may still have an incentive to sell to obtain liquidity.
We will bear all costs, expenses and fees in connection with the registration of the securities offered by this prospectus, including, without limitation, all registration and filing fees (including fees with respect to filings required to be made with FINRA (as defined herein)), Nasdaq listing fees, fees and expenses of compliance with securities or blue sky laws, if any, and fees and expenses of counsel and independent registered public accountants, whereas the Selling Securityholders will bear all incremental selling expenses, including commissions and discounts, brokerage fees, underwriting marketing costs, legal counsel fees that are not covered by us and any other expenses incurred by the Selling Securityholders in disposing of the securities, as described in the section entitled “Plan of Distribution.”
We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read this entire prospectus and any amendments or supplements carefully before you make your investment decision.
We are a “foreign private issuer” as defined under the U.S. federal securities laws and, as such, may elect to comply with certain reduced public company disclosure and reporting requirements. See “Prospectus Summary — Implications of Being a Foreign Private Issuer and a Controlled Company.”
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 13 of this prospectus for a discussion of information that should be considered in connection with an investment in our securities.
Neither the U.S. Securities and Exchange Commission, or SEC, nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
PROSPECTUS DATED APRIL 8, 2025
Page |
||
ii |
||
iii |
||
v |
||
v |
||
v |
||
vi |
||
viii |
||
1 |
||
10 |
||
13 |
||
58 |
||
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION |
59 |
|
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION |
65 |
|
67 |
||
68 |
||
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION |
69 |
|
97 |
||
132 |
||
140 |
||
141 |
||
143 |
||
146 |
||
158 |
||
160 |
||
174 |
||
176 |
||
177 |
||
177 |
||
ENFORCEABILITY OF CIVIL LIABILITIES AND AGENT FOR SERVICE OF PROCESS |
177 |
|
177 |
||
F-1 |
You should rely only on the information contained or incorporated by reference in this prospectus or any supplement. Neither we nor the Selling Securityholders have authorized anyone else to provide you with different information. The securities offered by this prospectus are being offered only in jurisdictions where the offer is permitted. You should not assume that the information in this prospectus or any supplement is accurate as of any date other than the date on the front of each document. Our business, financial condition, results of operations and prospects may have changed since that date.
Except as otherwise set forth in this prospectus, neither we nor the Selling Securityholders have taken any action to permit a public offering of these securities outside the United States or to permit the possession or distribution of this prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of these securities and the distribution of this prospectus outside the United States.
i
This prospectus is part of a registration statement on Form F-1 that we filed with the SEC. The Selling Securityholders named in this prospectus may, from time to time, sell the securities described in this prospectus in one or more offerings. This prospectus includes important information about us, the securities being offered by the Selling Securityholders and other information you should know before investing. Any prospectus supplement may also add, update, or change information in this prospectus. If there is any inconsistency between the information contained in this prospectus and any prospectus supplement, you should rely on the information contained in that particular prospectus supplement. This prospectus does not contain all of the information provided in the registration statement that we filed with the SEC. You should read this prospectus together with the additional information about us described in the section below entitled “Where You Can Find Additional Information.” You should rely only on information contained in this prospectus and any prospectus supplement. We have not, and the Selling Securityholders have not, authorized anyone to provide you with information different from that contained in this prospectus and any prospectus supplement. The information contained in this prospectus is accurate only as of the date on the front cover of this prospectus. You should not assume that the information contained in this prospectus is accurate as of any other date.
The Selling Securityholders may offer and sell the securities directly to purchasers, through agents selected by the Selling Securityholders, or to or through underwriters or dealers. A prospectus supplement, if required, may describe the terms of the plan of distribution and set forth the names of any agents, underwriters or dealers involved in the sale of securities. See “Plan of Distribution.”
Throughout this prospectus, unless otherwise designated or the context requires otherwise, the terms “we,” “us,” “our,” “Coincheck Group,” “the Company” and “our company” refer to Coincheck Group N.V. and its subsidiaries, which prior to the Business Combination was the business of Coincheck, Inc. (“Coincheck”).
ii
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Financial Statements
Coincheck Group N.V.
Following the Business Combination, we qualified as a Foreign Private Issuer and prepare our financial statements in accordance with International Financial Reporting Standards (“IFRS”) Accounting Standards, as issued by the International Accounting Standards Board (“IASB”). The unaudited condensed consolidated interim financial statements of the Company as of December 31, 2024 and for the three and nine months ended December 31, 2023 and 2024 have been prepared in accordance with International Accounting Standards (“IAS”) 34 “Interim Financial Reporting” as issued by IASB and in its presentation and reporting currency of Japanese yen (“¥”).
Coincheck, Inc.
The audited financial statements of Coincheck, Inc. as of and for the fiscal years ended March 31, 2022, 2023 and 2024 have been prepared in accordance with IFRS Accounting Standards as issued by IASB and in its presentation and reporting currency of Japanese yen.
Thunder Bridge Capital Partners IV, Inc.
The historical audited financial statements of Thunder Bridge Capital Partners IV, Inc. (“Thunder Bridge”) as of and for the year ended December 31, 2023 and 2022 and the unaudited condensed interim financial statements of Thunder Bridge as of and for the three and nine months ended September 30, 2024 have been prepared in accordance with the generally accepted accounting principles in the United States (“U.S. GAAP”) and in its presentation and reporting currency of U.S. dollars (“USD”).
Accounting Treatment of the Business Combination
The Business Combination has been accounted for as a reverse recapitalization. Under this method of accounting, Thunder Bridge has been treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination has been treated as the equivalent of Coincheck issuing shares at the consummation of the Business Combination (the “Closing”) for the net assets of Thunder Bridge as of December 10, 2024 (the “Closing Date”), accompanied by a recapitalization. The net assets of Thunder Bridge have been stated at fair value, with no goodwill or other intangible assets recorded.
This determination was primarily based on the fact that the existing Coincheck stockholders have a majority of the voting power of the Company.
The Business Combination is not within the scope of IFRS 3 since there is no change in control based on the continued control of the Company by existing Coincheck stockholders and Thunder Bridge does not meet the definition of a business in accordance with IFRS 3; as such, the Business Combination has been accounted for within the scope of IFRS 2. Any excess of fair value of Coincheck shares issued over the fair value of Thunder Bridge’s identifiable net assets acquired represents compensation for the service of a stock exchange listing for its shares and is expensed as incurred.
Basis of Pro Forma Presentation
The historical financial information has been adjusted to give pro forma effect to the transaction accounting required for the Business Combination as per the Business Combination Agreement. The adjustments in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an accurate understanding of the combined entity upon the Closing. The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and is not necessarily indicative of the financial position and results of operations that would have been achieved had the Business Combination and related transactions occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information may not be useful in predicting the future financial condition and results of operations of the Company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments
iii
represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed. Coincheck and Thunder Bridge have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
The adjustments presented on the pro forma combined financial statements have been identified and presented to provide an understanding of the Company upon consummation of the Business Combination for illustrative purposes only. The financial results may have been different had the companies always been combined for the historical periods presented here. You should not rely on the pro forma combined financial statements as being indicative of the future financial position and results that the Company will experience.
Non-IFRS Financial Measures
In addition to our results determined in accordance with IFRS, we present EBITDA and Adjusted EBITDA, non-IFRS measures, because we believe they are useful in evaluating our operating performance. EBITDA represents net profit (loss) for the period before the impact of taxes, interest, depreciation, and amortization of intangible assets, and Adjusted EBITDA represents EBITDA, further adjusted for transaction expenses that are directly attributable to the Reverse Recapitalization, as well as Nasdaq listing expenses.
We use EBITDA and Adjusted EBITDA to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that EBITDA and Adjusted EBITDA may be helpful to investors because it provides consistency and comparability with past financial performance. However, EBITDA and Adjusted EBITDA are presented for supplemental informational purposes only, have limitations as an analytical tool and should not be considered in isolation or as a substitute for our financial information presented in accordance with IFRS.
Rounding
We have made rounding adjustments to some of the figures included in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them.
Fiscal Year
Our fiscal year begins on April 1 and ends on March 31 of the following year.
iv
TRADEMARKS, TRADE NAMES AND SERVICE MARKS
We have proprietary rights to trademarks used in this prospectus that are important to our business, many of which are registered under applicable intellectual property laws. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the “®” or “TM” symbols, but the lack of such symbols is not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. The use or display herein of other companies’ trademarks, trade names or service marks is not intended to imply a relationship with, or endorsement or sponsorship of us by, any other companies, or a sponsorship or endorsement of any such other companies by us. Each trademark, trade name or service mark of any other company appearing in this prospectus is the property of its respective holder.
This prospectus contains translations of certain U.S. dollar amounts into Japanese yen, and Japanese yen amounts into U.S. dollars, solely for the convenience of the reader. Such translations were made at the rate of $1.00 to ¥145.93 (or ¥1000 to $6.85), which was the foreign exchange rate on April 4, 2025 as reported by the Board of Governors of the Federal Reserve System in its weekly release on April 7, 2025. Historical and current exchange rate information may be found at https://www.federalreserve.gov/releases/h10/. Such currency amounts are not necessarily indicative of the amounts of currency that could actually have been purchased upon exchange of Japanese yen or U.S. dollars at the dates indicated or any other date, and, when expressed in Japanese yen or U.S. dollars in the future, such amounts may be different from those set forth in this prospectus due to intervening exchange rate fluctuations.
Market data and certain industry forecast data used in this prospectus were obtained from internal reports, where appropriate, as well as third-party sources, including independent industry publications, as well as other publicly available information. Data regarding the industries in which we compete and our market position and market share within these industries are inherently imprecise and are subject to significant business, economic and competitive uncertainties beyond our control, but we believe they generally indicate size, position and market share. In addition, assumptions and estimates of our and our industries’ future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors. These and other factors could cause our future performance to differ materially from our assumptions and estimates. As a result, you should be aware that market, ranking and other similar industry data included in this prospectus, and estimates and beliefs based on that data, may not be reliable. See “Cautionary Statement Regarding Forward-Looking Statements.”
v
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These forward-looking statements relate to expectations for future financial performance, business strategies or expectations for our business. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. Forward-looking statements are typically identified by words such as “plan,” “believe,” “expect,” “anticipate,” “intend,” “outlook,” “estimate,” “forecast,” “project,” “continue,” “could,” “may,” “might,” “possible,” “potential,” “predict,” “should,” “would” and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking.
These forward-looking statements are based on information available as of the date of this prospectus and our managements’ current expectations, forecasts and assumptions, and involve a number of judgments, known and unknown risks and uncertainties and other factors, many of which are outside of our control. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. We do not undertake any obligation to update, add or to otherwise correct any forward-looking statements contained herein to reflect events or circumstances after the date they were made, whether as a result of new information, future events, inaccuracies that become apparent after the date hereof or otherwise, except as may be required under applicable securities laws.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. As a result of a number of known and unknown risks and uncertainties, actual results or performance may be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in this prospectus under “Risk Factors” and the following:
• a delay or failure to realize the expected benefits from the Business Combination;
• the price of crypto assets and volume of transactions on Coincheck’s platform;
• the development, utility and usage of crypto assets;
• changes in economic conditions and consumer sentiment in Japan;
• cyberattacks and security breaches on the Coincheck platform;
• demand for any particular crypto asset;
• adverse changes to any laws or regulations in the United States, Japan or the Netherlands or Coincheck’s failure to comply with any laws or regulations;
• administrative sanctions, including fines, or legal claims if we are found to have offered services in violations of the laws of jurisdictions other than Japan or to have violated international sanctions regimes;
• Coincheck’s ability to compete in a highly competitive industry;
• Coincheck’s ability to introduce new products and services;
• any interruptions in services provided by third-party service providers;
• the status of any particular crypto asset as a “security” in any relevant jurisdiction;
• legal, regulatory, and other risks in connection with our operation of Coincheck NFT Marketplace that could adversely affect our business, operating results, and financial condition;
• our obligations to comply with the laws, rules, regulations, and policies of a variety of jurisdictions if we expand our international activities;
• the inability to maintain the listing of our Ordinary Shares on Nasdaq;
vi
• the ability to grow and manage growth profitably; and
• other risks and uncertainties indicated in this prospectus, including those set forth under the section entitled “Risk Factors.”
Should one or more of these risks or uncertainties materialize or should any of the assumptions made by our management prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this prospectus. All forward-looking statements included herein are expressly qualified in their entirety by the cautionary statements contained or referred to in this section as well as any other cautionary statements contained herein. In light of these risks and uncertainties, you should keep in mind that any event described in a forward-looking statement made in this prospectus or elsewhere might not occur.
vii
The following terms used in this prospectus have the meanings indicated below:
Term |
Description |
|
Address |
An alphanumeric reference to where crypto assets can be sent or stored. |
|
Bitcoin (“BTC”) |
The first system of global, decentralized, scarce, digital money as initially introduced in a white paper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” by Satoshi Nakamoto. |
|
Block |
Synonymous with digital pages in a ledger. Blocks are added to an existing blockchain as transactions occur on the network. Miners are rewarded for “mining” a new block. |
|
Blockchain |
A cryptographically secure digital ledger that maintains a record of all transactions that occur on the network and follows a consensus protocol for confirming new blocks to be added to the blockchain. |
|
Board or Board of Directors |
The board of directors of Coincheck Group N.V. |
|
Business Combination |
The Business Combination consummated on December 10, 2024, pursuant to the Business Combination Agreement. |
|
Business Combination Agreement |
The Business Combination Agreement, dated as of March 22, 2022, as amended from time to time, by and among Thunder Bridge, Coincheck Group B.V., a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) (which was converted into a Dutch public limited liability company (naamloze vennootschap) and renamed Coincheck Group N.V. immediately prior to the Business Combination), M1 GK, Merger Sub and Coincheck. |
|
Coincheck |
Coincheck, Inc., a Japanese joint stock company (kabushiki kaisha). |
|
Coincheck Parent |
Coincheck Group N.V., a Dutch public limited liability company (naamloze vennootschap) (which was Coincheck Group B.V., a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) prior to its conversion in connection with the Business Combination.) |
|
Coincheck Shareholders |
Monex Group, Inc., Koichiro Wada and Yusuke Otsuka. |
|
Coincheck NFT Marketplace |
Coincheck’s service that enables non-fungible tokens to be traded between users or purchased by users from Coincheck. |
|
Cold storage/Cold wallet |
The storage of private keys in any fashion that is disconnected from the internet in order to protect data from unauthorized access. Common cold storage examples include offline computers, USB drives or paper records. |
|
Cover counterparties |
Counterparties with which cover transactions are executed. |
|
Cover transactions |
Transactions executed by Coincheck on an external exchange or on Coincheck’s Exchange platform in order to hedge Coincheck’s own position arising from transactions in crypto assets with users of Coincheck’s Marketplace platform. |
|
Crypto |
A broad term for any cryptography-based market, system, application, or decentralized network. |
viii
Term |
Description |
|
Crypto asset (or “token”) |
A digital asset built using blockchain technology, including cryptocurrencies and NFTs. Under Japan’s Payment Services Act, digital assets that constitute a “security token” (i.e., electronically recorded transferable rights (“ERTRs”) or electronically recorded transferable rights to be indicated on securities (“ERTRISs”) under Japan’s Financial Instruments and Exchange Act (“FIEA”)) are excluded from the definition of crypto assets. Accordingly, crypto assets consist only of digital assets that have been determined not to constitute ERTRs or ERTRISs. |
|
Cryptocurrency |
Bitcoin and alternative coins, or “altcoins,” launched after the success of Bitcoin. This category of crypto asset is designed to work as a medium of exchange, store of value, or to power applications and excludes security tokens. |
|
Customer assets (IFRS) |
Safeguard liabilities + fiat currency deposited by customers on IFRS basis. |
|
Customers (or “users”) |
Parties who hold accounts and utilize the services provided on crypto asset platforms. This definition, as used in the description of our business, generally does not include cover counterparties, and thus such definition differs from the definition of “customer” under IFRS 15. Notwithstanding the foregoing, for purposes of Coincheck’s audited financial statements and the Company’s condensed interim consolidated financial statements included elsewhere in this prospectus, “customers” refers to customers that meet the definition of a customer under IFRS 15, including the parties described in the preceding paragraph as well as cover counterparties. |
|
DeFi |
Short for “Decentralized Finance,” referring to a peer-to-peer software-based network of protocols that can be used to facilitate traditional financial services like borrowing, lending, trading derivatives, insurance and more through smart contracts. |
|
Ethereum (“ETH”) |
A decentralized global computing platform that supports smart contract transactions and peer-to-peer applications, or “Ether,” the native crypto assets on the Ethereum network. |
|
Exchange Act |
The U.S. Securities Exchange Act of 1934, as amended. |
|
Exchange platform |
Coincheck’s exchange platform on which Coincheck mediates transactions between users selling and users purchasing 20 different types of cryptocurrencies as of December 31, 2024 and transacts to facilitate Coincheck’s cover transactions. |
|
FEFTA |
The Foreign Exchange and Foreign Trade Act of Japan (Act No. 228 of 1948). Under FEFTA, Japan’s Ministry of Finance and its ministries with jurisdiction over a target entity’s business review foreign direct investments and impose certain restrictions on such investments made by foreign investors. |
|
Fork |
A fundamental change to the software underlying a blockchain which results in two different blockchains, the original, and the new version. In some instances, the fork results in the creation of a new token. |
|
Hot wallet |
A wallet that is connected to the Internet, enabling it to broadcast transactions. |
ix
Term |
Description |
|
Initial Exchange Offering (“IEO”)/Initial Token Offering |
|
|
Japan Virtual and Crypto assets Exchange Association (the “JVCEA”) |
|
|
M1 GK |
M1 Co G.K., a Japanese limited liability company (godo kaisha) |
|
Marketplace platform |
As of December 31, 2024, Coincheck’s platform that supports 29 different types of cryptocurrencies and enables users to trade cryptocurrencies with Coincheck in yen or with other cryptocurrencies. |
|
Marketplace platform business |
Coincheck’s business is related to the Marketplace platform, where Coincheck buys and sells crypto assets to users on the Marketplace platform and executes cover transactions on an external exchange or Coincheck’s Exchange platform for the purpose of hedging Coincheck’s own position. |
|
Merger Sub |
Coincheck Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Coincheck Parent. |
|
Miner |
Individuals or entities who operate a computer or group of computers that add new transactions to blocks and verify blocks created by other miners. Miners collect transaction fees and are rewarded with new tokens for their service. |
|
Mining |
The process by which new blocks are created, and thus new transactions are added to the blockchain. |
|
Monex |
Monex Group, Inc., a Japanese joint stock company (kabushiki kaisha) listed on the Tokyo Stock Exchange. |
|
Nasdaq |
Nasdaq Global Market. |
|
NEM (“XEM”) |
NEM (abbreviated as “XEM” on exchange platforms) is a type of open-source cryptocurrency developed for the “New Economic Movement” network. NEM is a crypto asset with a strong community in Japan in particular, and the goal of NEM is to establish a new economic framework based on the principles of decentralization, economic freedom and equality rather than the existing frameworks managed by countries and governments. |
|
Network |
The collection of all miners that use computing power to maintain the ledger and add new blocks to the blockchain. Most networks are decentralized, which reduce the risk of a single point of failure. |
x
Term |
Description |
|
Non-fungible token (“NFT”) |
A unique and non-interchangeable unit of data stored on a blockchain which allows for a verified and public proof of ownership, first launched on the Ethereum blockchain. |
|
Off-chain |
A type of transaction that is not directly recorded on a blockchain. |
|
On-chain |
A type of transaction that is directly recorded as data on a blockchain. |
|
Protocol |
A type of algorithm or software that governs how a blockchain operates. |
|
Public key or private key |
Each public address has a corresponding public key and private key that are cryptographically generated. A private key allows the recipient to access any funds belonging to the address, similar to a bank account password. A public key helps validate transactions that are broadcasted to and from the address. Addresses are shortened versions of public keys, which are derived from private keys. |
|
SEC |
The U.S. Securities and Exchange Commission. |
|
Securities Act |
The U.S. Securities Act of 1933, as amended. |
|
Security token |
A security using encryption technology. This includes digital forms of traditional equity or fixed income securities, or may be assets deemed to be a security based on their characterization as an investment contract or note. |
|
Smart contract |
Software that digitally facilitates or enforces a rules-based agreement or terms between transacting parties. |
|
Stablecoin |
Crypto assets designed to minimize price volatility. A stablecoin is designed to track the price of an underlying asset such as fiat money or an exchange-traded commodity (such as precious metals or industrial metals). Stablecoins can be backed by fiat money or other crypto assets. |
|
UI |
Short for “user interface design,” referring to a human-first approach to product design that focuses on the effectiveness of products. |
|
US$ or $ |
Refers to U.S. dollars. |
|
UX |
Short for “user experience design,” referring to a human-first approach to product design that focuses on the aesthetic experience of products. |
|
Wallet |
A place to store public and private keys for crypto assets. Wallets are typically software, hardware or paper records. |
xi
This summary highlights certain information about us, this offering and selected information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before deciding whether to invest in the securities covered by this prospectus. You should read the following summary together with the more detailed information in this prospectus, including the information set forth in the section titled “Risk Factors” in this prospectus in their entirety before making an investment decision.
Overview
We operate one of the largest multi-cryptocurrency marketplaces and exchanges in Japan and are regulated by the JFSA. We are a leader in the Japanese crypto exchange industry, providing Marketplace and Exchange platforms on which diverse cryptocurrencies, including Bitcoin and Ethereum, are held and exchanged, and offering other retail-focused crypto services. We are also increasing Japanese users’ access to innovative digital products and solutions beyond cryptocurrencies, such as non-fungible tokens (“NFTs”), and seek to enable Japanese users to access the benefits of emerging new technologies. We believe we are well positioned to benefit from increasing adoption of cryptocurrencies and other new technologies within the world’s fourth largest economy.
We estimate that 18.6% of cryptocurrency users in Japan have a verified Coincheck account, or approximately 2.2 million users as of December 31, 2024, based on data compiled by the JVCEA. We believe that our users choose us due to our trusted and recognized brand, robust product offering and strong customer service. Approximately 51% of these accounts are held by customers under 40 as of December 31, 2024, providing the opportunity for our business to grow alongside our customers as they reach their prime earning years. We believe that this, combined with our constant innovation and robust KYC/AML and compliance infrastructure, positions us to capitalize on the potential growth of the Japanese crypto economy.
We derive most of our total revenue from trading on our Marketplace platform business. We support trading in 31 different types of cryptocurrencies across all our Marketplace and Exchange platforms as of December 31, 2024. We also continue to be an innovator in the Japanese crypto economy to ensure that Japanese customers and institutions have broad access to the latest technological developments. We conducted Japan’s first IEO during 2021 and have launched a marketplace for NFTs, which we expect to have synergies with our other businesses. Our smartphone application is our main point of contact with our customers, and we believe it provides a user friendly experience with sophisticated UI/UX. To maintain the quality of customer experience we offer, we continuously invest in flexible system and software development, and engineers accounted for 37.1% of our staff as of December 31, 2024.
The Business Combination (as defined below) with Thunder Bridge Capital Partners IV, Inc. (“Thunder Bridge”) has enabled us to access international capital markets, which will help us to finance accelerated growth through increased customer acquisition, additional innovation in crypto asset solutions, and increased opportunities for customers and institutions to more deeply access the crypto economy. Under the Coincheck Parent holding company structure, we have the ability to establish independent subsidiaries focused on crypto asset-adjacent business opportunities. We also have the ability to enhance hiring and retention via equity compensation incentives to further support our competitiveness in our target markets.
We have identified several growth opportunities that may be pursued organically or accelerated through M&A or partnerships, including:
• continuing to grow our customer base and revenue to retain our leading market position, to build on our first-of-its-kind IEO launch and to expand supported crypto asset coverage;
• accelerating our development of NFT platforms in Japan, including by partnering with content creators and gaming companies;
• building new Web3 services supporting the Coincheck crypto asset ecosystem both organically and through mergers and acquisitions;
• capturing nascent and growing institutional interest, capitalizing on our trusted brand name within Japan and in the overall global crypto economy;
1
• continuing to explore new financial service businesses that would appeal to our young customer base, such as payments and commerce enablement; and
• seeking to provide and explore additional on-ramp services between fiat and crypto assets, and various user applications.
As of March 31, 2022, 2023 and 2024 and December 31, 2024, our customer assets (IFRS) were ¥485 billion, ¥330 billion, ¥708 billion and ¥1,096 billion, respectively. Our marketplace trading volume was ¥568.4 billion, ¥157.1 billion, ¥234.6 billion and ¥245.6 billion during the years ended March 31, 2022, 2023 and 2024 and the nine months ended December 31, 2024, respectively.
Our Mission
Our mission is to increase the accessibility of new forms of investing and commerce for our highly-engaged customer base. With Japan as our first and only current market, we believe that in achieving our mission we will also contribute to the revitalization of the Japanese economy. In pursuit of our mission, we will continue to create crypto asset solutions that enable our users to access and transact utilizing crypto assets and blockchain technologies. Since the launch of our crypto exchange in 2014, we have provided our young, highly-engaged retail customer base with the opportunity to become familiar with crypto assets by offering a service that is easy to use for anyone, regardless of financial or technological literacy.
Our History
After our establishment in 2012 as ResuPress K.K., we launched our crypto asset trading service, “Coincheck” in 2014 and subsequently changed our corporate name to Coincheck, Inc. in 2017.
In April 2018, we were acquired by Monex Group, Inc., or Monex, for ¥3.6 billion. At the time of the acquisition, we were implementing ongoing improvements to our security systems to strengthen customer protection and corporate governance through more fully developed risk management systems following a cybersecurity incident in January 2018 in which our NEM hot wallet was hacked and we lost 526.3 million NEM, or ¥46.6 billion, of customer funds. Although we compensated customers who were adversely affected by the cybersecurity incident, we were subject to lawsuits relating to the calculation of the compensation provided. Some of these lawsuits have been resolved by judgment or alternative dispute resolutions but as of December 31, 2024 there is one remaining lawsuit demanding approximately ¥5 million.
In part as a response to this cybersecurity incident, as well as similar hacking incidents that occurred at other cryptocurrency exchanges at around the same time, we joined with the 16 domestic cryptocurrency exchanges in operation in Japan as of March 2018, to form the JVCEA in order to strengthen rules in the industry to prevent future incidents. In October 2018, the JFSA granted the cryptocurrency industry in Japan self-regulatory status, giving the JVCEA the ability to establish standardized operating procedures, including the ability to set guidelines on the crypto assets that may be traded by exchange operators. The JFSA also authorized the JVCEA to monitor and penalize Japanese cryptocurrency exchanges for noncompliance.
After the consummation of the acquisition, Monex worked closely with the JFSA to further implement heightened security measures and better corporate governance. As part of these initiatives, Monex also engaged a financial cybersecurity consulting firm to conduct a holistic review of our processes and system architecture, allowing us to further improve the security of our cryptocurrency exchanges. Under Monex’s control, we also appointed four new directors and three corporate auditors, as well as seven executive officers. These appointments helped to strengthen the supervisory function of the Board of Directors and to improve the independence of auditing matters through the expertise of outside members, and the clarification of this separation of supervision and execution of business matters in order to reinforce our overall management control system. Additionally, we amended our Bylaws in order to transition to become a company that has an audit and supervisory board and created a new management strategy and plan to focus on strengthening our security and governance in order to ensure customer protection and rebuild customer trust. Furthermore, we improved management of segregated customer assets by monitoring such assets on an ongoing basis as well as discussing and reporting them monthly at compliance committee meetings attended by external law firms and full-time audit and supervisory board members.
2
We also improved our risk management policies pursuant to which our risk committee monitors on a monthly basis the state of development and operation of our risk management system as a whole, including by monitoring our financial risk by confirming our positions on a daily basis, monitoring our credit risk by verifying our positions held against a limit amount determined with respect to each cover counterparty, and monitoring our liquidity risk by confirming the supply of each crypto asset and the corresponding number of transactions on a daily basis since October 2018. We also reviewed our risk assessment criteria for crypto assets and amended and restated our criteria for handling crypto assets in February and March 2018, and of the 13 types of crypto assets that were handled prior to the cybersecurity incident, we stopped the handling of four types of crypto assets based on our revised criteria.
In January 2019, after these significant improvements to our risk management and governance systems, we received a license as a crypto asset exchange service provider from the JFSA and registered with the Kanto Financial Bureau under the Payment Services Act. Coincheck is also a member of the Japan Cryptoasset Business Association. We intend to continue to actively work with all of our regulators to improve the regulatory standards of crypto assets in Japan, and Coincheck’s Chairman, Representative Director & Executive Director, Satoshi Hasuo, currently serves as a director of the JVCEA. See “— Regulatory Environment.”
Business Combination
On the Closing Date, Coincheck Group N.V., a Dutch public limited liability company (naamloze vennootschap) (“Coincheck Parent”), consummated the previously announced business combination pursuant to the Business Combination Agreement (the “Business Combination”), dated as of March 22, 2022, as amended from time to time (the “Business Combination Agreement” or “BCA”), by and among Thunder Bridge Capital Partners IV, Inc., a Delaware corporation (“Thunder Bridge”), Coincheck Group B.V., a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) (which was converted into a Dutch public limited liability company (naamloze vennootschap) and renamed Coincheck Group N.V. immediately prior to the Business Combination), M1 Co G.K., a Japanese limited liability company (godo kaisha) (“M1 GK”), Coincheck Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Coincheck Parent (“Merger Sub”) and Coincheck, Inc., a Japanese joint stock company (kabushiki kaisha) (“Coincheck”). Pursuant to the terms set forth in the Business Combination Agreement, (i) Coincheck Parent issued ordinary shares in its share capital (the “Ordinary Shares”) to M1 GK and, pursuant to a share exchange, M1 GK, at that time a wholly owned subsidiary of Coincheck Parent, exchanged all of its shares of Coincheck Parent for all of the outstanding common shares of Coincheck (the “Share Exchange”), resulting in Coincheck becoming a direct wholly owned subsidiary of M1 GK and an indirect wholly owned subsidiary of Coincheck Parent. Immediately after giving effect to the Share Exchange, Coincheck Parent changed its legal form from a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) to a Dutch public limited liability company (naamloze vennootschap); (ii) Merger Sub merged with and into Thunder Bridge on the Closing Date, with Thunder Bridge continuing as the surviving corporation (the “Merger”); (iii) as a result of the Merger, each outstanding Thunder Bridge share sold as part of a unit in Thunder Bridge’s initial public offering (the “IPO” or “Thunder Bridge’s IPO”; each unit, a “Thunder Bridge Unit”; and each Thunder Bridge share, a “Thunder Bridge Public Share”), for the avoidance of doubt, not including any Thunder Bridge Shares held by TBCP IV, LLC, Thunder Bridge’s sponsor (the “Thunder Bridge Sponsor” or “Sponsor”), as of the date of the Business Combination Agreement (the “Sponsor Shares”), was exchanged for one Ordinary Share; (iv) as a result of the Merger, each Sponsor Share was exchanged for one Ordinary Share and (v) as a result of the Merger, each outstanding private warrant exercisable for Thunder Bridge shares (a “Thunder Bridge Private Warrant”) and each outstanding public warrant exercisable for Thunder Bridge shares sold as part of a unit in Thunder Bridge’s IPO (a “Thunder Bridge Public Warrant” and the Thunder Bridge Public Warrants together with the Private Warrants, the “Thunder Bridge Warrants”) became a warrant exercisable for such number of Ordinary Shares per Thunder Bridge Warrant that the holder thereof was entitled to acquire if such Thunder Bridge Warrant was exercised prior to the Business Combination (each such private and public warrant exercisable for Ordinary Shares, a “Private Warrant” and “Public Warrant,” respectively, and, the Private Warrants and the Public Warrants together, the “Warrants”). At the Closing on the Closing Date, the Sponsor forfeited and surrendered, and Coincheck Parent repurchased for no consideration, 2,365,278 Ordinary Shares.
3
The transaction was unanimously approved by Thunder Bridge’s Board of Directors and was approved at the special meeting of Thunder Bridge’s shareholders held on December 5, 2024, or the “Special Meeting.” Thunder Bridge’s shareholders also voted to approve all other proposals presented at the Special Meeting. As a result of the Business Combination, Thunder Bridge, M1 GK and Coincheck have become wholly owned subsidiaries of Coincheck Parent. On December 11, 2024, Ordinary Shares and Public Warrants commenced trading on the Nasdaq Global Market, or “Nasdaq,” under the symbols “CNCK” and “CNCKW,” respectively.
Our Strengths
• We have a leading position in the Japanese retail market.
• We have a young, highly-engaged customer base.
• Our user-friendly platform and product offerings.
• We have a fast-growing product portfolio which is underpinned by robust technology.
• Trusted brand.
• We have a robust and historically profitable financial model.
• Strong and experienced management team to support continued growth.
Recent Developments
Next Finance Acquisition
On March 12, 2025, we entered into a Sale and Purchase Agreement (the “Next Finance SPA”) with the Next Finance Shareholders of Next Finance Tech Co. Based in Japan, Next Finance Tech Co. is a blockchain infrastructure company that provides staking services to a wide range of corporate clients and individual customers globally.
On March 14, 2025 (the “Next Finance Closing Date”), pursuant to the Next Finance SPA, we purchased the Next Finance Shares (the “Next Finance Acquisition”) for an aggregate consideration of ¥265,287,960 and an aggregate of 1,111,450 Ordinary Shares (the “Next Finance Acquisition Shares”). The Next Finance Acquisition Shares were issued in reliance on an exemption under the Securities Act. In connection with the Next Finance Acquisition, we agreed to register the Next Finance Acquisition Shares for resale under the Securities Act and pay all fees and expenses incident to such registration.
The Next Finance SPA provides that, subject to certain customary exceptions, certain of the Next Finance Shareholders may not transfer any of the Next Finance Acquisition Shares during the period beginning on the Next Finance Closing Date and ending on December 31, 2026, provided, however, an aggregate of 70% of such shares will be released from such transfer restrictions at five predetermined intervals between May 14, 2025 and July 1, 2026.
Extraordinary General Meeting
On March 10, 2025, we convened our previously announced extraordinary general meeting of shareholders.
All three of the following proposals were adopted pursuant to a vote of shareholders:
1. Authorization of the Board for a period of eighteen months starting March 10, 2025 to issue up to 25,000,000 Ordinary Shares and/or grant rights to subscribe for such shares (the “EGM Issuance Authorization”);
2. Authorization of the Board for a period of eighteen months starting March 10, 2025 to restrict or exclude pre-emptive rights accruing to shareholders in connection with issuances of ordinary shares and/or grants of rights to subscribe for such shares pursuant to the EGM Issuance Authorization; and
3. Appointment of KPMG Accountants N.V. as the external auditor of our Dutch statutory annual accounts for the fiscal year ending March 31, 2025.
4
Amendment to Non-Redemption and Share Forward Agreement
On March 10, 2025, Coincheck Group, CCG Administrative Services, Inc. (formerly known as Thunder Bridge Capital Partners IV, Inc.) and Ghisallo Master Fund LP (“Ghisallo”) amended and restated the non-redemption and share forward agreement of such parties, dated as of December 4, 2024 (as amended, restated, modified or supplemented from time to time, the “Non-Redemption Agreement”) to among other items: (i) extend the maturity date to March 10, 2026, (ii) adjust the number of Ordinary Shares subjected to the provisions thereof to the remaining balance of 856,242 Ordinary Shares held by Ghisallo, (iii) stipulate that permissible transfers must be at a minimum price of $12.00 per Ordinary Share, (iv) quantify the redemption price of $10.83 per share, (v) release Thunder Bridge as a party thereto, (vi) give effect to the consummation of the Business Combination and (vii) incorporate other conforming and clarifying updates. Pursuant to the Non-Redemption Agreement, if Ghisallo transfers any Ordinary Shares subject to the Non-Redemption Agreement, it must remit the redemption price per share to Coincheck Group (as a recoupment of the payment that Ghisallo received for adhering to restrictions on its Ordinary Shares covered by the Non-Redemption Agreement). On the maturity date, Ghisallo has agreed to transfer to Coincheck Group, at no cost, and free and clear of any liens or encumbrances, any Ordinary Shares subject to the Non-Redemption Agreement and retained by Ghisallo on the maturity date.
Preliminary Estimated Information for January, February and March 2025
The following reflects certain preliminary estimated information for the months of January, February and March 2025, as we disclosed on February 5, 2025, March 4, 2025 and April 2, 2025, respectively, on reports on Form 6-K. The preliminary numbers in the table below are based on information then-available. These preliminary estimates have not been audited by any independent registered public accountants, are subject to update and should not be extrapolated for future periods.
January |
February |
March |
||||
Exchange Trading Value (Million yen) |
595,094 |
410,135 |
454,277 |
|||
Marketplace Trading Value (Million yen) |
46,700 |
25,629 |
19,637 |
|||
J-GAAP Customer Assets (Million yen) |
1,285,614 |
873,795 |
859,623 |
|||
Number of Verified Accounts |
2,258,295 |
2,278,320 |
2,291,103 |
Notes
• Customer Assets and Number of Verified Accounts correspond to figures as of the end of the month.
• Customer Assets are preliminary figures prepared in accordance with Japanese generally accepted accounting principles (J-GAAP) and differ from the financial figures of the Company, prepared in accordance with IFRS Accounting Standards, and may be revised in the future.
• Historically, Coincheck, Inc.’s total revenue has been derived primarily from transactions on Coincheck, Inc.’s Marketplace platform business. For additional details, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements included elsewhere in this prospectus.
5
Our Organizational Structure
The following diagram depicts a simplified organizational structure* of the Company and the ownership percentages (excluding the impact of Ordinary Shares underlying the Warrants, Ordinary Shares authorized for issuance pursuant to the Omnibus Incentive Plan and Ordinary Shares held in treasury) as of April 7, 2025. See “Security Ownership of Certain Beneficial Owners” for more information.
____________
* This diagram is provided for illustrative purposes only and does not represent all shareholders or legal entities of the Company.
† Other shareholders, including the founders of Coincheck, Inc and the Next Finance Shareholders. See “Security Ownership of Certain Beneficial Owners” for more information for such shareholders who hold more than 5% of the Ordinary Shares outstanding as of April 7, 2025.
Our Corporate Information
Coincheck Group B.V. was incorporated by Monex Group, Inc. (“Monex”) under the laws of the Netherlands as a Dutch private limited liability company (besloten vennootschap met beperkte aansprakelijkheid) in February 2022 for the purpose of effectuating the Business Combination and changed its legal form to a Dutch public limited liability company (naamloze vennootschap) and was renamed Coincheck Group N.V. immediately prior to the Business Combination.
Coincheck Parent’s registered and principal executive office is Nieuwezijds Voorburgwal 162, 1012 SJ Amsterdam, the Netherlands. Coincheck Parent’s principal website address is https://coincheckgroup.com/. Coincheck Parent does not incorporate the information contained on, or accessible through, Coincheck Parent’s website into this prospectus, and you should not consider it a part of this prospectus.
Summary Risk Factors
Investing in our securities entails a high degree of risk as more fully described under “Risk Factors.” You should carefully consider such risks before deciding to invest in our securities. Below please find a summary of the principal risks we face, organized under relevant headings.
6
Risks Relating to Our Business and Industry
• Our total revenue is substantially dependent on the prices of crypto assets and volume of transactions conducted on our Marketplace platform. If such prices or volumes decline, our business, operating results, and financial condition would be adversely affected, as well as our share price.
• Our operating results have and are expected to significantly fluctuate from period to period.
• If the utility and usage of crypto assets, the development of which is difficult to predict, do not grow as we expect, our business, operating results, and financial condition could be adversely affected.
• Changes in economic conditions and consumer sentiment in Japan could cause demand for our products and services to be lower than we anticipate.
• Cyberattacks and security breaches of our cryptocurrency marketplace or NFT marketplace, or those impacting our customers or third parties, could adversely impact our brand and reputation and our business, operating results, and financial condition.
• Due to our limited operating history, it may be difficult to evaluate our business and future prospects, and we may not be able to achieve or maintain profitability in any given period.
• The majority of our revenue is from transactions in certain crypto assets, such as Bitcoin, Ethereum or other specific crypto assets. If demand for any particular crypto asset declines and is not replaced by new demand, our business, operating results, and financial condition could be adversely affected.
Risks Relating to Crypto Assets
• Negative publicity associated with crypto asset platforms, including instances of potential fraud, the bankruptcy of industry participants and the violation of applicable legal and regulatory requirements, may cause existing and potential customers to lose confidence in crypto asset platforms.
• Depositing and withdrawing crypto assets into and from our cryptocurrency exchanges involve risks, which could result in loss of customer assets, customer disputes and other liabilities, which could adversely impact our business.
Risks Relating to Government Regulation and Privacy Matters
• Global regulation of crypto assets or crypto asset platforms may develop in ways that limit the potential for growth in usage and acceptance of crypto assets.
• We obtain and process a large amount of sensitive customer data. Any real or perceived improper use of, disclosure of, or access to such data could harm our reputation, as well as have an adverse effect on our business.
Risks Relating to Third Parties
• Our current and future services are dependent on payment networks and acquiring processors, and any changes to their rules or practices could adversely impact our business.
• We rely on third parties to perform certain key functions, and their failure to perform those functions could adversely affect our business, financial condition and results of operations.
Risks Relating to Intellectual Property
• Our intellectual property rights are valuable, and any inability to protect them could adversely impact our business, operating results, and financial condition.
• We may be subject to claims for alleged infringement of proprietary rights of third parties.
7
Risks Relating to Our Employees and Other Service Providers
• The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could adversely impact our business, operating results, and financial condition.
• In the event of employee or service provider misconduct or error, our business may be adversely impacted.
Risks Relating to Our Securities
• Fluctuations in the price of our securities could contribute to the loss of all or part of your investment.
• There can be no assurance that we will be able to comply with the continued listing standards of Nasdaq or any other exchange.
Risks Relating to Our Organization in the Netherlands
• We are a Dutch public company with limited liability, and our shareholders may have rights different to those of shareholders of companies organized in the United States.
• We are subject to the Dutch Corporate Governance Code but do not comply with all of the suggested governance provisions of the Dutch Corporate Governance Code, which may affect your rights as a shareholder.
General Risk Factors
• Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations, or our prospects.
• Market conditions, economic uncertainty or downturns could adversely affect our business, financial condition, and operating results.
Risks Relating to Tax Matters
• The imposition of additional or higher taxes, whether resulting from a change of tax laws or a different interpretation or application of tax laws, could affect demand for our exchange services and/or may otherwise have a material adverse effect on our business, results from operations and/or financial condition.
• If we cease to be a Dutch tax resident for the purposes of a tax treaty concluded by the Netherlands and in certain other events, we could potentially be subject to a proposed Dutch dividend withholding tax in respect of a deemed distribution up to our entire market value less paid-up capital insofar as it exceeds EUR 50 million.
Implications of Being a Foreign Private Issuer
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Under Rule 405 of the Securities Act, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on September 30, 2025. For so long as we qualify as a foreign private issuer, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:
• the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;
• the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and imposing liability for insiders who profit from trades made within a short period of time;
8
• the rules under the Exchange Act requiring the filing with the SEC of an annual report on Form 10-K (although we will file annual reports on a corresponding form for foreign private issuers), quarterly reports on Form 10-Q containing unaudited financial and other specified information (although we have furnished, and intend to furnish, quarterly reports on a current reporting form for foreign private issuers), or current reports on Form 8-K, upon the occurrence of specified significant events; and
• Regulation Fair Disclosure or Regulation FD, which regulates selective disclosure of material non-public information by issuers.
Accordingly, there may be less publicly available information concerning our business than there would be if we were a U.S. public company. Additionally, certain accommodations in the Nasdaq corporate governance standards allow foreign private issuers, such as us, to follow “home country” corporate governance practices in lieu of the otherwise applicable corporate governance standards. As described in more detail under “Description of Securities — Share Capital — Issuance of shares,” to the extent we rely on such requirements under Dutch law with respect to issuance of shares, our practice varies from the requirements of the corporate governance standards of Nasdaq, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with such events. While we do not currently intend to rely on any other home country accommodations, for so long as we qualify as a foreign private issuer, we may take advantage of them.
Implications of Being a Controlled Company
Monex holds more than a majority of the voting power of our Ordinary Shares eligible to vote in the election of our directors. As a result, we are a “controlled company” within the meaning of the Nasdaq corporate governance standards (the “corporate governance standards”). Under the corporate governance standards, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company.”
As a “controlled company,” we may elect not to comply with certain corporate governance standards, including the requirements (1) that a majority of our Board consist of independent directors, (2) that our Board have a compensation committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (3) that our Board have a nominating and corporate governance committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. Although we are not currently relying on the exemptions from these corporate governance requirements, if we do rely on such exemptions in the future, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of Nasdaq. In the event that we cease to be a “controlled company” and our Ordinary Shares continue to be listed on Nasdaq, we will be required to comply with the corporate governance standards within the applicable transition periods or rely on an alternate exemption including those available to a foreign private issuer.
9
The summary below describes the principal terms of the offering. The “Description of Share Capital” section of this prospectus contains a more detailed description of our Ordinary Shares and Warrants.
Issuer |
Coincheck Group N.V. |
|
Ordinary Shares being offered by us |
Up to 4,860,148 Ordinary Shares issuable upon the exercise of 4,860,148 Warrants |
|
Ordinary Shares being registered for resale by the Selling Securityholders |
Up to 127,895,040 Ordinary Shares, up to 129,611 Ordinary Shares issuable upon the exercise of 129,611 Private Warrants |
|
Warrants being registered for resale by the Selling Securityholders |
Up to 129,611 Private Warrants |
|
Terms of the Offering |
The Selling Securityholders will determine when (subject to compliance with the contractual lock-up restrictions that apply to certain Selling Securityholders) and how they will dispose of any Ordinary Shares and Warrants registered under this prospectus for resale. The Selling Securityholders may offer, sell or distribute all or a portion of the securities registered hereby publicly or through private transactions at prevailing market prices or at negotiated prices. See “Plan of Distribution.” |
|
Warrants issued and outstanding |
4,730,537 Public Warrants outstanding, which each entitle the holder to purchase one Ordinary Share at an exercise price of $11.50 per share. The Public Warrants are exercisable on the later of January 9, 2025, which is 30 days after the completion of the Business Combination, and the date that the issuance of the underlying ordinary shares is registered hereby. The Public Warrants will terminate at 5:00 p.m., Eastern Time on the earlier to occur of: (i) the date that is five (5) years after the date on which the Business Combination is completed, (ii) the liquidation of Coincheck Group, or (iii) the redemption date as provided in the warrant agreement dated June 29, 2021 by and between Thunder Bridge and Continental Stock Transfer & Trust Company, as warrant agent (as amended by the Warrant Assumption and Amendment Agreement, dated December 10, 2024, by and among Thunder Bridge Capital Partners IV, Inc., Coincheck Group N.V. and Continental Stock Transfer & Trust Company). 129,611 Private Warrants held by the Thunder Bridge Sponsor, which are identical to the Public Warrants in all material respects, except that so long as the Private Warrants are held by the Thunder Bridge Sponsor or its permitted transferees, the Private Warrants (and the Ordinary Shares issuable upon exercise of these warrants) may not be transferred, assigned or sold until March 10, 2025 subject to certain limited exceptions. Additionally, the Private Warrants may be exercised by the holders on a cashless basis and will not be redeemable (subject to certain limited exceptions), so long as they are held by the Thunder Bridge Sponsor or its permitted transferees. If the Private Warrants are held by someone other than the Thunder Bridge Sponsor or its permitted transferees, such warrants will be redeemable and exercisable by such holders on the same basis as the Public Warrants. |
10
Use of Proceeds |
All of the securities offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. We will not receive any proceeds from the sale by the Selling Securityholders of the securities being registered hereunder. With respect to the Ordinary Shares underlying the Warrants, we will not receive any proceeds from such shares except with respect to amounts received by us upon exercise of such Warrants to the extent such Warrants are exercised for cash. Assuming the exercise of all outstanding Warrants for cash, we would receive aggregate proceeds of approximately $55.9 million. However, whether warrantholders will exercise their Warrants, and therefore the amount of cash proceeds we would receive upon exercise, is dependent upon the trading price of the Ordinary Shares. Each Warrant will become exercisable for one Ordinary Share at an exercise price of $11.50. Therefore, if and when the trading price of the Ordinary Shares is less than $11.50, we expect that warrantholders would not exercise their Warrants. On April 8, 2025, the last reported sale price of our Ordinary Shares was $4.37 per share. The Warrants may not be or remain in the money during the period they are exercisable and prior to their expiration and, therefore, it is possible that the Warrants may not be exercised prior to their maturity, even if they are in the money, and as such, may expire worthless with minimal proceeds received by us, if any, from the exercise of Warrants. To the extent that any of the Warrants are exercised on a “cashless basis,” we will not receive any proceeds upon such exercise. As a result, we do not expect to rely on the cash exercise of Warrants to fund our operations. Instead, we intend to rely on other sources of cash discussed elsewhere in this prospectus to continue to fund our operations. See “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.” |
|
Liquidity |
The Ordinary Shares being offered for resale by the Selling Securityholders pursuant to this prospectus represent approximately 94.3% of our total outstanding Ordinary Shares as of April 8, 2025 on a fully diluted basis (assuming and after giving effect to the issuance of Ordinary Shares upon exercise of all outstanding Warrants). Once the registration statement that includes this prospectus is effective and during such time as it remains effective, the Selling Securityholders will be permitted (subject to compliance with the contractual lock-up restrictions that apply to certain Selling Securityholders, as described under “Shares Eligible for Future Sale”) to sell the shares registered hereby. The resale, or anticipated or potential resale, of a substantial number of shares of our Ordinary Shares may have a material negative impact on the market price of our Ordinary Shares and could make it more difficult for our shareholders to sell their Ordinary Shares at such times and at such prices as they deem desirable. |
11
Dividend policy |
We have not paid any cash dividends on our Ordinary Shares to date and have no current plans to pay cash dividends on Ordinary Shares for the foreseeable future. The payment of cash dividends in the future will be dependent upon our revenue and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of our Board at such time. Our ability to declare dividends may also be limited by restrictive covenants pursuant to any debt financing agreements. See “Material Dutch Tax Considerations of Acquiring, Owning or Disposing of Ordinary Shares or Warrants — Withholding Tax” beginning on page 168 of this prospectus for a summary of the Dutch dividend withholding tax regime applicable to dividends distributed by us. |
|
Market for our Ordinary Shares and |
|
|
Lock-up restrictions |
Certain Ordinary Shares are subject to certain lock-up restrictions. See “Shares Eligible for Future Sale — Lock-Up Agreements.” |
|
Risk factors |
Prospective investors should carefully consider the “Risk Factors” for a discussion of certain factors that should be considered before buying the securities offered hereby. |
12
You should carefully consider the risks described below before making an investment decision. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially and adversely affected by any of these risks. The trading price and value of our Ordinary Shares and Warrants could decline due to any of these risks, and you may lose all or part of your investment. This prospectus and any prospectus supplement also contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks faced by us described below and elsewhere in this prospectus and any prospectus supplement.
Risks Relating to Our Business and Industry
Our total revenue is substantially dependent on the prices of crypto assets and volume of transactions conducted on our Marketplace platform. If such prices or volumes decline, our business, operating results, and financial condition would be adversely affected, as well as our share price.
In the years ended March 31, 2022, 2023 and 2024 and in the nine months ended December 31, 2024, 99.6%, 98.9%, 99.6% and 99.5%, respectively, of our total revenue consisted of transaction revenue generated from trades of customers and cover counterparties on our Marketplace platform business. Any declines in the volume of crypto asset transactions by retail investors in Japan, the price of crypto assets we support, or market liquidity for crypto assets generally may result in lower revenue to us. Additionally, a decline in the number of our monthly users may negatively impact our volume of transactions. Furthermore, as a result of our total revenue being substantially dependent on the volume of crypto asset transactions by retail investors in Japan, the price of crypto assets we support, or market liquidity for crypto assets generally, any declines in prices or volumes or prolonged volatility in these markets can have a significant impact on our share price. In particular, as a result of ongoing volatility in the prices and volumes of crypto assets, we could experience depreciation in our share price and it remains uncertain how future volatility would affect our share price. However, any such future share price volatility could negatively impact our public market perception and our ability to raise any equity financing in the future.
The price of crypto assets and associated demand for trading crypto assets have historically been subject to significant volatility. For instance, in 2017, the value of certain crypto assets, including Bitcoin, experienced steep increases in value, and our customer base in Japan expanded. The increase in value of Bitcoin from 2016 to 2017 was followed by a steep decline in 2018, which negatively affected our business and operating results. Bitcoin again increased in value from the end of 2020 and during 2021 after recovering from lows in March 2020. Between November 2021 and March 2022, however, the value of Bitcoin decreased significantly, contributing to a declining trend quarter on quarter for trading volume on our Marketplace platform and our transaction revenue during the year ended March 31, 2022. Declines in the prices of Bitcoin and other crypto assets supported on our Marketplace platform continued during the year ended March 31, 2023 and, as a result, our total revenue declined further in the year ended March 31, 2023. The value of Bitcoin and many other crypto assets decreased significantly during 2022, including declines seen in November 2022 following the Chapter 11 bankruptcy filing of FTX, a Bahamas-based cryptocurrency exchange, and allegations of fraud and mismanagement of funds against its founder and former CEO. On June 5, 2023, the SEC filed a civil complaint in the U.S. District Court for the District of Columbia against Binance and other related entities, as well as Changpeng Zhao, Binance’s co-founder and CEO. The complaint consists of thirteen charges, including misleading investors and operating as an unregistered securities exchange, broker and clearing agency in violation of U.S. securities laws. On November 2, 2023, Sam Bankman-Fried, the founder of FTX, was found guilty of all seven criminal counts of fraud against him, and on November 21, 2023, Binance and Changpeng Zhao, the co-founder and CEO of Binance, pled guilty to federal criminal charges that Binance violated and caused a financial institution to violate the Bank Secrecy Act, with Binance entering into a $4.3 billion settlement with the U.S. Justice Department in addition to the confiscation of certain assets and Changpeng Zhao stepping down as CEO and accepting an individual fine of $50 million. On May 31, 2024, Japanese crypto exchange operator DMM Bitcoin announced that it had lost 4,502.9 Bitcoin (approximately ¥48.2 billion) of customer assets held in cold wallets as a result of a hacking incident in which such assets were transmitted outside of the company through an “unauthorized leak.”
On June 27, 2024, Coinbase filed lawsuits against both the SEC and the FDIC in order to shed light on their approaches to regulation in the industry and gain access to internal records to uncover alleged efforts by the financial regulators to pressure financial institutions to deny crypto firms access to the federal banking system. On July 1, 2024,
13
the SEC filed suit against Silvergate, the parent company of a bank which allegedly helped to facilitate fraud at FTX before its collapse, former CEO Alan Lane and former Chief Risk Officer Kathleen Fraher, claiming that they misled investors regarding the strength of Silvergate’s Bank Secrecy Act/Anti-Money Laundering compliance program and the monitoring of crypto customers, including FTX, by Silvergate’s wholly owned subsidiary, Silvergate Bank. The SEC also charged Silvergate and its former Chief Financial Officer, Antonio Martino, with misleading investors about Silvergate’s losses from expected securities sales following the collapse of FTX. All parties charged, with the exception of Antonio Martino, have agreed to settle with the SEC. On July 2, 2024, in relation to the civil complaint filed by the SEC against Binance and other related entities, a U.S. federal court dismissed several claims, including that Binance’s fiat-backed stablecoin, BUSD, qualifies as an investment contract, although certain other claims by the SEC were allowed to proceed. On June 6, 2023, the SEC filed a complaint (the “Coinbase Litigation”) in the U.S. District Court for the Southern District of New York against Coinbase for operating as an unregistered securities exchange, broker and clearing agency, and for the unregistered offer and sale of securities in connection with its staking-as-a-service program. On February 21, 2025, Coinbase announced an agreement in principle with the SEC Staff, subject to the approval of the SEC’s Commissioners, to jointly stipulate to the dismissal of the Coinbase Litigation with prejudice.
On August 7, 2024, Ripple Labs was fined $125 million in relation to the complaint initially filed by the SEC in December 2020 with respect to the institutional sales of the XRP token, which a Manhattan court judge ruled were unregistered securities offerings; the SEC has since filed an appeal. On September 24, 2024, the SEC spoke before the United States Congress to address concerns surrounding the impediment of financial innovation and reduction of consumer protections related to the SEC’s rules. On September 27, 2024, the SEC also filed settled charges against Mango DAO and Blockworks Foundation for engaging in the unregistered offer and sale of crypto assets called “MNGO” tokens, as well as settled charges against Blockworks Foundation and Mango Labs LLC for engaging in unregistered broker activity in connection with various crypto assets being offered and sold as securities on the Mango Market platform.
These events have created heightened uncertainty about the outlook for markets for crypto assets. Furthermore, as a result of ongoing volatility in the markets for crypto assets, we may also experience increased losses or impairments on our investments or other assets in the future. Although in the year ended March 31, 2023, trading volume and our transaction revenue significantly declined as compared to the prior year, and we recorded a net loss of ¥559 million for the year, in the year ended March 31, 2024, in part due to recovery in the markets for crypto assets, trading volume and our transaction revenue increased, and we recorded a net profit of ¥1,967 million for the year. We recorded a net profit of ¥15 million for the nine months ended December 31, 2023, compared to a net loss of ¥14,992 million for the nine months ended December 31, 2024. Similarly, sharp declines in the prices of many crypto assets, including Bitcoin and Ethereum, during the year ended March 31, 2023 resulted in a decline in our customer assets (IFRS) from ¥485 billion as of March 31, 2022 to ¥330 billion as of March 31, 2023. However, increases in the prices of crypto assets such as Bitcoin during the year ended March 31, 2024 resulted in an increase in our customer assets (IFRS) to ¥708 billion as of March 31, 2024. As of December 31, 2024, our customer assets (IFRS) were ¥1,096 billion.
The price and trading volume of any crypto asset is subject to significant uncertainty and volatility, depending on a number of factors, including:
• market conditions of, and overall sentiment towards, crypto assets;
• changes in liquidity, market-making volume and trading activities;
• trading activities on other crypto platforms worldwide, many of which may be unregulated, and may be subject to manipulative activities;
• investment and trading activities of highly active retail and institutional users, speculators and miners;
• the speed and rate at which crypto assets are able to gain adoption as a medium of exchange, utility, store of value, consumptive asset, or usage worldwide, if at all;
• decreased user and investor confidence in crypto assets and crypto platforms;
• negative publicity and events relating to crypto assets including due to bankruptcies, fraud or allegations of fraud, failures of management and hacks;
14
• unpredictable social media coverage or “trending” of, or other rumors and market speculation regarding crypto assets; retail customer preferences and perceived value of crypto assets and crypto asset markets;
• increased competition from other payment services or other crypto assets that exhibit better speed, security, scalability, or other characteristics;
• regulatory or legislative changes and updates affecting the use and regulation of crypto assets, both in Japan and globally;
• the maintenance, troubleshooting, and development of the blockchain networks underlying crypto assets, including by miners, validators, and developers worldwide;
• the ability for crypto networks to attract and retain miners or validators to secure and confirm transactions accurately and efficiently;
• ongoing technological viability and security of crypto assets and their associated smart contracts, applications and networks, including vulnerabilities against hacks and scalability;
• fees and speed associated with processing crypto asset transactions, including on the underlying blockchain networks and on cryptocurrency exchanges;
• financial strength of market participants;
• interruptions in service from or failures of major crypto platforms;
• availability and cost of funding and capital;
• liquidity of major crypto platforms;
• availability of an active derivatives market for various crypto assets;
• availability of banking and payment services to support crypto-related projects; and
• national and international economic and political conditions, such as rising global interest rates and Russia’s invasion of Ukraine.
There is no assurance that any crypto asset that is supported on our cryptocurrency exchanges will maintain its value or that there will be meaningful levels of trading activity of such asset. In particular, we are dependent on Japanese retail customers who account for nearly all of the trading volume on our Marketplace platform. Accordingly, we are particularly vulnerable to any changes in sentiment relating to crypto assets from retail investors in Japan, whether due to the above or other factors. In the event that such changes in sentiment drive down the price of crypto assets or the demand for trading crypto assets, our business, operating results and financial condition would be adversely affected.
Our operating results have and are expected to significantly fluctuate from period to period.
Our operating results are heavily dependent on the level of trading of crypto assets on our Marketplace platform. Due to the highly volatile nature of the prices of crypto assets, our operating results have, and are expected to continue to, fluctuate significantly between periods in accordance with market sentiments and movements in such prices. As a result, period-to-period comparisons of our operating results might not be meaningful, and our past results of operations should not be relied on as indicators of future performance. Our operating results will continue to fluctuate significantly as a result of a variety of factors, many of which are unpredictable and in certain instances are outside of our control, including:
• our revenue is dependent on crypto asset trading activity by our customers, including trading volume and the prevailing trading prices for crypto assets, whose trading prices and volume are highly volatile;
• our ability to attract, maintain, and grow our customer base and engage our customers;
• our ability to diversify and grow our non-transaction revenue;
• pricing for our products and services;
15
• investments we make in the development of products and services as well as our investment in sales and marketing;
• addition and removal of crypto assets on our cryptocurrency exchanges or NFT marketplace;
• adverse legal proceedings or regulatory enforcement actions, judgments, settlements, or other legal proceeding and enforcement-related costs;
• regulatory changes that impact our ability to offer certain products or services;
• the development and introduction of existing and new products and services by us or our competitors;
• system failure or outages, including with respect to our crypto platforms or other third-party crypto networks;
• breaches of security or privacy;
• inaccessibility of our cryptocurrency exchanges or NFT marketplace due to our or third-party actions;
• our ability to attract and retain talent; and
• our ability to compete with our competitors.
If the utility and usage of crypto assets, the development of which is difficult to predict, do not grow as we expect, our business, operating results, and financial condition could be adversely affected.
Crypto assets built on blockchain technology were first introduced in 2008 and remain in the early stages of development. In addition, different crypto assets are designed for different purposes. Bitcoin, for instance, was designed to serve as a peer-to-peer electronic cash system, while Ethereum was designed to be a smart contract and decentralized application platform. The further growth and development of particular crypto assets and their underlying networks and other cryptographic and algorithmic protocols governing the creation, transfer, and usage of crypto assets are subject to a variety of factors that are difficult to evaluate, including:
• many crypto networks have limited operating histories, have not been validated in production, and are still in the process of developing and making significant decisions that will affect the design, supply, issuance, functionality, and governance of their respective crypto assets and underlying blockchain networks, any of which could adversely affect their respective crypto assets;
• many crypto networks are in the process of implementing software upgrades and other changes to their protocols, which could introduce bugs, security risks, or adversely affect the respective crypto networks;
• several large networks, including Bitcoin and Ethereum, are developing new features to address fundamental speed, scalability, and energy usage issues. If these issues are not successfully addressed, or if proposed solutions are unable to receive widespread adoption, it could adversely affect the underlying crypto assets;
• security issues, bugs, and software errors have been identified with many crypto assets and their underlying blockchain networks, some of which have been exploited by malicious actors. There are also inherent security weaknesses in some crypto assets, such as when creators of certain crypto networks use procedures that could allow hackers to counterfeit tokens. Any weaknesses identified with a crypto asset could adversely affect its price, security, liquidity, and adoption. If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the compute or staking power on a crypto network, as has happened in the past, it may be able to manipulate transactions, which could cause financial losses to holders, damage the network’s reputation and security, and adversely affect its value;
16
• the development of new technologies for mining, such as improved application-specific integrated circuits (commonly referred to as ASICs), or changes in industry patterns, such as the consolidation of mining power in a small number of large mining farms, could reduce the security of blockchain networks, lead to increased liquid supply of crypto assets, and reduce a particular crypto asset’s price and attractiveness;
• if rewards and transaction fees for miners or validators on any particular crypto network are not sufficiently high to attract and retain miners, a crypto network’s security and speed may be adversely affected, increasing the likelihood of a malicious attack;
• many crypto assets have concentrated ownership or an “admin key,” allowing a small group of holders to have significant unilateral control and influence over key decisions relating to their crypto networks, such as governance decisions and protocol changes, as well as the market price of such crypto assets;
• the governance of many decentralized blockchain networks is by voluntary consensus and open competition, and many developers are not directly compensated for their contributions. As a result, there may be a lack of consensus or clarity on the governance of any particular crypto network, a lack of incentives for developers to maintain or develop the network, and other unforeseen issues, any of which could result in unexpected or undesirable errors, bugs, or changes, or stymie such network’s utility and ability to respond to challenges and grow; and
• many crypto networks are in the early stages of developing partnerships and collaborations, all of which may not succeed and adversely affect the usability and adoption of the respective crypto assets.
Various other technical issues have also been uncovered from time to time that resulted in disabled functionalities, exposure of certain users’ personal information, theft of users’ assets, and other negative consequences, and which required resolution with the attention and efforts of their global miner, user, and development communities. If any such risks or other risks materialize, and in particular if they are not resolved, the development and growth of crypto may be significantly affected and, as a result, our business, operating results, and financial condition could be adversely affected.
Changes in economic conditions and consumer sentiment in Japan could cause demand for our products and services to be lower than we anticipate.
We currently derive all of our total revenue from operations in Japan, and accordingly, our performance is subject to general economic conditions in Japan and their impact on our base of primarily retail customers. Japan has experienced downturns in which economic activity declined resulting in lower consumption rates, restricted credit, reduced profitability, weaknesses in financial markets, bankruptcies and overall uncertainty with respect to the economy. Furthermore, the outlook of the Japanese economy remains uncertain. In particular, the Bank of Japan has implemented quantitative and qualitative monetary easing measures to overcome deflation. However, it is unclear whether and to what extent these measures will succeed in ending deflation, increasing consumption and investment, reducing the government deficit and achieving economic growth in the long term. In addition, an aging demographic, a declining birth rate, the overall decline of its population (including the working-age population), political tensions between Japan and some of its neighboring countries, and currency fluctuations are additional factors that add to the uncertainty surrounding the future of the Japanese economy. The impact of economic conditions in Japan on the trading of crypto assets is highly uncertain and dependent on a variety of factors, including market adoption, global trends, central bank monetary policies, and other events beyond our control. To the extent that general economic conditions in Japan materially deteriorate, our ability to attract and retain customers may suffer. While we have seen long-term increases in trading of crypto assets by Japanese retail investors, there can be no assurance that consumer sentiment towards crypto assets and crypto exchange platforms will not worsen in the future. Whether due to security concerns or due to the other significant risks and volatility associated with investment in crypto assets, a lack of growth in or a drop in demand for trading of crypto assets by Japanese retail investors would adversely affect our growth prospects and results of operations.
17
Cyberattacks and security breaches of our cryptocurrency marketplace or exchanges, or NFT marketplace, or those impacting our customers or third parties, could adversely impact our brand and reputation and our business, operating results, and financial condition.
Our business involves the collection, storage, processing, and transmission of confidential information, customer, employee, service provider, and other personal data, as well as information required to access customer assets. We have built our reputation on the premise that our cryptocurrency marketplace and exchanges, and NFT marketplace offer customers a secure way to purchase, store, and transact in crypto assets. As a result, any actual or perceived security breach of systems or those of our third-party partners may:
• harm our reputation and brand;
• result in our systems or services being unavailable and interrupt our operations;
• result in improper disclosure of data and violations of applicable privacy and other laws;
• result in significant regulatory scrutiny, investigations, fines, penalties, and other legal, regulatory, and financial exposure;
• cause us to incur significant remediation costs;
• lead to theft or irretrievable loss of our or our customers’ fiat currencies or crypto assets;
• reduce customer confidence in, or decreased use of, our products and services;
• divert the attention of management from the operation of our business;
• result in significant compensation or contractual penalties from us to our customers or third parties as a result of losses to them or claims by them; and
• adversely affect our business and operating results.
Further, any actual or perceived breach or cybersecurity attack directed at other financial institutions or other companies in the crypto industry, whether or not we are directly impacted, could lead to a general loss of customer confidence in the crypto assets, crypto exchanges or in the use of technology to conduct financial transactions, which could negatively impact us, including the market perception of the effectiveness of our security measures and technology infrastructure.
Attacks upon systems across a variety of industries, including the crypto industry, are increasing in their frequency, persistence, and sophistication, and, in many cases, are being conducted by sophisticated, well-funded, and organized groups and individuals, including state actors. The techniques used to obtain unauthorized, improper, or illegal access to systems and information (including customers’ personal data and crypto assets), disable or degrade services, or sabotage systems are constantly evolving, may be difficult to detect quickly, and often are not recognized or detected until after they have been launched against a target. These attacks may occur on our systems or those of our third-party service providers or partners. Certain types of cyberattacks could harm us even if our systems are left undisturbed. For example, attacks may be designed to deceive employees and service providers into releasing control of our systems to a hacker, while others may aim to introduce computer viruses or malware into our systems with a view to stealing confidential or proprietary data. Additionally, certain threats are designed to remain dormant or undetectable until launched against a target and we may not be able to implement adequate preventative measures.
Although we have developed systems and processes designed to protect the data we manage, prevent data loss and other security breaches, effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, there can be no assurance that these security measures will provide absolute security or prevent breaches or attacks. We have experienced from time to time, and may experience in the future, breaches of our security measures due to human error, malfeasance, insider threats, system errors or vulnerabilities, or other irregularities. For example, in January 2018, we were ordered by the JFSA to improve our business operations due to a case in which approximately 526.3 million of the NEM crypto asset, or ¥46.6 billion, was illegally transferred, and which resulted in the suspension of withdrawals by our customers. See “Business — Our History.”
18
Unauthorized parties have attempted, and we expect that they will continue to attempt, to gain access to our systems and facilities, as well as those of our customers, partners, and third-party service providers, through various means, including hacking, social engineering, phishing, and attempting to fraudulently induce individuals into disclosing usernames, passwords, payment card information, or other sensitive information, which may in turn be used to access our information technology systems and customers’ crypto assets. Threats can come from a variety of sources, including criminal hackers, hacktivists, state-sponsored intrusions, industrial espionage, and insiders. Certain threat actors may be supported by significant financial and technological resources, making them even more sophisticated and difficult to detect. As a result, our costs and the resources we devote to protecting against these advanced threats and their consequences may continue to increase over time. Outages and disruptions of our cryptocurrency marketplace or exchanges, or NFT marketplace, including any caused by cyberattacks, may harm our reputation and our business, operating results, and financial condition.
On January 14, 2025, government agencies of the United States, Japan and the Republic of Korea issued a joint statement highlighting a recent pattern of malicious cyber activity by affiliates of the Democratic People’s Republic of Korea (“DPRK”) targeting the blockchain technology industry. The joint statement attributes over $300 million in losses in 2024 to DPRK-affiliated cybercrime campaigns targeting cryptocurrency exchanges, digital asset custodians and individual users through well-disguised social engineering attacks. Such organized cybercrime operations pose a heightened risk to our operations and digital infrastructure, and our reputation as a secure trading platform may be jeopardized in the event of such an attempted or a successful cyberattack. Additionally, the continued success of DPRK-affiliated cyberattacks on our competitors’ platforms may negatively affect public perception of industry security and harm our ability to attract new users and customers.
Due to our limited operating history, it may be difficult to evaluate our business and future prospects, and we may not be able to achieve or maintain profitability in any given period.
We began operations in 2012 and publicly launched our crypto asset trading service in 2014. As a result, our revenue has significantly grown since our formation, but there is no assurance that this growth rate will continue in future periods and you should not rely on the revenue growth of any given prior quarterly or annual period as an indication of our future performance. Our limited operating history and the volatile nature of our business make it difficult to evaluate our current business and our future prospects. For example, our operating history has coincided with an extended period of general growth in the value of crypto assets as a whole. We have also encountered, and will continue to encounter, risks and difficulties frequently experienced by growing companies in rapidly changing and heavily regulated industries, including achieving market acceptance of our products and services, attracting and retaining customers, complying with laws and regulations that are subject to evolving interpretations and application, and increasing competition and expenses as we expand our business. We cannot be sure that we will be successful in addressing these and other challenges we may face, and our business may be adversely affected if we do not manage these risks successfully.
The majority of our revenue is from transactions in certain crypto assets, such as Bitcoin, Ethereum, XRP or other specific crypto assets. If demand for any particular crypto asset declines and is not replaced by new demand, our business, operating results, and financial condition could be adversely affected.
Across our Marketplace and Exchange platforms we support 31 different types of cryptocurrencies for trading and custody as of December 31, 2024, an increase from 28 different types of cryptocurrencies as of September 30, 2024. Because we only support trading in cryptocurrencies that have been approved for trading by crypto asset exchange operators in Japan under the guidelines of the JVCEA, we support fewer types of crypto assets than some exchange operators in other jurisdictions. For the fiscal year ended March 31, 2024 and the nine months ended December 31, 2024, we derived the majority of our revenue from transaction revenue generated in connection with the buying, selling, and trading of Bitcoin, Ethereum, XRP and other specific crypto assets. Depending on broader trends within the crypto asset market, our total revenue may be concentrated into certain specific assets at various times in the future. As a result, in addition to the factors impacting the broader crypto markets described in this section, our business may also be adversely affected if the markets for Bitcoin, Ethereum or any particular crypto asset deteriorate or if their prices decline, including as a result of the following factors:
• the reduction in mining rewards of Bitcoin, including block reward halving events, which are events that occur after a specific period of time which reduces the block reward earned by miners;
19
• changes in the nature or regulation of Ethereum following its migration to a proof-of-stake model;
• disruptions, hacks, splits in the underlying network also known as “forks,” attacks by malicious actors who control a significant portion of the networks’ hash rate such as double spend or 51% attacks, or other similar incidents affecting the Bitcoin or Ethereum blockchain networks;
• hard “forks” resulting in the creation of and divergence into multiple separate networks, such as Bitcoin Cash and Ethereum Classic;
• the ability for blockchain networks to resolve significant scaling challenges and increase the volume and speed of transactions;
• transaction congestion and fees associated with processing transactions on the Bitcoin, Ethereum or other networks;
• informal governance led by the core developers of Bitcoin, Ethereum or other crypto assets that lead to revisions to the underlying source code or inactions that prevent network scaling, and which evolve over time largely based on self-determined participation, which may result in new changes or updates that affect their speed, security, usability, or value;
• the ability to attract and retain developers and users to use a specific crypto asset for payment, store of value, unit of accounting, and other intended uses;
• the identification of Satoshi Nakamoto, the pseudonymous person or persons who developed Bitcoin, or the transfer of Satoshi’s Bitcoin;
• negative perception of Bitcoin, Ethereum, XRP or a specific crypto asset;
• development in mathematics, technology, including in digital computing, algebraic geometry, and quantum computing that could result in the cryptography being used by a specific crypto asset becoming insecure or ineffective;
• regulatory or legislative restrictions or limitations on lending, mining or staking activities, including a finding that offering lending, mining or staking services to customers as a means to generate passive yield constitutes offering of a security under the laws of a particular jurisdiction; and
• laws and regulations affecting the networks of Bitcoin, Ethereum or a specific crypto asset or access to these networks, including a determination that Bitcoin, Ethereum or a specific crypto asset constitutes a security or other regulated financial instrument under the laws of any jurisdiction.
We are subject to extensive regulation in Japan and any adverse changes to, or our failure to comply with, any laws and regulations could adversely affect our brand, reputation, business, operating results, and financial condition.
Due to our business activities, we are subject to ongoing examinations, oversight, and reviews, by Japanese regulators and self-regulatory organizations, including, but not limited to, the JFSA and the JVCEA. We received our license as a crypto asset exchange service provider from the JFSA in January 2019. We are required to periodically submit business and audit reports and could be subject to examinations by these regulatory authorities. As a result of findings from these audits and examinations, regulators have and may in the future require us to take certain actions, including amending, updating, or revising our compliance measures from time to time, limiting the kinds of customers which we provide services to, changing, terminating, or delaying our licenses and/or the introduction of our existing or new product and services, and undertaking further external audit or being subject to further regulatory scrutiny, including investigations and inquiries. We have received, and may in the future receive, examination reports citing violations of rules and regulations, inadequacies in existing compliance programs, and requiring us to enhance certain practices with respect to our compliance program, including due diligence, monitoring, training, reporting, and recordkeeping. Implementing appropriate measures to properly remediate these examination findings may require us to incur significant costs, and if we fail to properly remediate any of these examination findings, we could face civil litigation, significant fines, damage awards, forced removal of certain employees including members of our executive team, barring of certain employees from participating in our business in whole or in part, revocation of existing licenses, limitations on existing and new products and services,
20
reputational harm, negative impact to our existing relationships with regulators, exposure to criminal liability, or other regulatory consequences. One focus of regulatory oversight is to assess our financial soundness. If we fail to maintain sufficient liquidity and capital resources, our business and trading operations could be adversely affected and we could also be subject to regulatory consequences. It is possible that new or enhanced capital or liquidity requirements could be introduced in the future. In addition, our Chairman, Representative Director & Executive Director, Satoshi Hasuo, also serves as a director of the JVCEA, which could potentially result in a conflict of interest due to this dual position. We are not aware of any such conflicts of interest and believe that the possibility of any information being shared with Mr. Hasuo that could cause a conflict of interest is limited. See “Business — Regulatory Environment — Self-Regulatory Organization and Self-Regulatory Rules on Crypto Asset Exchange Service Providers.” Further, new laws, regulations, or interpretations may result in additional litigation, regulatory investigations, and enforcement or other actions, including preventing or delaying us from offering certain products or services offered by our competitors or could impact how we offer such products and services. Adverse changes to, or our failure to comply with, any laws and regulations have had, and may continue to have, an adverse effect on our reputation and brand and our business, operating results, and financial condition. For further information on the regulations we are subject to, see the section entitled “Business — Regulatory Environment.”
We could be subject to administrative sanctions, including fines, or legal claims if we are found to have offered services in violations of the laws of jurisdictions other than Japan or to have violated international sanctions regimes.
Legal and regulatory regimes in a range of areas, including crypto asset custody, exchange, and transfer, money and crypto asset transmission, foreign currency exchange, privacy, data governance, data protection, cybersecurity, fraud detection, tax, anti-bribery, anti-money laundering, and counter-terrorist financing, vary widely between Japan and other jurisdictions and are still developing and changing to address issues relating to crypto assets. These legal and regulatory regimes are evolving rapidly and may be modified, interpreted, and applied in an inconsistent manner from one jurisdiction to another. We currently only offer crypto asset exchange trading services to customers in Japan and take steps to ensure that customers outside of Japan cannot circumvent our account opening procedures. We also have procedures to restrict access from IP addresses in jurisdictions outside of Japan, including the United States. However, these procedures may be ineffective. For instance, the use of a virtual private network may allow users from IP addresses outside of Japan to misrepresent their true locations and gain access to our platform. If our procedures are ineffective or if we are otherwise determined to have violated applicable laws and regulations in other jurisdictions, including the United States, the European Union or elsewhere, we could be subject to administrative sanctions, including fines, or legal claims based on the laws of such other jurisdictions. For example, if individuals located in the United States were able to evade our user restrictions and gain access to our services, we could be deemed to be operating in the United States as an unregistered national securities exchange, an unregistered broker-dealer and/or an unregistered clearing agency with respect to our crypto asset exchange services and could therefore be subject to administrative sanctions or legal claims in the United States.
Moreover, while we currently only operate in Japan, certain of our transactions or dealings nevertheless may become subject, as a jurisdictional matter, to economic sanctions laws and regulations imposed by governmental authorities outside of Japan, such as those administered and enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). We have taken steps designed to comply with sanctions imposed by Japan, the United States, and other relevant regulators, and to prevent our users from using our cryptocurrency exchange to conduct transactions or dealings with countries, regions, and persons sanctioned by Japan, the United States, and other governments, but we cannot guarantee that these safeguards will be effective. Any failure to comply with these sanctions may expose us to reputational harm as well as significant penalties, including criminal fines, imprisonment, civil fines, disgorgement of profits, as well as other remedial measures. Investigations of alleged violations can be expensive and disruptive, and any such violation (or allegation of a violation) could materially adversely affect our business, financial condition, and results of operations.
In addition, transactions executed on the miime service, an on-chain NFT marketplace we operated until November 21, 2022, which enabled users to sell and purchase NFTs using a self-custodial wallet such as MetaMask, may be found to have violated securities or other regulations in the jurisdiction of residence of the users, including due to the facilitation of transactions in unregistered securities. Due to miime’s structure, personal data of its users, including their location, was not available to us, and they may have been resident in jurisdictions other than Japan.
21
We operate in a highly competitive industry and our business, operating results, and financial condition may be adversely affected if we are unable to respond to our competitors effectively.
The development of crypto assets and related cryptocurrency markets, exchanges and NFT marketplaces has been rapidly evolving, and is characterized by competition, experimentation, changing customer needs and frequent introductions of new products and services. Crypto asset trading markets are also subject to evolving industry and regulatory requirements both in Japan and internationally. We expect competition to further intensify in the future as existing and new competitors introduce new products and services or enhance existing ones. We compete against a number of companies operating both in Japan and abroad, both those that focus on traditional financial services and those that focus on crypto-related services. Our most direct competitors are other companies licensed in Japan to provide crypto asset exchange services to individual retail investors. As investor acceptance of crypto assets as an investment category has grown, we also see competition from traditional financial technology and brokerage firms in Japan that are entering the crypto asset market, including through joint ventures, and offering services targeted at our customers.
In addition to competition within Japan, another source of competition has been from companies located outside of Japan, which are subject to significantly less stringent regulatory and compliance requirements in their local jurisdictions. To the extent investors in Japan are able to access their services, such companies are potentially able to more quickly adapt to trends, support a greater number of crypto assets, and develop new crypto-based products and services due to a different standard of regulatory scrutiny. Their business models rely on being unregulated or only regulated in a small number of lower compliance jurisdictions.
To date, due to limited enforcement by regulators, we believe many of these competitors have been able to operate from offshore while offering a number of products and services to retail customers, including in Japan and other highly regulated jurisdictions, without complying with the relevant licensing and other requirements in those jurisdictions. Due to our regulated status in Japan and our commitment to legal and regulatory compliance, we have not been able to offer many popular products and services, that our unregulated or less regulated competitors operating outside of Japan are able to offer, and this may adversely impact our business, financial condition, and results of operations.
Many innovative start-up companies and larger companies have made, and continue to make, significant investments in research and development, and we expect these companies to continue to develop products and technologies that compete with our products. Further, more traditional financial and non-financial services businesses may choose to offer crypto asset trading services and other crypto-based services in the future as such services gain acceptance. Our current and potential competitors may establish cooperative relationships among themselves or with third parties that may further enhance their resources or may also increase their marketing efforts, which could require us to increase our own marketing efforts and incur higher advertising expenses in order to remain competitive. Due to our dependence on revenue from our Marketplace platform business, if current or future competitors offer trading at spreads or commission levels more favorable to retail users than those we offer, our competitive position and operating results could be materially and adversely affected.
Our existing competitors have, and our potential competitors are expected to have, various competitive advantages over us, such as:
• the ability to trade crypto assets and offer products and services that we do not support or offer on our cryptocurrency marketplace or exchanges, or NFT marketplace (due to constraints from regulatory authorities and other factors) such as tokens that constitute securities or derivative instruments under Japanese law;
• greater name recognition, longer operating histories, larger customer bases and larger market shares;
• larger sales and marketing budgets and organizations;
• more established marketing, banking, and compliance relationships;
• greater customer support resources;
• greater resources to make acquisitions;
• lower labor, compliance, risk mitigation, and research and development costs;
22
• larger and more mature intellectual property portfolios;
• greater number of applicable licenses or similar authorizations, including registration as a Type I financial instruments business operator in Japan;
• established core business models outside of the trading of crypto assets;
• operations in jurisdictions with lower compliance costs and greater flexibility to explore new product offerings;
• the ability to offer decentralized and noncustodial platforms; and
• substantially greater financial, technical, and other resources.
If we are unable to compete successfully, or if competing successfully requires us to take costly actions in response to the actions of our competitors, our business, operating results, and financial condition could be adversely affected.
We compete against a growing number of decentralized and noncustodial platforms and our business may be adversely affected if we fail to compete effectively against them.
We also compete against an increasing number of decentralized and noncustodial platforms. On these platforms, users can interact directly with a market-making smart contract or on-chain trading mechanism to exchange one type of crypto asset for another without any centralized intermediary. We believe that these platforms are typically not as easy to use as our cryptocurrency exchanges, and generally lack the speed and liquidity of centralized platforms, but various innovative models and incentives have been designed to bridge the gap. For example, decentralized and noncustodial platforms are often thought to be less vulnerable to hacking since users do not need to transfer their assets to a third party, instead relying on a system of users to operate critical functions on the blockchain, which allows such users to have full and exclusive control over their assets. Concerns about the security of assets following incidents on centralized exchanges, such as the Chapter 11 bankruptcy filing of FTX and allegations of fraud and mismanagement of funds against its founder and former CEO, may increase user adoption of decentralized and noncustodial platforms. Although, as a result of such independence, transactions conducted on decentralized exchanges are often slower since they need to be confirmed on the blockchain by users before completion, in contrast to our ability to instantly complete transactions, transaction fees on decentralized exchanges may be lower than ours. Decentralized exchanges also do not require their users to fill out KYC forms, offering an additional layer of privacy to customers. In addition, such platforms have low start-up and entry costs as market entrants often remain unregulated and have minimal operating and regulatory costs, and transactional fees are often lower as a result of self-executing smart contracts. Furthermore, trust in and utilization of decentralized platforms may increase due to the recent volatility experienced by centralized platforms. A significant number of decentralized platforms have been developed and released, including on Ethereum, Avalanche, Tron, Polkadot and Solana, among others, and many such platforms have experienced significant growth and adoption. We expect interest in decentralized and noncustodial platforms to grow further as the industry develops. If the demand for decentralized platforms grows and we are unable to compete with these decentralized and noncustodial platforms, our business may be adversely affected.
If we cannot keep pace with rapid industry changes to provide new and innovative products and services, the use of our products and services, and consequently our total revenue, could decline, which could adversely impact our business, operating results, and financial condition.
The crypto asset industry has been characterized by rapid change and the introduction of disruptive products and services in recent years. These include decentralized applications, DeFi, yield farming, lending, staking, token wrapping, governance tokens, innovative programs to attract customers such as transaction fee mining programs, initiatives to attract traders such as trading competitions, airdrops and giveaways, staking reward programs, and novel cryptocurrency fundraising and distribution schemes. We expect new services and technologies to continue to emerge and evolve, which may be superior to, or render obsolete, the products and services that we currently provide. We cannot predict the effects of new services and technologies on our business. However, our ability to grow our customer base and total revenue will depend heavily on our ability to innovate and create successful new products and services, both independently and in conjunction with, third-party developers. Any new products or
23
services could fail to attract customers, generate revenue, or perform or integrate well with third-party applications and platforms. In addition, our ability to adapt and compete with new products and services may be inhibited by regulatory requirements and general uncertainty in the law, constraints by our banking partners and payment processors, third-party intellectual property rights, or other factors. Moreover, we must continue to enhance our technical infrastructure and other technology offerings to remain competitive and maintain a platform that has the required functionality, performance, capacity, security, and speed to attract and retain customers. As a result, we expect to expend significant costs and expenses to develop and upgrade our technical infrastructure to meet the evolving needs of our business. Our success will depend on our ability to develop and incorporate new offerings and adapt to technological changes and evolving industry practices. If we are unable to do so in a timely or cost-effective manner, our business and our ability to successfully compete, to retain existing customers, and to attract new customers may be adversely affected.
We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal control over financial reporting, this may impair our ability to produce timely and accurate financial statements or comply with applicable laws and regulations, which may adversely affect investor confidence.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS as issued by the IASB. We are required to comply with the management certification requirements of the Sarbanes-Oxley Act of 2002 in our annual report on Form 20-F for our first annual report that is filed with the SEC (subject to any change in applicable SEC rules). Subject to available exceptions, we will be required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (including management’s internal controls report and an auditor’s attestation report thereto) in our annual reports on Form 20-F (subject to any change in applicable SEC rules). As a public company, we will be required to report, among other things, control deficiencies that constitute a “material weakness” or changes in internal controls that, or that are reasonably likely to, materially affect internal controls over financial reporting. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A “significant deficiency” is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting.
In connection with the preparation of our consolidated financial statements for the year ended March 31, 2023, we identified a material error related to the accounting for marketplace transaction revenue recognition and therefore restated our financial statements for the years ended March 31, 2021 and 2022. As a result of this material error, the Company’s management has concluded that a material weakness exists, which remains unremediated, and therefore its internal control over financial reporting was not effective as of March 31, 2024. This material weakness resulted in a material misstatement of Coincheck’s marketplace transaction revenue and costs of sales for the years ended March 31, 2021 and 2022.
We will not be able to fully remediate this material weakness until certain steps have been completed and have been operating effectively for a sufficient period of time. The actions that we are taking are subject to ongoing review by our executive management and will be subject to the oversight of the audit and supervisory committee. Although we intend to complete this remediation process as quickly as practicable, we cannot provide any assurances with respect to the timeline for implementing effective remedial measures, and our initiatives may not prove to be successful in remediating the material weaknesses or preventing additional material weaknesses or significant deficiencies in our internal controls over financial reporting in the future. See “— Risks Relating to Our Securities — If we fail to maintain effective internal control over financial reporting, the price of our Ordinary Shares may be adversely affected” and “— Risks Relating to Our Securities — Our failure to timely and effectively implement controls and procedures required by Section 404(a) of the Sarbanes-Oxley Act could have a material adverse effect on our business, operating results and financial condition.”
24
A particular crypto asset’s status as a “security” in any relevant jurisdiction remains subject to a high degree of uncertainty.
All of the crypto assets that we currently offer on our cryptocurrency exchanges have been confirmed by the JVCEA for trading in Japan by companies registered as crypto asset exchange service providers with the JFSA under the Payment Services Act. Although regulators outside of Japan, including those in the United States, have taken the position that certain crypto assets fall within the definition of a “security” under their country’s securities laws, these crypto assets are not currently considered a “security” in Japan. There can be no assurance that the laws and regulations in Japan will not change in the future. Under U.S. federal securities laws, a crypto asset offered to investors is deemed a security if investment is made to a common enterprise with the reasonable expectation of profit derived from the efforts of others. Further, the U.S. SEC has issued various forms of guidance, including reports, orders and statements on the application of securities laws to crypto assets.
The classification of a crypto asset as a security under applicable law has wide-ranging implications for the regulatory obligations that flow from the offer, sale, trading, and clearing of such assets. As there can be no assurance that such regulation will not change or that future crypto assets will have differing treatments, we could be subject to legal or regulatory action in the event that a regulatory authority, or a Japanese court were to determine that a supported crypto asset currently offered, sold, or traded on our cryptocurrency exchanges is a “security” under applicable laws. Successful completion of the initial screening process of a crypto asset and determination of no objection by the JVCEA is not binding on regulatory authorities or courts in Japan in the event of a subsequent legal proceeding. If the JFSA or a court were to determine that a supported crypto asset currently offered, sold, or traded on our cryptocurrency exchanges is a security, we would not be able to offer such crypto asset for trading until we are able to do so in a compliant manner. Such an action could result in penalties, fines and reputational harm while customers that traded such supported crypto assets on our cryptocurrency exchanges and subsequently suffered trading losses could also seek to rescind a transaction that we facilitated on the basis that it was conducted in violation of applicable law, which could subject us to significant liability.
Crypto assets are typically traded 24 hours a day on a global basis. If Bitcoin, Ethereum, or any other crypto asset supported on our cryptocurrency exchanges is deemed to be a security under the laws of foreign jurisdictions, including the United States, it may have adverse consequences for the market for such supported crypto asset. For instance, all transactions in such supported crypto asset would have to be registered with the U.S. SEC or other foreign authority, or conducted in accordance with an exemption from registration, which could adversely affect its liquidity, usability and transactability. For example, the SEC has deemed XRP a security, and filed a complaint in the United States District Court for the Southern District of New York against the promoters of XRP in the United States contending that XRP is a security under U.S. federal securities laws and that sales of XRP were made without compliance with applicable U.S. securities registration requirements. Although the court ruled that sales of the XRP token to retail investors on cryptocurrency exchanges were not offers and sales of securities under U.S. federal securities laws in July 2023, the court also ruled that sales of the XRP token to hedge funds and other institutional investors and sophisticated buyers amounted to unregistered offers and sales of securities. The SEC has sought to appeal the ruling and if it is overturned in the future this would result in the potential requirement for platforms that continue to list XRP in the United States needing to register as securities exchanges. We do not provide crypto asset exchange services in the United States, and we do not believe that the status of XRP’s approval for listing and eligibility for trading under the PSA on cryptocurrency exchanges registered with the JFSA would directly change even if the SEC prevails. However, because we list XRP on our cryptocurrency exchanges, in the event XRP is deemed a security, there may nevertheless be an adverse impact on the liquidity, usability and transactability of XRP or we may choose to no longer list XRP on our cryptocurrency exchanges if we determine it is no longer appropriate for us to handle XRP, which may have an adverse impact on our ability to attract and retain customers. Moreover, the networks on which such supported crypto assets are utilized may be required to be regulated as securities intermediaries, and subject to applicable rules, which could effectively render operation of the network for its existing purposes impracticable.
We also operate Coincheck NFT Marketplace, which may expose us to legal, regulatory, and other risks that could adversely affect our business, operating results, and financial condition.
We operate Coincheck NFT Marketplace, the beta version of which we launched in March 2021. While NFTs and cryptocurrencies are similar in that both are based on blockchain technology, unlike cryptocurrency units, which are fungible, NFTs have unique identification codes and often reference content in areas such as games,
25
arts and sports. NFTs are a relatively new and emerging type of digital asset, and the regulatory, commercial, and legal framework governing NFTs is expected to evolve both in Japan and other jurisdictions. The trading of NFTs potentially implicates issues regarding a range of matters, including, but not limited to, intellectual property rights, privacy and cybersecurity, fraud, anti-money laundering, money transmission, sanctions, and currency, commodity, and securities law compliance. To manage risks associated with the trading of NFTs, we have established an approval process conducted in three stages, with our NFT Business Development Department performing the initial review and the Legal & Compliance Department performing the secondary review prior to the final review by an internal review committee, based on the following criteria:
• whether the NFT is a non-substitutable token recorded on the blockchain, or whether the token standard is ERC-721 or not, as we currently only support ERC-721;
• whether the listing of the NFT on the Coincheck NFT Marketplace is regulated by any applicable laws or regulations;
• whether the NFT itself breaches any applicable laws and rights (including whether any work is being used without the permission of the copyright holder);
• whether the operating company of the NFT has any particular issues (including whether it engages with or is considered to be an anti-social force); and
• whether the operating company of the NFT is in compliance with applicable laws and regulations in connection with the NFT.
However, there can be no assurance that procedures that we have implemented will be sufficient to comply with applicable laws and regulations, which remain uncertain and subject to rapid changes, or to identify all rights issues.
For example, NFTs raise various intellectual property law considerations, including relating to ownership, copyrights, trademarks and rights of publicity. The creator of an NFT will often have, or purport to have, all rights to the content of the NFT and can determine what rights to assign to a buyer, such as the right to display, modify, or copy the content. Risks associated with purchasing or selling NFTs, include, among other things, the risk of purchasing counterfeit items or items alleged to be counterfeit, mislabeled items, items that are vulnerable to metadata decay, items on smart contracts with bugs, items related to content that infringes intellectual property rights, and items that may become untransferable. To the extent that, despite our screening procedures for supported NFT titles designed to prevent such issues, we are directly or indirectly involved in a dispute between creators and buyers on our Coincheck NFT Marketplace, it could adversely affect the success of our Coincheck NFT Marketplace and harm our business, operating results, and financial condition.
Our Coincheck NFT Marketplace is only available to customers who have established crypto asset exchange services accounts with us and therefore were subject to our KYC approval process. NFTs, as unique items, are not currently regulated as crypto assets under Japan’s Payment Services Act, and we review supported titles before inclusion to confirm whether they could be regarded as either “securities” or “crypto assets” under current Japanese regulations. It is possible, however, that our determination of the status of particular NFTs could be challenged or that new regulations applicable to buying and selling of NFTs generally could be introduced in Japan. There can be no assurance that the KYC and other procedures that we have implemented for our crypto asset exchange services accounts will be sufficient to comply with any future regulations applicable to the operation of Coincheck NFT Marketplace, and we could be required to make changes to our Coincheck NFT Marketplace or other operating procedures in order to comply with any such regulations, which could adversely affect the success of our Coincheck NFT Marketplace and harm our business, operating results, and financial condition.
Although NFTs are generally not regulated nor deemed crypto assets under the PSA in Japan (See “Business — Regulatory Environment”), it is difficult to predict how the legal and regulatory framework around NFTs will develop and how such developments will impact our business and our Coincheck NFT Marketplace. Outside of Japan, the appropriate regulation of NFTs is under active study in major jurisdictions. For example, the European Union’s markets in crypto asset regulation announced in June 2022 excluded NFTs from its scope, but it was noted that the European Union plans continued study to inform future legislative proposals within an 18-month timeframe to create a regime applicable to NFTs. In the United States, included within the framework for responsible development of crypto assets announced in September 2022 was an instruction for the U.S. Treasury Department to complete an illicit finance risk assessment on NFTs by July 2023. In addition, NFTs may be
26
subject to heightened scrutiny by regulatory authorities as a result of the Chapter 11 bankruptcy filing of FTX and allegations of fraud and mismanagement of funds against its founder and former CEO. Accordingly, significant additional new regulation is likely to be enacted in the future. Due to the novel and complex issues involved, it is difficult to predict how any such developments will affect the development and operation of our Coincheck NFT Marketplace, and it is possible that the regulations adopted in individual jurisdictions may conflict with one another.
As is the case with other crypto assets, NFTs are also subject to theft through hacking, social engineering, phishing, and fraudulently inducing individuals into delivering NFTs or providing access to NFTs to an unauthorized third party. Any safeguards we have implemented or may implement in the future to protect against these cybersecurity threats may be insufficient to prevent a malicious actor, and any such activity on our Coincheck NFT Marketplace could result in reputational harm, or expenses or losses associated with mitigation efforts against these incidents.
We currently rely on third-party service providers for certain aspects of our operations, and any interruptions in services provided by these third parties may impair our ability to support our customers.
We rely on third parties in connection with many aspects of our business, including payment processors, banks, and payment gateways to process transactions; cloud computing services and data centers that provide facilities, infrastructure, website functionality and access, components, and services, including databases and data center facilities and cloud computing; as well as third parties that provide outsourced customer service, compliance support and product development functions, which are critical to our operations. Because we rely on third parties to provide these services and to facilitate certain of our business activities, we face increased operational risks. We do not control the operation of any of these third parties, including the data center facilities we use. These third parties may be subject to financial, legal, regulatory, and labor issues, cybersecurity incidents, break-ins, computer viruses, denial-of-service attacks, sabotage, acts of vandalism, privacy breaches, service terminations, disruptions, interruptions, and other misconduct. They are also vulnerable to damage or interruption from human error, power loss, telecommunications failures, fires, floods, earthquakes, hurricanes, tornadoes, pandemics (including the COVID-19 pandemic) and similar events. There can be no assurance that third parties that provide services to us or to our customers on our behalf will continue to do so on acceptable terms, or at all. If any third parties do not adequately or appropriately provide their services or perform their responsibilities to us or our customers on our behalf, such as if third-party service providers to close their data center facilities without adequate notice, are unable to restore operations and data, fail to perform as expected, or experience other unanticipated problems, we may be unable to procure alternatives in a timely and efficient manner and on acceptable terms, or at all, and we may be subject to business disruptions, losses or costs to remediate any of the deficiencies, customer dissatisfaction, reputational damage, legal or regulatory proceedings, or other adverse consequences which could harm our business.
Any significant disruption in our products and services, in our information technology systems, or in any of the blockchain networks we support, could result in a loss of customers or funds and adversely impact our brand and reputation and our business, operating results, and financial condition.
Our reputation and ability to attract and retain customers and grow our business depends on our ability to operate our service at high levels of reliability, scalability, and performance, including the ability to process and monitor, on a daily basis, a large number of transactions that occur at high volume and frequencies across multiple systems. Our cryptocurrency exchanges, NFT marketplace, the ability of our customers to trade, and our ability to operate at a high level, are dependent on our ability to access the blockchain networks underlying the supported crypto assets, for which access is dependent on our systems’ ability to access the internet. Further, the successful and continued operations of such blockchain networks will depend on a network of computers, miners, or validators, and their continued operations, all of which may be impacted by service interruptions.
Our systems, the systems of our third-party service providers and partners, and certain crypto asset and blockchain networks have experienced from time to time, and may experience in the future, service interruptions or degradation because of hardware and software defects or malfunctions, distributed denial-of-service and other cyberattacks, insider threats, break-ins, sabotage, human error, vandalism, earthquakes, hurricanes, floods, fires, and other natural disasters, power losses, disruptions in telecommunications services, fraud, military or political conflicts, terrorist attacks, computer viruses or other malware, or other events. In addition, extraordinary trading volumes or site usage could cause our computer systems to operate at an unacceptably slow speed or even fail. Some of our systems or the systems of our third-party service providers and partners are not fully redundant, and our or their disaster recovery planning may not be sufficient for all possible outcomes or events.
27
If any of our systems, or those of our third-party service providers, are disrupted for any reason, it could result in unanticipated disruptions, slower response times and delays in our customers’ trade execution and processing, failed settlement of trades, incomplete or inaccurate accounting, recording or processing of trades, unauthorized trades, loss of customer information, increased demand on limited customer support resources, customer claims, complaints with regulatory organizations, lawsuits, or enforcement actions. A prolonged interruption in the availability or reduction in the availability, speed, or functionality of our products and services could harm our business. Frequent or persistent interruptions in our services could cause current or potential customers or partners to believe that our systems are unreliable, leading them to switch to our competitors or to avoid or reduce the use of our products and services, and could permanently harm our reputation. Moreover, to the extent that any system failure or similar event results in damages to our customers or their business partners, these customers or partners could seek significant compensation or contractual penalties from us for their losses, and those claims, even if unsuccessful, would likely be time-consuming and costly for us to address. Problems with the reliability or security of our systems would harm our reputation, and damage to our reputation and the cost of remedying these problems could negatively affect our business, operating results, and financial condition.
Because we are a regulated financial institution in Japan, frequent or persistent interruptions could also lead to regulatory scrutiny, significant fines and penalties, and mandatory and costly changes to our business practices, and ultimately could cause us to lose existing licenses or banking relationships that we need to operate or prevent or delay us from obtaining additional licenses that may be required for our business.
In addition, we are continually improving and upgrading our information systems and technologies. Implementation of new systems and technologies is complex, expensive, time-consuming, and may not be successful. If we fail to timely and successfully implement new information systems and technologies, or improvements or upgrades to existing information systems and technologies, or if such systems and technologies do not operate as intended, it could have an adverse impact on our business, internal controls (including internal controls over financial reporting), operating results, and financial condition.
We suffered a significant loss of customer funds due to hacking in 2018 and any future failure to safeguard and manage our customers’ crypto assets could adversely impact our business, operating results, and financial condition.
In January 2018, our NEM hot wallet was hacked and we lost 526.3 million NEM, or ¥46.6 billion, of customer funds. Although we compensated customers who were adversely affected by this cybersecurity incident, we were subject to lawsuits relating to the calculation of the compensation provided. Some of these lawsuits have been resolved by judgment or alternative dispute resolution, but as of December 31, 2024 there is one remaining lawsuit demanding approximately ¥5 million. After evaluating the remaining claims and the potential outcomes with external advisors, we have determined not to provide a litigation reserve with respect to these remaining claims. Although we have subsequently invested in strengthening our cybersecurity and have become subject to operating procedures, including regulations for the custody of customer crypto assets, subsequently implemented by the JVCEA as described under “Business — Our History,” any future failure to safeguard our customers’ crypto assets could have significant adverse effects.
On May 31, 2024, Japanese crypto exchange operator DMM Bitcoin announced that it had lost 4,502.9 Bitcoin (approximately ¥48.2 billion) of customer assets held in cold wallets as a result of a hacking incident in which such assets were transmitted outside of the company through an “unauthorized leak.” As a result, on September 26, 2024, Japan’s Kanto Local Finance Bureau issued a business improvement order to DMM Bitcoin which required DMM Bitcoin to, among other things, investigate the root causes of the incident, adequately compensate affected customers and improve the risk management systems of the company. On February 21, 2025, Dubai-based cryptocurrency exchange Bybit announced it had detected unauthorized activity related to ETH cold wallets, and this sophisticated attack led to the transfer and possible loss of over 400,000 ETH worth approximately $1.5 billion. If new rules regarding wallets for customer assets held in custody are introduced in Japan in response to such incidents, this could result in an increase in our security-related expenses, including an increase in insurance costs if we decide to take out an appropriate insurance policy in the future. In addition, potentially increased frequency and scrutiny surrounding inspections of crypto exchange service providers by the relevant regulatory authorities may cause delays in the promotion and advancement of planned business initiatives, resulting in lost opportunities. This incident, and incidents similar to this, could result in a general reduction in customer activity or an increase in withdrawals of customer assets on Japanese crypto exchange platforms, including ours. As of December 31, 2024 we recorded
28
¥1,034 billion of safeguard liabilities on our statements of financial position with respect to the obligation to safeguard our customers’ crypto assets not considered controlled by us but for which we hold the private key necessary for the transfer of such crypto assets on behalf of customers. Supported crypto assets are not insured or guaranteed by any government or government agency, and we do not have insurance for the loss of safeguarded customer crypto assets. Our ability to safeguard these crypto assets deposited by customers requires a high level of internal controls. As our business continues to grow and we expand our product and service offerings, we must continue to strengthen our associated internal controls. Our success and the success of our offerings requires significant public confidence in our ability to properly manage customers’ balances and handle large and growing transaction volumes and amounts of customer funds. Any failure by us to maintain the necessary controls or to manage customer crypto assets and funds appropriately and in compliance with applicable regulatory requirements could result in reputational harm, significant financial losses, lead customers to discontinue or reduce their use of our products, and result in significant penalties and fines and additional restrictions, which could adversely impact our business, operating results, and financial condition.
We deposit, transfer, and custody customer cash and crypto assets in Japan. In each instance, we are required to safeguard customers’ assets using security standards applicable to our hot and cold wallet and storage systems, as well as our financial management systems related to such custodial functions. Our security technology is designed to prevent, detect, and mitigate inappropriate access to our systems, by internal or external threats. We believe we have developed and maintained administrative, technical, and physical safeguards designed to comply with applicable legal requirements and industry standards. However, it is nevertheless possible that hackers, employees or service providers acting contrary to our policies, or others could circumvent these safeguards to improperly access our systems or documents, or the systems or documents of our business partners, agents, or service providers, and improperly access, obtain, misuse customer crypto assets and funds. For further information on the regulations regarding custody of customer fiat currencies and crypto assets applicable to us, see “Business — Regulatory Environment — Regulations on Crypto Asset Exchange Service.”
The methods used to obtain unauthorized access, disable, or degrade service or sabotage systems are also constantly changing and evolving and may be difficult to anticipate or detect for long periods of time. Any loss of customer cash or crypto assets could result in a substantial business disruption, adverse reputational impact, inability to compete with our competitors, and regulatory investigations, inquiries, or actions. Additionally, transactions undertaken through our websites or other electronic channels may create risks of fraud, hacking, unauthorized access or acquisition, and other deceptive practices. Any security incident resulting in a compromise of customer assets could result in substantial costs to us and require us to notify impacted individuals, and in some cases regulators, of a possible or actual incident, expose us to regulatory enforcement actions, including substantial fines, limit our ability to provide services, subject us to litigation, significant financial losses, damage our reputation, and adversely affect our business, operating results, financial condition, and cash flows.
The loss or destruction of private keys required to access any crypto assets held in custody for our customers may be irreversible. If we are unable to access private keys or if we experience a hack or other data loss relating to our ability to access any crypto assets, it could cause regulatory scrutiny, reputational harm and other losses.
Crypto assets are generally controllable only by the possessor of the unique private key relating to the digital wallet in which the crypto assets are held. While blockchain protocols typically require public addresses to be published when used in a transaction, private keys must be safeguarded and kept private in order to prevent a third party from accessing the crypto assets held in such a wallet. We hold the private key that is necessary for the transfer of customers’ crypto assets subject to strict limitations on its use under the regulations applicable to us as a crypto asset exchange service provider in Japan. To the extent that any of the private keys relating to our hot or cold wallets containing crypto assets held for our own account or for our customers is lost, destroyed, or otherwise compromised or unavailable, and no backup of the private key is accessible, we will be unable to access the crypto assets held in the related wallet. Further, we cannot provide assurance that our wallet will not be hacked or compromised. Crypto assets and blockchain technologies have been, and may in the future be, subject to security breaches, hacking, or other malicious activities. Any loss of private keys relating to, or hack or other compromise of, digital wallets used to store our customers’ crypto assets could adversely affect our customers’ ability to access or sell their crypto assets, require us to reimburse our customers for their losses, and subject us to significant financial losses in addition to losing customer trust in us and our products. As discussed in the immediately preceding risk factor, we compensated
29
customers for ¥46.6 billion in losses of crypto assets due to a hacking incident in January 2018. Any future loss of private keys due to a hack, employee or service provider misconduct or error, or other compromise by third parties could hurt our brand and reputation, result in significant losses, and adversely impact our business.
If we fail to retain existing customers or add new customers, or if our customers decrease their level of engagement with our products, services and platform, our business, operating results, and financial condition may be significantly harmed.
Our success depends on our ability to retain existing customers and attract new customers and to increase engagement with our products, services and platform. To do so, we must continue to offer leading technologies and ensure that our products and services are secure, reliable and engaging. We have historically targeted retail investors new to investing in crypto assets, and the quality of our UI/UX, especially for smartphone users, and the provision of information to such investors is a key competitive factor. There is no assurance that we will be able to retain our current customers or attract new customers, or keep our customers engaged. In particular, as the majority of our total revenue is currently derived from trading activity by Japanese retail customers who trade on our Marketplace platform, we are sensitive to any changes in sentiment among such retail investors, which may be caused by other factors in addition to the below. Moreover, as we seek to attract new customers, we may also seek to expand to institutional customers within Japan, and we may be unsuccessful in any such expansion due to differences between Japanese institutional and retail customers. Any number of factors can negatively affect such customer retention, growth, and engagement, including if:
• customers increasingly engage with competing products and services, including products and services that we are unable to offer or do not offer;
• we fail to support new and in-demand crypto assets or if we elect to support crypto assets with negative reputations;
• our newly offered products and services, such as our Coincheck NFT Marketplace or IEO business, are unsuccessful in achieving our expected goals for such products and services;
• there are adverse changes in our products and services that are mandated by legislation, regulatory authorities, or litigation;
• customers perceiving the crypto assets on our cryptocurrency marketplace or exchanges, or NFT marketplace to be bad investments, or experiencing significant losses in investments made on our cryptocurrency marketplace or exchanges, or NFT marketplace;
• technical or other problems prevent us from delivering our products and services with the speed, functionality, security, and reliability that our customers expect;
• cybersecurity incidents, employee or service provider misconduct, or other unforeseen activities that causes losses to us or our customers, including losses to assets held by us on behalf of our customers;
• modifications to our pricing model or modifications by competitors to their pricing;
• we fail to provide adequate customer service to customers; or
• we or other companies in our industry are the subject of adverse media reports or other negative publicity.
If we are unable to maintain or increase our customer base and customer engagement, our total revenue and financial results may be adversely affected. Furthermore, following the Chapter 11 bankruptcy filing of FTX and allegations of fraud and mismanagement of funds against its founder and former CEO, financial and other resources required to acquire new customers and maintain our customer base may increase. Any decrease in user retention, growth, or engagement could render our products and services less attractive to customers, which may have an adverse impact on our total revenue, business, operating results, and financial condition. If our customer growth rate slows or declines, we will become increasingly dependent on our ability to maintain or increase levels of user engagement and monetization in order to drive growth of total revenue.
30
Many of our customers are first-time users and our trading volumes and total revenues could be reduced if these customers stop trading crypto assets altogether or stop using our cryptocurrency exchanges for their trading activities.
Our business model focuses on making crypto assets accessible to a broad demographic of retail customers. The number of new accounts opened with us by retail investors totaled 415,525, 182,178 and 178,949 in the years ended March 31, 2022, 2023 and 2024, respectively, and 216,467 in the nine months ended December 31, 2024. Our success, and our ability to increase total revenue, depends in part on such customers continuing to utilize our cryptocurrency exchanges, even as crypto asset prices fluctuate and economic conditions change. However, our customers do not have long-term contractual arrangements with us and may cease to use our cryptocurrency exchanges at any time. We may face particular challenges in retaining these users as customers, for example as a result of increased volatility in crypto assets or other financial markets, or increasing availability of competing platforms that seek to target the same demographic. In particular, a broad decline in the crypto asset markets could result in some of these investors exiting the markets and leaving our cryptocurrency exchanges. Any significant loss of customers or a significant reduction in their use of our Marketplace platform and Exchange platform could have a material impact on our trading volumes and total revenue, and materially adversely affect our business, financial condition and results of operations.
If we expand our international activities, our obligations to comply with the laws, rules, regulations, and policies of a variety of jurisdictions will increase and we may be subject to investigations and enforcement actions by non-Japanese regulators and governmental authorities.
If we expand into markets outside of Japan, we will become obligated to comply with the laws, rules, regulations, policies, and legal interpretations both of the jurisdictions in which we operate and those into which we offer services on a cross-border basis. For instance, financial regulators outside of Japan have significantly increased their scrutiny of crypto asset exchanges, such as by requiring crypto asset exchanges operating in their local jurisdictions to be regulated and licensed under local laws. In particular, Russia’s recent invasion of Ukraine has led to numerous countries around the world imposing a variety of sanctions on Russia, Belarus and other related entities. In response to concerns that crypto assets could be used to circumvent certain sanctions regimes, governments and regulators may also implement new measures and regulations that restrict the operations of crypto asset exchanges. Moreover, laws regulating financial services, the internet, mobile technologies, crypto assets, and related technologies outside of Japan are rapidly evolving, complex and often impose different, more specific, or even conflicting obligations on us, as well as potentially broader liability.
Regulators worldwide frequently study each other’s approaches to the regulation of crypto assets. Consequently, developments in any particular jurisdiction may influence other jurisdictions. New developments in one jurisdiction may be extended to additional services and other jurisdictions. As a result, the risks created by any new law or regulation in one jurisdiction are magnified by the potential that they may be replicated, affecting our business in another place or involving another service. Conversely, if regulations diverge worldwide, we may face difficulty adjusting our products, services, and other aspects of our business to serve customers in jurisdictions outside of Japan. On June 30, 2022, the European Union announced a provisional agreement on markets in crypto assets regulatory framework meant to clarify the responsibilities and obligations of crypto asset service providers, establish a licensing scheme and protect consumers. The regulatory framework Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCAR) was formally adopted on May 16, 2023, and the first phase, in which issuers of asset-reference tokens must be authorized in the European Union (including through submission of a detailed application meeting specific compliance obligations) and e-money tokens can only be offered in the European Union by credit institutions and electronic money institutions authorized in the European Union (after submission of a white paper to the competent supervisory authority), has been applied from June 30, 2024. The remainder of MiCAR applies from December 30, 2024. If the Company’s activities would be expanded outside of Japan and crypto-asset services (other than issuing asset-reference tokens or e-money tokens) would be provided within in the European Union, as of that date a license as crypto-asset service provider (CASP) from the competent supervisory authority would be required. Moreover, the offer to the public in the European Union of crypto-assets has been restricted by MiCAR and includes detailed requirements on the information that needs to be notified and made available in the form of a white paper, depending on the type of crypto-assets. When either targeting customers in the European Union and/or providing crypto-asset services in the European Union, these MiCAR requirements need to be complied with.
Finally, on November 24, 2023, the European Banking Authority launched a public consultation on new guidelines to prevent the abuse of funds and certain crypto asset transfers for money laundering and terrorist financing purposes, further highlighting the continually evolving regulatory landscape in which we operate.
31
To the extent that we expand internationally in the future, we would become subject to a heightened risk of enforcement action, litigation, regulatory, and legal scrutiny which could lead to sanctions, cease and desist orders, or other penalties and censures which could significantly and adversely affect our continued operations and financial condition.
We may suffer losses due to staking, delegating, and other related services we provide to our customers.
Certain supported crypto assets enable holders to earn rewards by participating in decentralized governance, bookkeeping and transaction confirmation activities on their underlying blockchain networks, such as through staking activities, including staking through validation, delegating, and baking. We currently provide and expect to continue to provide such services for Ethereum (ETH) to our customers in order to enable them to earn rewards based on the amount that we hold on their behalf. For instance, as a service to customers, we operate staking nodes on certain blockchain networks utilizing customers’ crypto assets and pass through the rewards received to those customers, less a service fee. In other cases, with our assessment about risk of the providers, we may delegate our customers’ assets to third-party service providers that are unaffiliated with us. Some networks may further require customer assets to be transferred into smart contracts on the underlying blockchain networks not under our or anyone’s control. If our validator, any third-party service providers, or smart contracts fail to behave as expected, suffer cybersecurity attacks, experience security issues, or encounter other problems, our customers’ assets may be irretrievably lost. In addition, certain blockchain networks dictate requirements for participation in the relevant decentralized governance activity, and may impose penalties, or “slashing,” if the relevant activities are not performed correctly, such as if the staker, delegator, or baker acts maliciously on the network, “double signs” any transactions, or experience extended downtimes. If we or any of our service providers are slashed by the underlying blockchain network, our customers’ assets may be confiscated, withdrawn, or burnt by the network, resulting in losses for which we may be responsible. Furthermore, certain types of staking require the payment of transaction fees on the underlying blockchain network and such fees can become significant as the amount and complexity of the transaction grows, depending on the degree of network congestion and the price of the network token. If we experience a high volume of such staking requests from our customers on an ongoing basis, we could incur significant costs. Any penalties or slashing events could damage our brand and reputation, cause us to suffer financial losses, discourage existing and future customers from utilizing our products and services, and adversely impact our business.
We may be exposed to transaction losses due to chargebacks as a result of fraud or uncollectibility that may adversely impact our business, operating results, and financial condition.
In the past, certain of our products and services were able to be paid for by credit and debit cards through payment processors which exposed us to risks associated with chargebacks and refunds. Although we currently do not accept either credit or debit cards for payment if we return to allowing the use of credit or debit cards in the future, we may be exposed to various losses as a result of fraud or uncollectibility that could arise from fraud, misuse, unintentional use, settlement delay, or other activities. In the future, if we begin incurring a significant number of refunds and chargebacks, our payment processors could require us to increase reserves, impose penalties on us, charge additional fees, or terminate their relationships with us. Failure to effectively manage risk and prevent fraud could increase our chargeback and refund losses or cause us to incur other liabilities. Increases in chargebacks, refunds or other liabilities could have an adverse effect on our operating results, financial condition, and cash flows.
We may make acquisitions and investments, which could require significant management attention, disrupt our business, result in dilution to our shareholders, and adversely affect our financial results.
As part of our business strategy, we look for potential opportunities to make acquisitions to add specialized employees, complementary companies, products, services, licenses, or technologies. We routinely conduct discussions and evaluate opportunities for possible acquisitions, strategic investments, entries into new businesses, joint ventures, and other transactions. We may also invest in companies and technologies, many of which are private companies and technologies that are highly speculative in nature. In the future, we may not be able to find any suitable acquisition and investment candidates, and we may not be able to complete acquisitions or make investments on favorable terms, if at all. In some cases, the costs of such acquisitions may be substantial, and there is no assurance that we will receive a favorable return on investment for our acquisitions. We may in the future be required to write off assets we have acquired.
32
In addition, if we fail to successfully close or integrate any acquisitions, or integrate the products or technologies associated with such acquisitions into our company, our total revenue and operating results could be adversely affected. Our ability to acquire and integrate companies, products, services, licenses, or technologies in a successful manner is unproven. Any integration process may require significant time and resources, and we may not be able to manage the process successfully, including successfully securing regulatory approvals which may be required to close the transaction and/or to continue to operate the target firm’s business or products in a manner that is useful to us. We may not successfully evaluate or utilize the acquired products, services, technology, or personnel, or accurately forecast the financial impact of an acquisition, including accounting charges. We may have to pay cash, incur debt, or issue equity securities to pay for any such acquisition, any of which could adversely affect our financial results. The new issuance of equity to finance any such acquisitions could result in dilution to our shareholders. The incurrence of substantial indebtedness could also result in increased fixed obligations and may include covenants or other restrictions that would impede our ability to manage our operations.
If we fail to develop, maintain, and enhance our brand and reputation, our business, operating results, and financial condition may be adversely affected.
Our brand and reputation are key assets. Maintaining, protecting, and enhancing our brand depends largely on the success of our marketing efforts, ability to provide consistent, high-quality, and secure products, services, features and support, and our ability to successfully secure, maintain, and defend our rights to use the “Coincheck” mark and other trademarks important to our brand. We believe that the ease-of-use of our products and services, in particular due to the quality and simplicity of our application interface is a differentiating factor for our brand. We believe that the importance of our brand and reputation will increase as competition further intensifies. Our brand and reputation could be harmed if we fail to achieve these objectives or if our public image were to be tarnished by negative publicity, unexpected events, or actions by third parties. Unfavorable publicity about us, including our products, services, technology, customer service, personnel, and crypto assets or crypto asset platforms generally could diminish confidence in, and the use of, our products and services. Such negative publicity also could have an adverse effect on the size and engagement of our customers and could result in decreased total revenue, which could have an adverse effect on our business, operating results, and financial condition.
Our key business metrics and other estimates are subject to inherent challenges in measurement, and our business, operating results, and financial condition could be adversely affected by real or perceived inaccuracies in those metrics.
We regularly review key business metrics, including the number of verified and active users, trading volume and other measures to evaluate growth trends, measure our performance, and make strategic decisions. These key metrics are calculated using internal company data and have not been validated by an independent third party. While these numbers are based on what we currently believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in such measurements. If we fail to maintain an effective analytics platform, our key metrics calculations may be inaccurate, and we may not be able to identify those inaccuracies. We regularly review our processes for calculating these metrics, and from time to time we make adjustments to improve their accuracy. We generally will not update previously disclosed key business metrics for any such inaccuracies or adjustments that are immaterial.
Our key business metrics may also be impacted by compliance or fraud-related bans, technical incidents, or false or spam accounts in existence on our cryptocurrency exchanges. We regularly deactivate fraudulent and spam accounts that violate our terms of service and exclude these users from the calculation of our key business metrics; however, we may not succeed in identifying and removing all such accounts from our cryptocurrency exchanges. If our metrics provide us with incorrect or incomplete information about users and their behavior, we may make inaccurate conclusions about our business.
Unfavorable media coverage could negatively affect our business.
We receive a high degree of media coverage in Japan. Unfavorable publicity regarding, for example, our product changes, product quality, litigation or regulatory activity, privacy practices, terms of service, employment matters, the use of our products, services, or supported crypto assets for illicit or objectionable ends, the actions of our customers, or the actions of other companies that provide similar services to ours could adversely affect our reputation. Further, we may be in the future the target of social media campaigns criticizing actual or perceived
33
actions or inactions that are disfavored by our customers, employees, or society at-large. Such campaigns could materially impact our customers’ decisions to trade on our cryptocurrency marketplace or exchanges, or NFT marketplace. For example, we have been subject to lawsuits related to the NEM hacking incident in January 2018. Any such negative publicity could have an adverse effect on the size, activity, and loyalty of our customers and result in a decrease in our total revenue, which could adversely affect our business, operating results, and financial condition.
Our cryptocurrency marketplace or exchanges, or NFT marketplace may be exploited to facilitate illegal activity such as fraud, money laundering, gambling, tax evasion, and scams. If any of our customers use our cryptocurrency exchanges or NFT marketplace to further such illegal activities, our business could be adversely affected.
Our cryptocurrency marketplace or exchanges, or NFT marketplace may be exploited to facilitate illegal activity including fraud, money laundering, gambling, tax evasion and scams. We may be specifically targeted by individuals seeking to conduct fraudulent transfers, and it may be difficult or impossible for us to detect and avoid such transactions in certain circumstances. The use of our cryptocurrency marketplace or exchanges, or NFT marketplace for illegal or improper purposes could subject us to claims, lawsuits, and government and regulatory investigations, prosecutions, enforcement actions, inquiries, or requests that could result in liability and reputational harm for us. In the event that a customer is found responsible for intentionally or inadvertently violating the laws in Japan or elsewhere, we may be subject to governmental inquiries, enforcement actions, prosecuted, or otherwise held secondarily liable for aiding or facilitating such activities. As a licensed crypto asset exchange service provider in Japan, we are required to implement KYC and other preventative measures mandated under Japan’s Act on Prevention of Transfer of Criminal Proceeds and monitored by the JFSA. We have in the past reported instances of non-compliance, and any future failure to maintain sufficient preventative measures could result in regulatory consequences and damage to our reputation. Changes in law have also increased the penalties for money transmitters for certain illegal activities, and government authorities may consider increased or additional penalties from time to time. Any threatened or resulting claims could result in reputational harm, and any resulting liabilities, loss of transaction volume, or increased costs could harm our business.
Moreover, while fiat currencies can be used to facilitate illegal activities, crypto assets are relatively new and, in many jurisdictions, may be lightly regulated or largely unregulated. Many types of crypto assets have characteristics, such as the speed with which digital currency transactions can be conducted, the ability to conduct transactions without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions, the irreversible nature of certain crypto asset transactions, and encryption technology that anonymizes these transactions, that make crypto assets susceptible to use in illegal activity. Various regulatory authorities and law enforcement agencies have taken and continue to take legal action against persons and entities alleged to be engaged in fraudulent schemes or other illicit activity involving crypto assets.
While we believe that our risk management and compliance framework is designed to comply with the regulations applicable to our operations in Japan and to detect significant illicit activities conducted by our potential or existing customers, we cannot ensure that we will be able to detect all illegal activity on our cryptocurrency marketplace or exchanges, or NFT marketplace. The introduction of new services may present additional challenges in monitoring for illicit activities. If any of our customers use our cryptocurrency marketplace or exchanges, or NFT marketplace to further such illegal activities, our business could be adversely affected.
Our compliance and risk management methods might not be effective and may result in outcomes that could adversely affect our reputation, operating results, and financial condition.
We are subject to significant regulatory oversight in Japan, and our ability to comply with applicable complex and evolving laws, regulations, and rules is largely dependent on the establishment and maintenance of our compliance, audit, and reporting systems, as well as our ability to attract and retain qualified compliance and other risk management personnel. While we have devoted significant resources to develop policies and procedures to identify, monitor, and manage our risks, and expect to continue to do so in the future, we cannot assure you that our policies and procedures will always be effective. Our risk management policies and procedures rely on a combination of technical and human controls and supervision that are subject to error and failure. Some of our methods for managing risk are discretionary by nature and are based on internally developed controls and observed historical market behavior, and also involve reliance on standard industry practices. These methods may
34
not adequately prevent losses, particularly as they relate to extreme market movements, which may be significantly greater than historical fluctuations in the market. Our risk management policies and procedures also may not adequately prevent losses due to technical errors if our testing and quality control practices are not effective in preventing failures. In addition, we may elect to adjust our risk management policies and procedures to allow for an increase in risk tolerance, which could expose us to the risk of greater losses.
Regulators periodically review our compliance with our own policies and procedures and with a variety of laws and regulations. We have received in the past and may from time to time receive additional examination reports citing violations of rules and regulations and inadequacies in existing compliance programs and requiring us to enhance certain practices with respect to our compliance program, including due diligence, training, monitoring, reporting, and recordkeeping. If we fail to comply with these, or do not adequately remediate certain findings, regulators could take a variety of actions that could impair our ability to conduct our business, including delaying, denying, withdrawing, or conditioning approval of certain products and services. In addition, we face the risk of significant intervention by regulatory authorities, including extensive examination and surveillance activities. In the case of non-compliance or alleged non-compliance, we could be subject to investigations and proceedings that may result in substantial penalties or civil lawsuits, including by customers. Any of these outcomes would adversely affect our reputation and brand and business, operating results, and financial condition. Some of these outcomes could adversely affect our ability to conduct our business.
We may suffer losses due to abrupt and erratic market movements.
The crypto asset market has been characterized by significant volatility and unexpected price movements. Certain crypto assets may become more volatile and less liquid in a very short period of time, resulting in market prices being subject to erratic and abrupt market movement, which could harm our business. For instance, abrupt changes in volatility or market movement can lead to extreme pressures on our cryptocurrency exchanges and infrastructure that can lead to inadvertent suspension of services across parts of the platform or the entire platform.
In addition, we hold certain crypto assets separately from the crypto assets of our customers in order to ensure liquidity for our customers. We utilize the Value-at-Risk method to help manage the market risk of such crypto assets held and we monitor the supply volume and transaction value of each crypto asset that we offer on our Marketplace platform for liquidity risk on a daily basis relative to our capital. However, as crypto assets are significantly more volatile than other financial assets, these periods of volatility and unexpected price fluctuations may affect our financial position and business performance if our risk management and liquidity risk procedures are not effective. One way in which we limit our exposure to market risk is by borrowing crypto assets from our customers under our Coincheck Lending program. Under the terms of the borrowing agreements, we return the subject crypto assets in kind at the end of the specified borrowing period. If borrowing from our customers becomes limited or unavailable, we might need to purchase and hold crypto assets in order to use them to facilitate the operations of our Marketplace platform, increasing our exposure to price fluctuations to the extent of the crypto assets held.
Risks Relating to Crypto Assets
Negative publicity associated with crypto asset platforms, including instances of potential fraud, the bankruptcy of industry participants and the violation of applicable legal and regulatory requirements, may cause existing and potential customers to lose confidence in crypto asset platforms.
Crypto asset platforms are relatively new. Many of our competitors outside of Japan are unlicensed, unregulated, operate without supervision by any governmental authorities, and do not provide the public with significant information regarding their ownership structure, management team, corporate practices, cybersecurity, and regulatory compliance. In addition, crypto assets may be more vulnerable than other types of assets to market or price manipulation and other fraudulent practices due to the lack of regulations globally. A lack of transparency and incidents of fraud or malfeasance that result in losses to investors may cause our existing or potential customers and the general public to lose confidence in crypto asset platforms, including regulated platforms like ours. These incidents may also lead to increased regulatory scrutiny in Japan and other jurisdictions.
Numerous crypto asset platforms have been sued, investigated, or shut down due to fraud, manipulative practices, business failure, and security breaches. In many of these instances, customers of these platforms were not compensated or made whole for their losses. Larger platforms are more appealing targets for hackers and malware and may also be more likely to be targets of regulatory enforcement actions. For example, in
35
February 2014, Mt. Gox, the then largest crypto asset platform worldwide, filed for bankruptcy protection in Japan after an estimated 850,000 Bitcoin were stolen from its wallets. As described under “Business — Our History,” in January 2018 our NEM hot wallet was hacked and we lost 526.3 million NEM, or ¥46.6 billion, of customer funds. In May 2019, Binance, one of the world’s largest platforms, was hacked, resulting in losses of approximately $40 million, and in February 2021, Bitfinex settled a long-running legal dispute with the State of New York related to Bitfinex’s alleged misuse of over $800 million of customer assets. More recently, volatility in crypto asset markets have caused severe distress for crypto asset platforms and in some cases business failure, preventing customers from accessing or recovering their funds. In particular, the November 2022 bankruptcy filing of FTX, a Bahamas-based cryptocurrency exchange, and allegations of fraud and mismanagement of funds against its founder and former CEO, has heightened negative perceptions of crypto asset platforms and has created uncertainty about the outlook for markets for crypto assets. On May 31, 2024, Japanese crypto exchange operator DMM Bitcoin announced that it had lost 4,502.9 Bitcoin (approximately ¥48.2 billion) of customer assets held in cold wallets as a result of a hacking incident in which such assets were transmitted outside of the company through an “unauthorized leak.” On February 21, 2025, Dubai-based cryptocurrency exchange Bybit announced it had detected unauthorized activity related to ETH cold wallets, and this sophisticated attack led to the transfer and possible loss of over 400,000 ETH worth approximately $1.5 billion.
More recently, there have been a number of incidents of alleged non-compliance with legal and regulatory requirements by major crypto asset platforms. For example, on March 22, 2023, Coinbase announced that it had received a “Wells Notice” from the SEC, stating that the staff of the SEC had made a “preliminary determination” to recommend an enforcement action against Coinbase alleging violations of federal securities laws relating to various aspects of Coinbase’s services and products. In addition, on March 27, 2023, the CFTC announced the filing of a civil enforcement action in the U.S. District Court for the Northern District of Illinois charging, among others, various entities that operate the Binance platform and Changpeng Zhao, Binance’s co-founder and CEO, with numerous violations of the Commodity Exchange Act and CFTC regulations. Furthermore, on June 5, 2023, the SEC filed a civil complaint in the U.S. District Court for the District of Columbia against Binance and other related entities, as well as Changpeng Zhao. The complaint consists of thirteen charges, including misleading investors and operating as an unregistered securities exchange, broker and clearing agency in violation of U.S. securities laws. Furthermore, on June 6, 2023, the SEC filed a complaint in the U.S. District Court for the Southern District of New York against Coinbase for operating as an unregistered securities exchange, broker and clearing agency, and for the unregistered offer and sale of securities in connection with its staking-as-a-service program. On November 2, 2023, Sam Bankman-Fried, the founder of FTX, was found guilty of all seven criminal counts of fraud against him, and on November 21, 2023, Binance and Changpeng Zhao, the co-founder and CEO of Binance, pled guilty to federal criminal charges that Binance violated and caused a financial institution to violate the Bank Secrecy Act, with Binance entering into a $4.3 billion settlement with the U.S. Justice Department in addition to the confiscation of certain assets and Changpeng Zhao stepping down as CEO and accepting an individual fine of $50 million.
On June 27, 2024, Coinbase filed lawsuits against both the SEC and the FDIC in order to shed light on their approaches to regulation in the industry and gain access to internal records to uncover alleged efforts by the financial regulators to pressure financial institutions to deny crypto firms access to the federal banking system. On July 1, 2024, the SEC filed suit against Silvergate, the parent company of a bank which allegedly helped to facilitate fraud at FTX before its collapse, former CEO Alan Lane and former Chief Risk Officer Kathleen Fraher, claiming that they misled investors regarding the strength of Silvergate’s Bank Secrecy Act/Anti-Money Laundering compliance program and the monitoring of crypto customers, including FTX, by Silvergate’s wholly owned subsidiary, Silvergate Bank. The SEC also charged Silvergate and its former Chief Financial Officer, Antonio Martino, with misleading investors about Silvergate’s losses from expected securities sales following the collapse of FTX. All parties charged, with the exception of Antonio Martino, have agreed to settle with the SEC. On July 2, 2024, in relation to the civil complaint filed by the SEC against Binance and other related entities, a U.S. federal court dismissed several claims, including that Binance’s fiat-backed stablecoin, BUSD, qualifies as an investment contract, although certain other claims by the SEC were allowed to proceed. On February 21, 2025, Coinbase announced an agreement in principle with the SEC Staff, subject to the approval of the SEC’s Commissioners, to jointly stipulate to the dismissal of the Coinbase Litigation with prejudice.
On August 7, 2024, Ripple Labs was fined $125 million in relation to the complaint initially filed by the SEC in December 2020 with respect to the institutional sales of the XRP token, which a Manhattan court judge ruled were unregistered securities offerings; the SEC has since filed an appeal. On September 24, 2024, the SEC spoke before the United States Congress to address concerns surrounding the impediment of financial innovation
36
and reduction of consumer protections related to the SEC’s new rules on digital asset custody under SAB 121. On September 27, 2024, the SEC gave “no-objection” to the Bank of New York Mellon’s request to safeguard digital assets without needing to list them as balance sheet liabilities, as was previously required under SAB 121, and which many financial institutions view as restrictive, and as a result could lead to an increase in the number of financial institutions able to target institutional clients wanting to invest in digital assets through ETFs. On September 27, 2024, the SEC also filed settled charges against Mango DAO and Blockworks Foundation for engaging in the unregistered offer and sale of crypto assets called “MNGO” tokens, as well as settled charges against Blockworks Foundation and Mango Labs LLC for engaging in unregistered broker activity in connection with various crypto assets being offered and sold as securities on the Mango Market platform.
The outcome and results of these enforcement actions may have a significant negative impact on the adoption and use of crypto assets both within the United States and elsewhere and could negatively impact the liquidity, volatility, and value of such assets.
In addition, there have been reports that a significant amount of crypto asset trading volume on crypto asset platforms is fabricated and false in nature, with a specific focus on unregulated platforms located outside of Japan. Such reports may indicate that the market for crypto asset platform activities is significantly smaller than otherwise understood.
Negative perception, a lack of stability and standardized regulation in the trading of crypto assets, and the closure or temporary shutdown of crypto asset platforms due to fraud, business failure, hackers or malware, or government mandated regulation, and associated losses suffered by customers, may reduce investor confidence and result in greater volatility of the prices of crypto assets, including significant depreciation in value. Any of these events could have an adverse impact on our business.
Depositing and withdrawing crypto assets into and from our cryptocurrency exchanges involve risks, which could result in loss of customer assets, customer disputes and other liabilities, which could adversely impact our business.
In order to own, transfer and use a crypto asset on its underlying blockchain network, a person must have a private and public key pair associated with a network address, commonly referred to as a “wallet.” Each wallet is associated with a unique “public key” and “private key” pair, each of which is a string of alphanumerical characters. To deposit crypto assets held by a customer onto our cryptocurrency exchanges or custody platforms, a customer must “sign” a transaction that consists of the private key of the wallet from where the customer is transferring crypto assets, the public key of a wallet that we control which we provide to the customer, and broadcast the deposit transaction onto the underlying blockchain network. Similarly, to withdraw crypto assets from our cryptocurrency exchanges or custody platforms, the customer must provide us with the public key of the wallet that the crypto assets are to be transferred to, and we would be required to “sign” a transaction authorizing the transfer. In addition, some crypto networks require additional information to be provided in connection with any transfer of crypto assets to or from our cryptocurrency exchanges. A number of errors can occur in the process of depositing or withdrawing crypto assets into or from our cryptocurrency exchanges, such as typos, mistakes, or the failure to include the information required by the blockchain network. For instance, a user may incorrectly enter our wallet’s public key or the desired recipient’s public key when depositing and withdrawing from our cryptocurrency exchanges, respectively. Alternatively, a user may transfer crypto assets to a wallet address that he does not own, control or hold the private keys to. In addition, each wallet address is only compatible with the underlying blockchain network on which it is created. For instance, a Bitcoin wallet address can only be used to send and receive Bitcoin. If any Ethereum or other crypto assets is sent to a Bitcoin wallet address, or if any of the foregoing errors occur, all of the customer’s crypto assets will be permanently and irretrievably lost with no means of recovery. We have encountered and expect to continue to encounter similar incidents with our customers. Such incidents could result in customer disputes, damage to our brand and reputation, legal claims against us, and financial liabilities, any of which could adversely affect our business.
A temporary or permanent blockchain “fork” to any supported crypto asset could adversely affect our business.
Blockchain protocols, including Bitcoin and Ethereum, are open source. Any user can download the software, modify it, and then propose that Bitcoin, Ethereum or other blockchain protocols users and miners adopt the modification. When a modification is introduced and a substantial majority of users and miners consent to the
37
modification, the change is implemented and the Bitcoin, Ethereum or other blockchain protocol networks, as applicable, remain uninterrupted. However, if less than a substantial majority of users and miners consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “fork” (i.e., “split”) of the impacted blockchain protocol network and respective blockchain, with one prong running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two parallel versions of the Bitcoin, Ethereum or other blockchain protocol network, as applicable, running simultaneously, but with each split network’s crypto asset lacking interchangeability.
Both Bitcoin and Ethereum protocols have been subject to “forks” that resulted in the creation of new networks, including Bitcoin Cash ABC, Bitcoin Cash SV, Bitcoin Diamond, Bitcoin Gold, Ethereum Classic, and others. Some of these forks have caused fragmentation among platforms as to the correct naming convention for forked crypto assets. Due to the lack of a central registry or rulemaking body, no single entity has the ability to dictate the nomenclature of forked crypto assets, causing disagreements and a lack of uniformity among platforms on the nomenclature of forked crypto assets, and which results in further confusion to users as to the nature of assets they hold on platforms. In addition, several of these forks were contentious and, as a result, participants in certain communities may harbor ill will towards other communities. As a result, certain community members may take actions that adversely impact the use, adoption, and price of Bitcoin, Ethereum, or any of their forked alternatives.
Furthermore, hard forks can lead to new security concerns. For instance, when the Ethereum and Ethereum Classic networks split in July 2016, replay attacks, in which transactions from one network were rebroadcast on the other network to achieve “double-spending,” plagued platforms that traded Ethereum through at least October 2016, resulting in significant losses to some crypto asset platforms. Similar replay attacks occurred in connection with the Bitcoin Cash and Bitcoin Cash SV network split in November 2018. Another possible result of a hard fork is an inherent decrease in the level of security due to the splitting of some mining power across networks, making it easier for a malicious actor to exceed 50% of the mining power of that network, thereby making crypto assets that rely on proof-of-work more susceptible to attack, as has occurred with Ethereum Classic.
We do not believe that we are required to support any fork or provide the benefit of any forked crypto asset to our customers. However, we have in the past and may in the future continue to be subject to claims by customers arguing that they are entitled to receive certain forked or airdropped crypto assets by virtue of crypto assets that they hold with us. If any customers succeed on a claim that they are entitled to receive the benefits of a forked or airdropped crypto asset that we do not or are unable to support, we may be required to pay significant damages, fines or other fees to compensate customers for their losses.
Future forks may occur at any time. A fork can lead to a disruption of networks and our information technology systems, cybersecurity attacks, replay attacks, or security weaknesses, any of which can further lead to temporary or even permanent loss of our and our customers’ assets. Such disruption and loss could cause us to be exposed to liability, even in circumstances where we have no intention of supporting an asset compromised by a fork.
We currently support, and expect to continue to support, certain smart contract-based crypto assets. If the underlying smart contracts for these crypto assets do not operate as expected, they could lose value and our business could be adversely affected.
We currently support, and expect to continue to support, various crypto assets that represent units of value on smart contracts deployed on a third party blockchain. Smart contracts are programs that store and transfer value and execute automatically when certain conditions are met. Since smart contracts typically cannot be stopped or reversed, vulnerabilities in their programming and design can have damaging effects. For instance, in April 2018, a batch overflow bug was found in many Ethereum-based ERC20-compatible smart contract tokens that allowed hackers to create a large number of smart contract tokens, causing multiple crypto asset platforms worldwide to shut down ERC20-compatible token trading. Similarly, in March 2020, a design flaw in the MakerDAO smart contract caused forced liquidations of crypto assets at significantly discounted prices, resulting in millions of dollars of losses to users who had deposited crypto assets into the smart contract. If any such vulnerabilities or flaws come to fruition, smart contract-based crypto assets, including those held by our customers on our cryptocurrency marketplace or exchanges, or NFT marketplace, may suffer negative publicity, be exposed to security vulnerabilities, decline significantly in value, and lose liquidity over a short period of time.
38
In some cases, smart contracts can be controlled by one or more “admin keys” or users with special privileges, or “super users.” These users have the ability to unilaterally make changes to the smart contract, enable or disable features on the smart contract, change how the smart contract receives external inputs and data, and make other changes to the smart contract. For smart contracts that hold a pool of reserves, these users may also be able to extract funds from the pool, liquidate assets held in the pool, or take other actions that decrease the value of the assets held by the smart contract in reserves. Even for crypto assets that have adopted a decentralized governance mechanism, such as smart contracts that are governed by the holders of a governance token, such governance tokens can be concentrated in the hands of a small group of core community members, who would be able to make similar changes unilaterally to the smart contract. If any such super user or group of core members unilaterally make adverse changes to a smart contract, the design, functionality, features and value of the smart contract, and its related crypto assets, may be harmed. In addition, assets held by the smart contract in reserves may be stolen, misused, burnt, locked up or otherwise become unusable and irrecoverable. These super users can also become targets of hackers and malicious attackers. If an attacker is able to access or obtain the super user privileges of a smart contract, or if a smart contract’s super-users or core community members take actions that adversely affect the smart contract, our customers who hold and transact in the affected crypto assets may experience decreased functionality and value of the applicable crypto assets, up to and including a total loss of the value of such crypto assets. Although we do not control these smart contracts, any such events could cause customers to seek damages against us for their losses, result in reputational damage to us, or in other ways adversely impact our business.
From time to time, we may encounter technical issues in connection with the integration of supported crypto assets and changes and upgrades to their underlying networks, which could adversely affect our business.
In order to support any crypto asset, a variety of front and back-end technical and development work is required to implement our wallet, custody, trading, and other solutions for our customers, and to integrate such supported crypto asset with our existing technical infrastructure. For certain crypto assets, a significant amount of development work is required and there is no guarantee that we will be able to support successfully any existing or future crypto asset. In addition, such integration may introduce software errors or weaknesses into our cryptocurrency marketplace or exchanges, or NFT marketplace, including our existing infrastructure. Even if such integration is initially successful, any number of technical changes, software upgrades, soft or hard forks, cybersecurity incidents, or other changes to the underlying blockchain network may occur from time to time, causing incompatibility, technical issues, disruptions, or security weaknesses to our cryptocurrency marketplace or exchanges, or NFT marketplace. If we are unable to identify, troubleshoot and resolve any such issues successfully, we may no longer be able to support such crypto asset, our customers’ assets may be frozen or lost, the security of our hot, warm, or cold wallets may be compromised, and our cryptocurrency marketplace or exchanges, or NFT marketplace and technical infrastructure may be affected, all of which could adversely impact our business.
If miners or validators of any supported crypto asset demand high transaction fees, our operating results may be adversely affected.
We charge miner fees when a customer sends certain crypto assets from their Coincheck account to a non-Coincheck account. We estimate the miner fee based on the cost that we will incur to process the withdrawal transaction on the underlying blockchain network. In addition, we also pay miner fees when we move crypto assets for various operational purposes, such as when we transfer crypto assets between our hot and cold wallets, for which we do not charge our customers. However, miner fees can be unpredictable. For instance, in 2021, Bitcoin miner fees increased from approximately $10 per transaction in January 2021 to over $60 per transaction in April 2021 and again to over $120 per transaction in April 2024. Even though Bitcoin’s miner fees have since decreased to approximately $0.79 per transaction as of the end of September 2024, if the block rewards for miners on any blockchain network are not sufficiently high to incentivize miners, miners may demand higher transaction fees, or collude to reject low transaction fees and force users to pay higher fees. Although we generally attempt to pass miner fees relating to customer withdrawals through to our customers, we have in the past incurred, and expect to incur from time to time, losses associated with the payment of miner fees in excess of what we charge our customers, resulting in adverse impacts on our operating results.
39
The nature of our business requires the application of complex financial accounting and tax rules, and there is limited guidance from accounting standard setting bodies and taxing authorities. If financial accounting standards undergo significant changes or taxing authorities announce new tax rules, our operating results could be adversely affected.
The accounting rules and regulations that we must comply with are complex and subject to interpretation by the IFRS Foundation and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results and may even affect the reporting of transactions completed before the announcement or effectiveness of a change. In addition, there has been limited precedent for the financial accounting of crypto assets and related valuation and revenue recognition standards. As such, there remains significant uncertainty on how companies should account for crypto assets transactions, crypto assets and related revenue. Furthermore, there has been limited guidance from taxing authorities on treatment of crypto assets and revenue therefrom. Japanese tax audits or changes in the tax treatment of our business could result in the imposition of significant additional taxes. Uncertainties in or changes to regulatory or financial accounting standards could result in the need to change our accounting methods and restate our financial statements and impair our ability to provide timely and accurate financial information, which could adversely affect our financial statements, result in a loss of investor confidence, and more generally impact our business, operating results, and financial condition.
Risks Relating to Government Regulation and Privacy Matters
Global regulation of crypto assets or crypto asset platforms may develop in ways that limit the potential for growth in usage and acceptance of crypto assets.
As crypto assets have grown in both popularity and market size, various local and foreign governmental organizations, consumer agencies and public advocacy groups have been examining the operations of crypto networks, users and platforms, with a focus on how crypto assets can be used to launder the proceeds of illegal activities and fund criminal or terrorist enterprises, and the safety and soundness of platforms and other service providers that hold crypto assets for users. Many of these entities have called for heightened regulatory oversight and have issued consumer advisories describing the risks posed by crypto assets to users and investors. Several jurisdictions have banned so-called initial coin offerings, such as China and South Korea, while Canada, Singapore, and Hong Kong have opined that token offerings may constitute securities offerings subject to local securities regulations. In September 2021, China issued a blanket ban on all payments and services utilizing crypto assets and other activity, such as mining, related to crypto assets. In addition, the Government of India has been holding consultation regarding draft legislation to regulate cryptocurrencies while the Indian Central Bank is of the view that cryptocurrencies should be banned. In May 2023, the Central Bank of Argentina announced a ban on the offering or solicitation of crypto transactions by payment service providers. To the extent that such developments adversely affect the adoption of and values of crypto assets, they may adversely affect our business and results of operations even if they occur in jurisdictions in which we do not operate directly.
Following the bankruptcy of Bahamas-based FTX Trading Ltd. in November 2022 and allegations of fraud and mismanagement of funds against its founder and former CEO, as well as financial difficulties experienced by other participants in the crypto asset markets, concern related to investor protection has heightened globally and there is a high likelihood of additional legislation, regulatory measures or administrative actions relating to crypto asset market participants in the United States and other jurisdictions. To the extent such developments result in severe limitations on or bans of crypto assets that we support, or lead to imposition of limitations or bans on other aspects of our business, such developments may adversely affect our business and results of operations.
We obtain and process a large amount of sensitive customer data. Any real or perceived improper use of, disclosure of, or access to such data could harm our reputation, as well as have an adverse effect on our business.
We obtain and process large amounts of sensitive data, including personal data related to our customers and their transactions, such as their names, addresses, copies of government-issued identification, trading data, tax identification, and bank account information. We face risks, including to our reputation, in the handling and protection of this data, and these risks will increase as our business continues to expand. In addition, Japanese laws and regulations, such as the Act on the Protection of Personal Information (“APPI”), governing privacy and
40
data protection require us to safeguard our customers’, employees’, and service providers’ personal data and other important information. If we fail to comply with the regulations under the APPI, we may face recommendation and order from the Personal Information Protection Commission and be liable for fines.
We have administrative, technical, and physical security measures and controls in place and maintain a robust information security program. However, our security measures may be inadequate or breached as a result of third-party action, employee or service provider error, malfeasance, malware, phishing, hacking attacks, system error, trickery, advances in computer capabilities, new discoveries in the field of cryptography, inadequate facility security or otherwise, and, as a result, someone may be able to obtain unauthorized access to sensitive information, including personal data, on our systems. We could be the target of a cybersecurity incident, which could result in harm to our reputation and financial losses. Additionally, our customers have been and could be targeted in cybersecurity incidents like an account takeover, which could result in harm to our reputation and financial losses. Additionally, privacy and data protection laws are evolving, and it is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data handling safeguards and practices that could result in fines, lawsuits, and other penalties, and significant changes to our or our third-party partners business practices, products and service offerings.
Our future success depends on the reliability and security of our cryptocurrency exchanges. To the extent that the measures we or our third-party business partners have taken prove to be insufficient or inadequate, we may become subject to litigation, breach notification obligations, or regulatory or administrative sanctions, which could result in significant fines, penalties, damages, harm to our reputation, or loss of customers. If our own confidential business information or sensitive customer information were improperly disclosed, our business could be adversely affected. Additionally, a party who circumvents our security measures could, among other effects, appropriate customer information or other proprietary data, cause interruptions in our operations, or expose customers to hacks, viruses, and other disruptions.
Risks Relating to Third Parties
Our current and future services are dependent on payment networks and acquiring processors, and any changes to their rules or practices could adversely impact our business.
We rely on banks and other payment processors to process customers’ payments in connection with the purchase of crypto assets on our cryptocurrency exchanges and we pay these providers fees for their services. From time to time, payment networks have increased, and may increase in the future, the interchange fees and assessments that they charge for transactions that use their networks. Payment networks have imposed, and may impose in the future, special fees on the purchase of crypto assets, including on our cryptocurrency exchanges, which could negatively impact us and significantly increase our costs. Our payment card processors may have the right to pass any increases in interchange fees and assessments on to us and may impose additional use charges which would increase our operating costs and reduce our operating income. We could attempt to pass these increases along to our customers, but this strategy might result in the loss of customers to our competitors that may not pass along the increases, thereby reducing our total revenue and earnings. If competitive practices prevent us from passing along the higher fees to our customers in the future, we may have to absorb all or a portion of such increases, thereby increasing our operating costs and reducing our earnings.
We may also be directly or indirectly liable to the payment networks for rule violations. Payment networks set and interpret their network operating rules and have alleged from time to time that various aspects of our business model violate these operating rules. If such allegations are not resolved favorably, they may result in significant fines and penalties or require changes in our business practices that may be costly and adversely affect our business. The payment networks could adopt new operating rules or interpret or reinterpret existing rules that we or our processors might find difficult or even impossible to follow, or costly to implement. As a result, we could lose our ability to give customers the option of using cards to fund their purchases or the choice of currency in which they would like their card to be charged. If we are unable to accept cards or are limited in our ability to do so, our business would be adversely affected.
41
We rely on third parties to perform certain key functions, and their failure to perform those functions could adversely affect our business, financial condition and results of operations.
We rely on certain third-party computer systems or third-party service providers, including cloud technology providers, internet service providers, payment services providers, market and third-party data providers, regulatory services providers, banking systems, communications facilities and other facilities to run our cryptocurrency exchanges. These providers are susceptible to operational, technological and security vulnerabilities, including security breaches, which may impact our business, and our ability to monitor our third-party service providers’ data security is limited. In addition, these third-party service providers may rely on subcontractors to provide services to us that face similar risks. Any interruption in these third-party services, or deterioration in the quality of their service or performance, could be disruptive to our business.
Any failures by, or security breaches of, our third-party service providers or their subcontractors that result in an interruption in service, unauthorized access, misuse, loss or destruction of data or other similar occurrences could interrupt our business, cause us to incur losses, result in decreased customer satisfaction and increase customer attrition, subject us to customer complaints, significant fines, litigation, disputes, claims, regulatory investigations or other inquiries and harm our reputation. In addition, we are legally obligated to provide guidance and supervision to our third-party service providers or their subcontractors, and if the situation described above occurs, we may be ordered by the JFSA to improve our business operations and undergo on-site inspection by the JFSA. Through contractual provisions and third-party risk management processes, we take steps to require that our providers, and their subcontractors, protect our data and information, including personal data. However, due to the size and complexity of our technology platform and services, the amount of data that we store and the number of customers, employees and third-party service providers with access to personal data, we, our third-party service providers and their subcontractors are potentially vulnerable to a variety of intentional and inadvertent cybersecurity breaches and other security-related incidents and threats, which could result in a material adverse effect on our business, financial condition and results of operation. Any contractual protections we may have from our third-party service providers may not be sufficient to adequately protect us against such consequences, and we may be unable to enforce any such contractual protections.
In addition, there is no assurance that our third-party service providers or their subcontractors will be able to continue to provide these services to meet our current needs in an efficient, cost-effective manner or that they will be able to adequately expand their services to meet our needs in the future. An interruption in or the cessation of service by our third-party service providers or their subcontractors, coupled with our possible inability to make alternative arrangements in a smooth, cost-effective and timely manner, could have adverse effects on our business, financial condition and results of operations. Further, if there were deficiencies in the oversight and control of our third-party relationships, and if our regulators held us responsible for those deficiencies, it could have an adverse effect on our business, reputation and results of operations.
Our success depends in part upon continued distribution through app stores and effective operation with mobile operating systems, networks, technologies, products, hardware and standards that we do not control.
A substantial majority of our customers’ activity on our cryptocurrency exchanges occurs on mobile devices. There is no guarantee that popular mobile devices will remain compatible with the Coincheck app, or that mobile device customers will continue to use our products and services rather than those of our competitors. We are dependent on the interoperability of our app with popular mobile operating systems, networks, technologies, products, hardware and standards that we do not control, such as the Android and iOS operating systems. Any changes, bugs or technical issues in such systems or changes in our relationships with mobile operating system providers, device manufacturers or mobile carriers, or in their terms of service or policies that degrade the functionality of our app, reduce or eliminate our ability to distribute applications, give preferential treatment to competitive products, limit our ability to target or measure the effectiveness of applications, or impose fees or other charges related to the delivery of our application that could adversely affect customer usage of the Coincheck app.
We are also subject to the standard policies and terms of service of these operating systems, as well as policies and terms of service of the various application stores that make our application and experiences available to our developers, creators and customers. These policies and terms of service govern the availability, promotion, distribution, content and operation generally of applications and experiences on such operating systems and stores. Each provider of these operating systems and stores has broad discretion to change and interpret its terms of service
42
and policies with respect to our cryptocurrency exchanges and those changes may be unfavorable to us and our developers’, creators’ and customers’ use of our cryptocurrency exchanges. If we were to violate, or an operating system provider or application store believes that we have violated, its terms of service or policies, that operating system provider or application store could limit or discontinue our access to its operating system or store. In some cases these requirements might not be clear or our interpretation of the requirements might not align with the interpretation of the operating system provider or application store, which could lead to inconsistent enforcement of these terms of service or policies against us, and could also result in the operating system provider or application store limiting or discontinuing access to its operating system or store. Any limitation or discontinuation of our access to any third-party platform or application store could adversely affect our business, financial condition or results of operations.
Additionally, in order to deliver a high-quality mobile experience for our customers, it is important that our products and services work well with a range of mobile technologies, products, systems, networks, hardware and standards that we do not control. We might not be successful in developing products that operate effectively with these technologies, products, systems, networks or standards. In the event that it is more difficult for our customers to access and use our app, or if our customers choose not to access or use our app on their mobile devices or use mobile products that do not offer access to our app, our customer growth and engagement could be harmed. In the event that our customers are adversely affected by these actions or if our relationships with such third parties deteriorate, our customer growth and engagement could be adversely affected and our business could be harmed.
We are exposed to credit risks due to our reliance on cryptocurrency exchange brokers, which may cause us to incur financial or reputational harm.
We are exposed to certain credit risks due to our reliance on third-party cryptocurrency exchange brokers where we execute cover transactions to hedge our exposure to specific crypto assets. Our counterparties in our hedging transactions (which we refer to as our cover counterparties) are composed of a relatively small number of financial institutions and cryptocurrency exchange brokers, some of which may have a limited amount of information disclosed. We borrow crypto assets from our customers and, in order to be able to hedge by executing cover transactions, hold a portion of borrowed crypto assets in our accounts with such cryptocurrency exchange brokers. If such counterparty should go bankrupt or retain such crypto asset for some other unanticipated reason, we would still be responsible for returning such crypto assets to our customers. We monitor the balance of our own positions held against an overall risk limit amount and also specific limit amounts set according to the characteristics of these counterparties on a daily basis, and if we obtain information that could lead to credit, legal or reputational concerns about the cryptocurrency exchange brokers we deal with, we take measures to avoid risks, including reducing the amount on deposit with the counterparty and transferring assets to alternative cover counterparties. If credit, legal or reputational concerns regarding all of the cryptocurrency exchange brokers we transact with for a particular crypto asset were to arise, we would then attempt to use our own Exchange platform or other OTC counterparties capable of netting settlement to execute cover transactions. If these alternatives were not feasible for a particular crypto asset, however, we may need to temporarily suspend the trading and handling of the affected crypto asset, which could adversely affect our results of operation and our business reputation. On March 24, 2023, Binance, one of our counterparties, suffered an outage and suspended the trading of all crypto assets for a number of hours. As of the same date, our crypto assets deposited with Binance had increased to ¥194 million due to a recovery in crypto asset prices and trading levels. Although we were able to successfully use alternative counterparties without disruption to our services in this instance, we may not be able to transfer assets, in future instances, to a suitable alternative counterparty in a timely manner. In the future, we may need to change counterparties if similar outages were to continue for a longer period of time, or if simultaneous disruptions affect more than one of our counterparties. Further, if Binance is no longer able to be used as a viable counterparty, including as a result of the CFTC enforcement action against Binance announced on March 27, 2023, or for any other reasons that may arise as a result of this enforcement action or additional legal or regulatory investigations, we may need to identify an alternative long-term cover counterparty with a capability to handle similar levels of transaction volume. If we determine that no such alternatives are feasible for a particular crypto asset, we would then need to temporarily suspend trading of such crypto asset. We are still obligated to complete transactions which have already been placed by customers and accepted by our system, even if we are unable to execute cover transactions.
We transact with both Japanese and international counterparties, and our largest single credit exposure relates to crypto assets we have deposited in order to transact with bitFlyer as of December 31, 2024. We also transact with OKX and Binance as cover counterparties, and although we previously transacted with Bittrex, we
43
stopped transacting with them on December 5, 2023. The following table shows the amounts deposited with OKX, bitFlyer, Binance, Bittrex and all of our cover counterparties in total, as well as our cash and cash equivalents as of December 31, 2022, March 31, 2023, June 30, 2023, September 30, 2023, December 31, 2023, March 31, 2024, June 30, 2024, September 30, 2024 and December 31, 2024.
As of |
As of |
As of |
As of |
As of |
As of |
As of |
As of |
As of |
||||||||||||||||||||||||||||
(in millions of yen except for percentage figures) |
||||||||||||||||||||||||||||||||||||
Amount deposited with OKX |
¥ |
58 |
|
¥ |
647 |
|
¥ |
92 |
|
¥ |
88 |
|
¥ |
148 |
|
¥ |
27 |
|
¥ |
0 |
|
¥ |
0 |
|
¥ |
0 |
|
|||||||||
Amount deposited with bitFlyer |
|
216 |
|
|
195 |
|
|
213 |
|
|
101 |
|
|
389 |
|
|
581 |
|
|
214 |
|
|
229 |
|
|
398 |
|
|||||||||
Amount deposited with Binance |
|
74 |
|
|
195 |
|
|
48 |
|
|
62 |
|
|
137 |
|
|
206 |
|
|
142 |
|
|
142 |
|
|
300 |
|
|||||||||
Amount deposited with Bittrex |
|
77 |
|
|
50 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|||||||||
Amount deposited with B2C2 |
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
3 |
|
|
3 |
|
|
15 |
|
|
17 |
|
|||||||||
Amount deposited with Wintermute |
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
22 |
|
|
17 |
|
|||||||||
Amount deposited with all of our cover counterparties |
|
425 |
|
|
1,088 |
|
|
354 |
|
|
251 |
|
|
674 |
|
|
817 |
|
|
359 |
|
|
409 |
|
|
732 |
|
|||||||||
% of total equity(1) |
|
4.0 |
% |
|
10.4 |
% |
|
3.5 |
% |
|
2.5 |
% |
|
6.4 |
% |
|
6.6 |
% |
|
2.8 |
% |
|
3.2 |
% |
|
8.2 |
% |
|||||||||
Total equity |
|
10,537 |
|
|
10,477 |
|
|
10,207 |
|
|
10,095 |
|
|
10,492 |
|
|
12,444 |
|
|
12,881 |
|
|
12,896 |
|
|
8,965 |
|
|||||||||
Cash and cash equivalents |
¥ |
8,826 |
|
¥ |
7,697 |
|
¥ |
7,579 |
|
¥ |
7,581 |
|
¥ |
8,866 |
|
¥ |
10,837 |
|
¥ |
11,510 |
|
¥ |
10,628 |
|
¥ |
12,673 |
|
____________
Note:
(1) The % of total equity = Amount deposited with all of our cover counterparties/Total equity.
We have not suffered credit losses with respect to such counterparties to date, but there can be no assurance that any risk limitation measures we take will prove to be effective and there is a possibility that sudden changes in market conditions could lead to such counterparties having their credit rating downgraded, becoming insolvent or otherwise becoming unable to fulfill any obligations to us, which could have an adverse effect on our customers, business, reputation and results of operations.
Risks Relating to Intellectual Property
Our intellectual property rights are valuable, and any inability to protect them could adversely impact our business, operating results, and financial condition.
Our business depends in large part on our proprietary technology and our brand. We rely on, and expect to continue to rely on, a combination of trademark, trade dress, domain name, copyright, and trade secret and laws, as well as confidentiality and license agreements with our employees, contractors, consultants, and third parties with whom we have relationships, to establish and protect our brand and other intellectual property rights. However, our efforts to protect our intellectual property rights may not be sufficient or effective. Our proprietary technology and trade secrets could be lost through misappropriation or breach of our confidentiality and license agreements, and any of our intellectual property rights may be challenged, which could result in them being narrowed in scope or declared invalid or unenforceable. There can be no assurance that our intellectual property rights will be sufficient to protect against others offering products, services, or technologies that are substantially similar to ours and that compete with our business.
We may be subject to claims for alleged infringement of proprietary rights of third parties.
In recent years, there has been considerable patent, copyright, trademark, domain name, trade secret and other intellectual property development activity related to crypto assets, as well as litigation, based on allegations of infringement or other violations of intellectual property. Our use of third-party intellectual property rights also may be subject to claims of infringement or misappropriation. We cannot guarantee that our internally developed or acquired technologies and content do not or will not infringe the intellectual property rights of others. From time to time, our competitors or other third parties may claim that we are infringing upon or misappropriating
44
their intellectual property rights, and we may be found to be infringing upon such rights. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages or ongoing royalty payments, prevent us from offering our products or services or using certain technologies, force us to implement expensive work-arounds, or impose other unfavorable terms. We expect that the occurrence of infringement claims is likely to grow as the market for crypto assets grows and matures. Even if intellectual property claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and require significant expenditures. Any of the foregoing could prevent us from competing effectively and could have an adverse effect on our business, operating results, and financial condition.
Our cryptocurrency marketplace and exchanges, and NFT marketplace contain third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could harm our business.
Our cryptocurrency marketplace and exchanges, and NFT marketplace contain software modules licensed to us by third-party authors under “open source” licenses. We also make certain of our own software available to users for free under various open source licenses. Use and distribution of open source software may entail greater risks than use of third-party commercial software, as open source licensors generally do not provide support, warranties, indemnification or other contractual protections regarding infringement claims or the quality of the code. In addition, the use of open source software also presents the risk of security vulnerability and the public availability of such software may make it easier for others to compromise our cryptocurrency marketplace and exchanges, and NFT marketplace.
Some open source licenses contain requirements that we make the source code available for modifications or derivative works we create based upon the type of open source software we use or grant other licenses to our intellectual property. If we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar offerings with lower development effort and time and ultimately could result in a loss of our competitive advantages. Alternatively, to avoid the public release of the affected portions of our source code, we could be required to expend substantial time and resources to re-engineer some or all of our software.
Although we monitor our use of open source software to avoid subjecting our cryptocurrency marketplace and exchanges, and NFT marketplace to conditions we do not intend, we have not recently conducted an extensive audit of our use of open source software and, as a result, we cannot assure you that our processes for controlling our use of open source software in our cryptocurrency marketplace and exchanges, and NFT marketplace are, or will be, effective. If we are held to have breached or failed to fully comply with all the terms and conditions of an open source software license, we could face litigation, infringement or other liability, or be required to seek costly licenses from third parties to continue providing our offerings on terms that are not economically feasible, to re-engineer our cryptocurrency marketplace and exchanges, and NFT marketplace, to discontinue or delay the provision of our offerings if re-engineering could not be accomplished on a timely basis or to make generally available, in source code form, our proprietary code, any of which could adversely affect our business, operating results, and financial condition. Moreover, the terms of many open source licenses have not been interpreted by domestic or foreign courts. As a result, there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to provide or distribute our cryptocurrency marketplace and exchanges, and NFT marketplace. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their solutions. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open source software.
Risks Relating to Our Employees and Other Service Providers
The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could adversely impact our business, operating results, and financial condition.
We operate in a relatively new industry that is not widely understood and requires personnel with specialized knowledge and technical skills. We believe that our future success is highly dependent on the talents and contributions of our senior management team, members of our executive team, and other key employees in areas
45
including systems design and engineering, risk management, finance, compliance and legal, and marketing. Our future success depends on our ability to attract, develop, motivate, and retain highly qualified and skilled employees. Due to the relatively recent emergence of markets for crypto assets, the pool of qualified talent is extremely limited, particularly with respect to executive talent, systems engineering, risk management, and financial regulatory expertise. We face intense competition for qualified individuals from numerous software and other technology companies. To attract and retain key personnel, we incur significant costs, including salaries and benefits and equity incentives. Even so, these measures may not be enough to attract and retain the personnel we require to operate our business effectively. The loss of even a few qualified employees, or an inability to attract, retain and motivate additional highly skilled employees required for the operation of our business could adversely impact our operating results and impair our ability to grow.
In the event of employee or service provider misconduct or error, our business may be adversely impacted.
Employee or service provider misconduct or error could subject us to legal liability, financial losses, and regulatory sanctions and could seriously harm our reputation and negatively affect our business. Such misconduct could include engaging in improper or unauthorized transactions or activities, misappropriation of customer funds, failing to supervise other employees or service providers, compliance or harassment violations by our employees and improperly using confidential information. Employee or service provider errors, including mistakes in executing, recording, or processing transactions for customers, could expose us to the risk of material losses even if the errors are detected. Although we have implemented processes and procedures and provide training to our employees and service providers to reduce the likelihood of misconduct and error, these efforts may not be successful. Moreover, the risk of employee or service provider error or misconduct may be even greater for novel products and services. The rapid pace of development of markets for crypto assets and related regulatory frameworks can create a high risk of confusion among employees and service providers with respect to compliance obligations, particularly including confidentiality, data access, trading, and conflicts. It is not always possible to deter misconduct, and the precautions we take to prevent and detect inappropriate activity may not be effective in all cases. If we were found to have not met our regulatory oversight and compliance and other obligations, we could be subject to regulatory sanctions, financial penalties, and restrictions on our activities for failure to properly identify, monitor and respond to potentially problematic activity, which can seriously damage our reputation. Our employees, contractors, and agents could also commit errors that subject us to financial claims for negligence, as well as regulatory actions, or result in financial liability.
Risks Relating to Our Securities
Fluctuations in the price of our securities could contribute to the loss of all or part of your investment.
Fluctuations in the price of our securities could contribute to the loss of all or part of your investment. The trading price of our securities could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond our control. Any of the factors listed below could have a material adverse effect on your investment in our securities and our securities may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of our securities may not recover and may experience a further decline.
Factors affecting the trading price of our securities may include:
• actual or anticipated fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;
• changes in the market’s expectations about our operating results;
• success of competitors;
• our operating results failing to meet the expectation of securities analysts or investors in a particular period;
• changes in financial estimates and recommendations by securities analysts concerning our company or the industry in which we operate;
• operating and share price performance of other companies that investors deem comparable to us;
46
• our ability to market new and enhanced products and technologies on a timely basis;
• changes in laws and regulations affecting our business;
• our ability to meet compliance requirements;
• commencement of, or involvement in, litigation involving us;
• changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;
• the volume of our Ordinary Shares available for public sale;
• any major change in our Board of Directors or management;
• sales of substantial amounts of our Ordinary Shares by our directors, executive officers or significant shareholders or the perception that such sales could occur; and
• general economic and political conditions such as recessions, interest rates, international currency fluctuations and acts of war or terrorism.
Broad market and industry factors may materially harm the market price of our securities irrespective of our operating performance. The stock market in general, and Nasdaq in particular, have experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of our securities, may not be predictable. A loss of investor confidence in the market for retail stocks or the stocks of other companies which investors perceive to be similar to us could depress our share price regardless of our business, prospects, financial conditions or results of operations. A decline in the market price of our securities also could adversely affect our ability to issue additional securities and our ability to obtain additional financing in the future.
There can be no assurance that we will be able to comply with the continued listing standards of Nasdaq or any other exchange.
Our Ordinary Shares are listed on Nasdaq under the symbol “CNCK”. If Nasdaq delists our Ordinary Shares from trading on its exchange for failure to meet the listing standards, we and holders of our Ordinary Shares could face significant material adverse consequences including:
• a limited availability of market quotations for our Ordinary Shares;
• reduced liquidity for our Ordinary Shares;
• a determination that our Ordinary Shares are a “penny stock” which will require brokers trading in our Ordinary Shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of our Ordinary Shares;
• a limited amount of analyst coverage; and
• a decreased ability to issue additional securities or obtain additional financing in the future.
The unaudited pro forma financial information included herein may not be indicative of what our actual financial position or results of operations would have been.
The unaudited pro forma financial information included herein is presented for illustrative purposes only and is not necessarily indicative of what our actual financial position or results of operations would have been had the Business Combination been completed on the dates indicated.
We may redeem your unexpired Public Warrants prior to their exercise at a time that is disadvantageous to you, thereby making your Public Warrants worthless.
We will have the ability to redeem outstanding Public Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of our Ordinary Shares equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the
47
third trading day prior to the date we give notice of redemption. If and when the Public Warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws. Redemption of the outstanding Public Warrants could force you (i) to exercise your Public Warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your Public Warrants at the then-current market price when you might otherwise wish to hold your Public Warrants or (iii) to accept the nominal redemption price which, at the time the outstanding Public Warrants are called for redemption, is likely to be substantially less than the market value of your Public Warrants. None of the Private Warrants will be redeemable by us so long as they are held by their initial purchasers or their permitted transferees.
In the event that we elect to redeem all of the redeemable warrants as described above, we will fix a date for the redemption. Notice of redemption will be mailed by first class mail, postage prepaid, by us not less than 30 days prior to the redemption date to the registered holders of the Public Warrants to be redeemed at their last addresses as they appear on the registration books. Any notice mailed in the manner provided in the Warrant Agreement shall be conclusively presumed to have been duly given whether or not the registered holder received such notice. In addition, beneficial owners of the redeemable warrants will be notified of such redemption by posting of the redemption notice to DTC. We are not contractually obligated to notify investors when our warrants become eligible for redemption, and do not intend to so notify investors upon eligibility of the warrants for redemption.
We may issue additional Ordinary Shares or other equity securities, which would dilute your ownership interests and may depress the market price of our Ordinary Shares.
We may issue additional Ordinary Shares or other equity securities of equal or senior rank in the future in connection with, among other things, financings, future acquisitions, repayment of outstanding indebtedness, employee benefit plans and exercises of outstanding options, warrants and other convertible securities, in a number of circumstances.
Our issuance of additional Ordinary Shares or other equity securities of equal or senior rank would have the following effects:
• your proportionate ownership interest in our company will decrease;
• the amount of cash available per share, including for payment of dividends (if any) in the future, may decrease;
• the relative voting strength of your shares may be diminished; and
• the market price of our Ordinary Shares may decline.
We incur significant increased expenses and administrative burdens as a public company, which could have an adverse effect on our business, financial condition and results of operations.
We face increased legal, accounting, administrative and other costs and expenses as a public company that Coincheck, Inc. did not incur as a private company. The Sarbanes-Oxley Act, including the requirements of Section 404 thereof, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, the PCAOB and the securities exchanges, impose additional reporting and other obligations on public companies. Compliance with public company requirements will increase costs and make certain activities more time-consuming. A number of those requirements will require us to carry out activities Coincheck, Inc. did not conduct as a private company. For example, we have adopted and expect to continue to adopt new internal controls and disclosure controls and procedures. In addition, expenses associated with SEC reporting requirements have been and will continue to be incurred. Furthermore, if any issues in complying with those requirements are identified (for example, if the auditors identify a material weakness or significant deficiency in the internal control over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect our reputation or investor perceptions of it. It may also be more expensive to obtain director and officer liability insurance. Risks associated with our status as a public company may make it more difficult to attract and retain qualified persons to serve on our Board or as executive officers. The additional reporting and other obligations imposed by these rules and regulations will increase legal and financial compliance costs and the costs of related
48
legal, accounting and administrative activities. These increased costs will require us to divert a significant amount of money that could otherwise be used to expand the business and achieve strategic objectives. Advocacy efforts by shareholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs.
If we fail to maintain effective internal control over financial reporting, the price of our Ordinary Shares may be adversely affected.
We are required to establish and maintain appropriate internal control over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, financial condition or results of operations. In addition, management’s assessment of internal control over financial reporting may identify weaknesses and conditions that need to be addressed in our internal control over financial reporting, or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting, or disclosure of management’s assessment of our internal control over financial reporting, may have an adverse impact on the price of our Ordinary Shares.
Our failure to timely and effectively implement controls and procedures required by Section 404(a) of the Sarbanes-Oxley Act could have a material adverse effect on our business, operating results and financial condition.
We will be required to comply with the management certification requirements of the Sarbanes-Oxley Act of 2002 in our annual report on Form 20-F for our first annual report that is filed with the SEC (subject to any change in applicable SEC rules). Subject to available exceptions, we will be required to comply with Section 404 of the Sarbanes-Oxley Act of 2002 (including management’s internal controls report and an auditor attestation report thereto) in our annual reports on Form 20-F (subject to any change in applicable SEC rules). The standards required for a public company under Section 404(a) of the Sarbanes-Oxley Act are significantly more stringent than those required of Coincheck, Inc. as a privately-held company. For example, Section 404 of the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. Accordingly, we will be required to perform system and process evaluations and testing of internal controls over financial reporting to allow management to report annually on the effectiveness of internal control over financial reporting. This assessment requires disclosure of any material weaknesses in our internal control over financial reporting identified by management.
In connection with the preparation of its consolidated financial statements for the year ended March 31, 2023, Coincheck, Inc. identified a material error and therefore restated its financial statements for the years ended March 31, 2021 and 2022 related to the accounting for marketplace transaction revenue recognition. As a result of this material error, Coincheck, Inc.’s management has concluded that a material weakness exists, which remains unremediated, and therefore its internal control over financial reporting was not effective as of March 31, 2024. See “— Risks Relating to Our Business and Industry — We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal control over financial reporting, this may impair our ability to produce timely and accurate financial statements or comply with applicable laws and regulations, which may adversely affect investor confidence.”
Compliance with Section 404 of the Sarbanes-Oxley Act requires the incurrence of substantial accounting expense and consumes significant management efforts. Management may not be able to effectively and timely implement controls and procedures that adequately respond to the increased regulatory compliance and reporting requirements. If we are not able to implement the additional requirements of Section 404(a) in a timely manner, with adequate compliance or is otherwise unable to conclude that internal control over our financial reporting is effective, or if our independent registered public accounting firm determines that there is a material weakness or significant deficiency in internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our securities could decline, and it could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict future access to the capital markets. In addition, if we are unable to meet the requirements of Section 404, we may not be able to remain listed on Nasdaq.
49
We qualify as a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to United States domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including: (i) the rules under the Exchange Act requiring the filing of quarterly reports on Form 10-Q or current reports on Form 8-K with the SEC; (ii) the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; (iii) the sections of the Exchange Act requiring insiders to file public reports of their share ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iv) the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis through press releases, distributed pursuant to the rules and regulations of Nasdaq. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. Accordingly, if you hold our securities, you may receive less or different information about us than that you would receive about a U.S. domestic public company.
We could lose our status as a foreign private issuer under current SEC rules and regulations if more than 50% of our outstanding voting securities become directly or indirectly held of record by U.S. holders and any one of the following is true: (i) the majority of our directors or executive officers are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States. If we lose our status as a foreign private issuer in the future, we will no longer be exempt from the rules described above and, among other things, will be required to file periodic reports and annual and quarterly financial statements as if we were a company incorporated in the United States. If this were to happen, we would likely incur substantial costs in fulfilling these additional regulatory requirements and members of our management would likely have to divert time and resources from other responsibilities to ensuring these additional regulatory requirements are fulfilled. See “Management — Foreign Private Issuer Status.”
Because we have no current plans to pay cash dividends on Ordinary Shares for the foreseeable future, you may not receive any return on investment unless you sell Ordinary Shares for a price greater than that which you paid for it.
We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. Any decision to declare and pay dividends as a public company in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. As a result, you may not receive any return on your investment unless you sell our Ordinary Shares for a price greater than that which you paid for it.
Our largest shareholder, Monex, continues to exercise control over us and may have interests that differ from or conflict with ours and exert influence over our management policies.
As of April 7, 2025, Monex Group, Inc. holds in the aggregate over 80% of our Ordinary Shares outstanding. Accordingly, Monex continues to exercise control, including veto rights, over fundamental decisions that require shareholder approval such as the approval of mergers or other business combination transactions, the sale of businesses and amendments to our articles of association. As a result, Monex may have the power effectively to prevent or delay change of control or other transactions that may otherwise benefit our shareholders, which may also prevent or discourage shareholder initiatives aimed at changing our management or strategy or otherwise exerting influence over us. In addition, Monex will exercise its voting power in its own interest, which may not be in line or even be in conflict with the interests of the remaining shareholders.
50
Some Selling Securityholders purchased securities in the Company at a price below the current trading price of such securities, and may experience a positive rate of return based on the current trading price. Future investors may not experience a similar rate of return.
The securities being registered for resale pursuant to this prospectus include Ordinary Shares and Private Warrants that were purchased at prices or received for consideration that may be significantly below the current trading prices of these securities on the open market, and the sale of which would result in certain Selling Securityholders realizing a significant gain. The BCA Selling Securityholders acquired the BCA Ordinary Shares covered by this prospectus at average prices ranging from ¥18.86 ($0.13) per Ordinary Share to $1.55 (¥226.25) per Ordinary Share. By comparison, the offering price to public shareholders in Thunder Bridge’s initial public offering was $10.00 per unit, which consisted of one Ordinary Share and one fifth of one Public Warrant. Consequently, certain BCA Selling Securityholders may realize a positive rate of return on the sale of their Ordinary Shares covered by this prospectus even if the market price of the Ordinary Shares is below $10.00 per Ordinary Share.
The securities being registered hereby (excluding the Next Finance Acquisition Shares) were acquired in connection with the Business Combination in exchange for equity interests held in either Coincheck, Inc. or the Sponsor, or for Private Placement Units purchased pursuant to the Placement Unit Purchase Agreement. The purchase prices paid by the BCA Selling Securityholders for the Ordinary Shares were calculated based on the sum total consideration each BCA Selling Securityholders paid for such exchanged equity interest or Private Placement Units in the amount as follow: (i) Monex Group, Inc. received 109,097,910 Ordinary Shares for an effective aggregate purchase price of ¥8,356,278,855 ($57,262,241), or ¥76.59 ($0.52) per share, based on consideration paid for the exchanged equity interest held in Coincheck, Inc., (ii) Koichiro Wada received 9,700,464 Ordinary Shares for an effective aggregate purchase price of ¥16,720,000 ($2,170,356), or ¥32.65 ($0.22) per share, based on consideration paid for the exchanged equity interest held in Coincheck, Inc., (iii) Yusuke Otsuka received 3,789,243 Ordinary Shares for an effective aggregate purchase price of ¥71,482,500 ($489,841), or ¥18.86 ($0.13) per share, based on consideration paid for the exchanged equity interest held in Coincheck, Inc. and (iv) the Sponsor received 4,195,973 Ordinary Shares (excluding 2,365,278 Ordinary Shares which the Sponsor received but forfeited and surrendered for no consideration) for an effective purchase price of $6,505,560 (¥949,356,371), or $1.55 (¥226.25) per share, based on consideration paid for the exchanged equity interest held in the Sponsor. The Sponsor also received 129,611 Private Warrants exercisable at $11.50 per share underlying its Private Placement Units.
Given the lower purchase prices that the BCA Selling Securityholders paid to acquire Ordinary Shares or Warrants compared to the current trading price of our Ordinary Shares or Warrants, these BCA Selling Securityholders are likely to earn a positive rate of return on their investment at current market prices. Based on the last reported sale price on April 8, 2025 of $4.37 (¥637.71) per Ordinary Share, the BCA Selling Securityholders would realize profits on the sale of their holdings as follows: (i) Monex Group would realize a potential profit of ¥62,447,031,929 ($427,924,566), or ¥572.39 ($3.92) per share, (ii) Koichiro Wada would realize a potential profit of ¥5,978,771,521 ($40,970,133), or ¥616.34 ($4.22) per share, (iii) Yusuke Otsuka would realize a potential profit of ¥2,387,693,389 ($16,361,909), or ¥618.85 ($4.24) per share and (iv) the Sponsor would realize a potential aggregate profit of ¥1,756,998,347 ($11,830,842), or ¥411.46 ($2.82), per share. The Sponsor would also realize a value of ¥9,397,132 ($63,276) upon the sale of its Private Warrants based on the April 8, 2025 last reported sale price of $0.49 (¥71.51) of our Public Warrants. The aggregate amount of profit for such BCA Selling Securityholders would be ¥72,549,205,479 ($497,150,726). Investors who purchase our Ordinary Shares in the open market may not experience a similar rate of return on the securities they purchase due to differences in the purchase prices and the current trading price.
There is no guarantee that the exercise price of our Warrants will ever be less than the trading price of our Ordinary Shares, and our Warrants may expire worthless.
The exercise price for a warrant is $11.50 per Ordinary Share. On April 8, 2025, the last reported sale price of our Ordinary Shares was $4.37 per share. If the price of our Ordinary Shares remains below $11.50 per share, we expect that warrantholders would not exercise their Warrants, resulting in little or no cash proceeds to us. There is no guarantee that the Warrants will be “in the money” prior to their expiration, and as such, the Warrants may expire worthless.
51
The Ordinary Shares being registered in this prospectus represent a substantial percentage of our public float and of our outstanding Ordinary Shares, and the sale of such shares could cause the market price of our Ordinary Shares to decline significantly, even if our business is doing well.
The Ordinary Shares being registered for resale in this prospectus represent a substantial percentage of our public float and of our outstanding Ordinary Shares. The Ordinary Shares being offered for resale by the Selling Securityholders pursuant to this prospectus represent approximately 94.3% of our total outstanding Ordinary Shares as of April 8, 2025 on a fully diluted basis (assuming and after giving effect to the issuance of Ordinary Shares upon exercise of all outstanding Warrants). Once the registration statement that includes this prospectus is effective and during such time as it remains effective, the Selling Securityholders will be permitted (subject to compliance with the contractual lock-up restrictions that apply to certain Selling Securityholders, as described under “Shares Eligible for Future Sale”) to sell the shares registered hereby. As described herein, the BCA Selling Securityholders acquired their securities at a price significantly lower than our current trading prices or at nominal values and may have a strong financial incentive to sell their securities after such securities are registered for public resale. Based on the last reported sale price of our Ordinary Shares on April 8, 2025, BCA Selling Securityholders may realize profit per share ranging from ¥411.46 ($2.82) to ¥618.85 ($4.24), even though the current trading price of our Ordinary Shares is below the $10.00 offering price to public shareholders in Thunder Bridge’s initial public offering. The resale, or anticipated or potential resale, of a substantial number of shares of our Ordinary Shares may have a material negative impact on the market price of our Ordinary Shares and could make it more difficult for our shareholders to sell their Ordinary Shares at such times and at such prices as they deem desirable. Additionally, even if the price of our Ordinary Shares declines substantially, some Selling Securityholders may still have an incentive to sell to obtain liquidity.
There may not be an active trading market for our Ordinary Shares, which would adversely affect the liquidity and price of our securities and make it difficult for you to sell our Ordinary Shares.
Prior to the consummation of the Business Combination, there had not been a public trading market for our Ordinary Shares. It is possible that an active trading market will not develop or continue or, if developed, that any market will be sustained which would make it difficult for you to sell your Ordinary Shares at an attractive price or at all.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business, or our market, or if they change their recommendations regarding our securities adversely, the price and trading volume of our securities could decline.
The trading market for our securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, market or competitors. Securities and industry analysts may not publish research on us. If no securities or industry analysts commence coverage of our company, our share price and trading volume would likely be negatively impacted. If any of the analysts who may cover our company change their recommendation regarding our Ordinary Shares adversely, or provide more favorable relative recommendations about our competitors, the price of our Ordinary Shares would likely decline. If any analyst who may cover our company were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline.
We may be subject to securities litigation, which is expensive and could divert management attention.
Our share price may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject to securities litigation, including class action litigation. We may be the target of this type of litigation in the future. Litigation of this type could result in substantial costs and diversion of management’s attention and resources, which could have a material adverse effect on our business, financial condition, and results of operations. Any adverse determination in litigation could also subject us to significant liabilities.
52
Risks Relating to Tax Matters
The imposition of additional or higher taxes, whether resulting from a change of tax laws or a different interpretation or application of tax laws, could affect demand for our exchange services and/or may otherwise have a material adverse effect on our business, results from operations and/or financial condition.
Tax laws, regulations and treaties are complex and their application is often subject to interpretation. We may, periodically or on an ad hoc basis, be subject to tax audits or other investigations aimed at assessing our compliance with any direct and/or indirect taxes or levies. Tax authorities may not agree with our interpretations of, or the positions we have taken or intend to take on, tax laws, regulations or treaties applicable to us, our activities, services or transactions. In case of challenges by tax authorities, these may result in lengthy and costly proceedings, additional tax assessments, and the actual payment of additional taxes or levies, interest and/or penalties.
Unilateral or internationally agreed changes in tax laws or regulations or in the policies or positions of relevant tax authorities, including Japanese, U.S. or Dutch tax authorities, regarding the application, administration or interpretation of tax laws, regulations or treaties, could also increase the taxes or levies payable by us or in respect of our services or transactions, possibly even with retroactive effect. Notable international developments include the introduction of a re-allocation of profits and taxing rights among countries and a global minimum tax of 15% under the Two-Pillar Solution to Address the Tax Challenges of the Digitalization of the Economy, agreed upon by over 135 jurisdictions under the OECD/G20 Inclusive Framework on BEPS and the related developments in respect of implementation of such agreement in relevant tax laws and regulations. However, U.S. President Donald J. Trump’s January 2025 Executive Order to step out of the OECD’s global tax agreements brings uncertainty and potential risk of retaliatory tax measures. Further, the European Commission has published a draft directive laying down rules to prevent the misuse of shell entities for tax purposes (the so-called third anti-tax avoidance directive, or ATAD 3). If the directive would be adopted, companies that qualify as a shell company without being eligible for one or more exemptions or exclusions or their EU shareholders may face material adverse consequences. While it is currently uncertain if and in what form the directive would be adopted, we cannot rule out that ATAD 3 may be relevant to us or additional measures need to be adopted by us in that respect with associated costs and changes to our organization.
Further, the imposition of any new or additional taxes or levies on the services and products we offer or may offer in the future, or in respect of holding, entering into transactions or otherwise relating to crypto assets, could adversely affect the demand for our services and our results from operations.
Each of the above risks could have a material adverse impact on our business or organization, results from operations and/or financial condition.
If we cease to be a Dutch tax resident for the purposes of a tax treaty concluded by the Netherlands and in certain other events, we could potentially be subject to a proposed Dutch dividend withholding tax in respect of a deemed distribution up to our entire market value less paid-up capital insofar as it exceeds EUR 50 million.
Under a proposal of law currently pending before the Dutch parliament, the Emergency act conditional exit tax dividend withholding tax (Spoedwet conditionele eindafrekening dividendbelasting, “DWT Exit Tax”), we will be deemed to have distributed an amount up to its entire market capitalization less recognized paid-up capital immediately before the occurrence of certain events, including if we cease to be a Dutch tax resident for purposes of a tax treaty concluded by the Netherlands with another jurisdiction and becomes, for purposes of such tax treaty, exclusively a tax resident of that other jurisdiction which is a qualifying jurisdiction. A qualifying jurisdiction is a jurisdiction other than a member state of the EU/EEA which does not impose a withholding tax on distributions sufficiently similar to the Dutch dividend withholding tax, or that does impose such tax but that grants a step-up for earnings attributable to the period prior to it becoming exclusively a resident in such jurisdiction. This deemed distribution will be subject to a 15% tax insofar as it exceeds a franchise of EUR 50 million. The tax is payable by us as a withholding agent. A full exemption applies insofar shareholders are resident in an EU/EEA member state or a state that has concluded a tax treaty with the Netherlands that contains a dividend article, provided we submit a declaration confirming the satisfaction of applicable conditions by qualifying shareholders within one month following the taxable event. We will be deemed to have withheld the tax on the deemed distribution and have a
53
statutory right to recover this from our shareholders. Dutch resident shareholders qualifying for the exemption are entitled to a credit or refund, and non-Dutch resident shareholders qualifying for the exemption are entitled to a refund, subject to applicable statutory limitations, provided the tax has been actually recovered from them.
The DWT Exit Tax has been amended several times since the initial proposal of law and is still under discussion. It is therefore not certain whether the DWT Exit Tax will be enacted and if so, in what form. If enacted in its present form, the DWT Exit Tax will have retroactive effect as from 8 December 2021.
We may not be eligible for withholding tax relief benefits in respect of income received by us under relevant treaties for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital and may be required to adopt additional measures to claim such benefits under the relevant tax treaties.
Our ability to efficiently fund, realize investments and/or repatriate income or capital gains from jurisdictions in which we are or will be active may depend on our ability to claim benefits under relevant treaties for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital (“tax treaties”) concluded between the Netherlands and such jurisdictions. It depends on the provisions of the relevant tax treaty and the specific circumstances whether we would be entitled to tax treaty benefits (including, for example, the principal purpose test or any other provision of the Multilateral Instrument if applicable) and our entitlement to such benefits may change due to changes to the tax treaty or the interpretation or application thereof or relevant facts and circumstances. The ability to claim tax treaty benefits may necessitate restructuring our corporate structure and/or business operations, including changes to our management and organizational structure. This may result in additional complexity and costs. If we are not eligible to claim materially relevant tax treaty benefits, this could result in additional tax costs that may have an adverse impact on our ability to efficiently fund, realize investments and/or repatriate income or capital gains from the jurisdictions in which we are or will be active, and our after tax results and financial condition.
By way of example, under Japanese tax law, dividends paid by our subsidiary M1 GK to us are in principle subject to a 20.42% withholding tax, unless reduced by the tax treaty between Japan and the Kingdom of the Netherlands (the “Japan-NL tax treaty”). We believe we are currently a qualified person for purposes of the limitation on benefits clause of the Japan-NL tax treaty (the “LOB Clause”) and entitled to a reduced rate of 0% Japanese withholding tax on dividends paid by M1 GK. For our qualification as a qualified person, we currently intend to rely on the so-called ‘indirect stock exchange test’ of the Japan-NL tax treaty a prerequisite of which is the voting power held by Monex Group, Inc. listed on the Tokyo Stock Exchange being at least 50%. In order to obtain withholding tax exemption in Japan under the Japan-NL Tax Treaty, a residency certificate issued by the competent Dutch tax authority must be submitted to the district director of the relevant tax office via M1 GK. If a residency certificate cannot be issued by the competent Dutch tax authority, we will not be entitled to exemption from Japanese withholding tax under the LOB Clause, but will be entitled to a reduction of the Japanese withholding tax rate to 5%. Changing circumstances, such as Monex Group, Inc.’s voting power dropping below 50% could necessitate restructuring of our corporate structure and/or business operations, including changes to our management and organizational structure, in order to continue to be a qualified person for purposes of claiming certain benefits under the Japan-NL tax treaty or otherwise result in us no longer being eligible to claim such benefits.
We operate so as to be treated exclusively as a resident of the Netherlands for tax purposes, but other jurisdictions may also claim taxation rights over us.
As a Dutch limited liability company incorporated under Dutch law, we are in principle deemed to be a tax resident of the Netherlands subject to Dutch corporate income tax on our worldwide income and obliged to withhold Dutch dividend withholding tax on (deemed) distributions to our shareholders. We intend to maintain our organizational and management structure in such a manner that we should be regarded to have our residence for tax purposes exclusively in the Netherlands and should not be regarded as a tax resident of any other jurisdiction. Because our group conducts most of its business operations outside of the Netherlands, other jurisdictions, including Japan, may also claim taxation rights over us, for instance by virtue of tax residency, having a permanent establishment or otherwise. Furthermore, changes to applicable laws or interpretations thereof may also result in us ceasing to be exclusively tax resident in the Netherlands. A failure to achieve or maintain exclusive tax residency in the Netherlands may result in material adverse tax consequences. The impact of this risk would differ depending on
54
the jurisdictions and tax authorities involved and our ability to resolve double taxation issues, for instance through mutual agreement procedures and/or other dispute resolution mechanisms under an applicable tax treaty or the dispute resolution mechanism under the EU Arbitration Directive (in case of an EU jurisdiction).
While we do not believe we were a passive foreign investment company (a “PFIC”) for our most recent taxable year, and we do not expect to become a PFIC in the current taxable year or the foreseeable future, there can be no guarantee in this regard.
Based on the past and projected composition of our income and assets, and the valuation of our assets, including goodwill, we do not believe we were a PFIC for our most recent taxable year, and we do not expect to become a PFIC in the current taxable year or the foreseeable future, although there can be no assurance in this regard. If we are or become a PFIC, you could be subject to additional U.S. federal income taxes on gain recognized with respect to Ordinary Shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules. See “Taxation — Certain U.S. Federal Income Tax Consequences to U.S. Holders — Passive Foreign Investment Company.”
Risks Relating to our Organization in the Netherlands
We are a Dutch public company with limited liability, and our shareholders may have rights different to those of shareholders of companies organized in the United States.
The rights of our shareholders may be different from the rights of shareholders of companies governed by the laws of U.S. jurisdictions. We are a Dutch public company with limited liability (naamloze vennootschap). Our corporate affairs are governed by our Articles of Association. The rights of our shareholders and the responsibilities of members of our Board of Directors may be different from the rights of shareholders and the responsibilities of members of board of directors of companies governed by the laws of other jurisdictions including the United States. In the performance of its duties, our Board is required by Dutch law to consider our interests, the interests of our affiliated enterprise and the interests of all of our stakeholders, including our shareholders and employees, in all cases with due observation of the principles of reasonableness and fairness. It is possible that some of these parties will have interests that are different from, or in addition to, the interests of shareholders.
We are subject to the Dutch Corporate Governance Code but do not comply with all of the suggested governance provisions of the Dutch Corporate Governance Code, which may affect your rights as a shareholder.
As a Dutch company, we are subject to the Dutch Corporate Governance Code (“DCGC”). The DCGC contains both principles and suggested governance provisions for management boards, supervisory boards, shareholders and general meetings, financial reporting, auditors, disclosure, compliance and enforcement standards. The DCGC is based on a “comply or explain” principle. Accordingly, public companies are required to disclose in their annual reports, filed in the Netherlands, whether they comply with the suggested governance provisions of the DCGC. If they do not comply with those provisions, such as because of a conflicting requirement, companies are required to give the reasons for such noncompliance. The DCGC applies to all Dutch companies listed on a government-recognized stock exchange, whether in the Netherlands or elsewhere, including Nasdaq. The principles and suggested governance provisions apply to our board of directors (in relation to role and composition, conflicts of interest and independence requirements, board committees and remuneration), shareholders and the general meeting (for example, regarding anti-takeover protection and our obligations to provide information to our shareholders) and financial reporting (such as external auditor and internal audit requirements). We aim to comply with all applicable provisions of the DCGC except where such provisions conflict with U.S. exchange listing requirements or with market practices in the United States or the Netherlands. This compliance position may affect your rights as a shareholder, and you may not have the same level of protection as a shareholder in a Dutch company that fully complies with the suggested governance provisions of the DCGC.
It may be difficult to enforce U.S. judgments against us.
We are a company incorporated under the laws of the Netherlands, and a substantial portion of our assets are outside of the United States. Most of our directors and senior management and independent auditors reside outside the United States, and all or a substantial portion of their respective assets may be located outside the United States. As a result, it may be difficult for U.S. investors to effect service of process within the United States upon these
55
persons. It may also be difficult for U.S. investors to enforce within the United States judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. In addition, there is uncertainty as to whether the courts outside the United States would recognize or enforce judgments of U.S. courts obtained against us or our directors and officers predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Therefore, it may be difficult to enforce U.S. judgments against us, our directors and officers and independent auditors.
General Risk Factors
Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations, or our prospects.
The funds in our operating account are held in banks or other financial institutions. Our cash held in non-interest bearing and interest-bearing accounts would exceed any applicable FDIC insurance limits. Should events, including limited liquidity, defaults, non-performance or other adverse developments occur with respect to the banks or other financial institutions that hold our funds, or that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, our liquidity may be adversely affected. For example, on March 10, 2023, the FDIC announced that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation. Although we did not have any funds in Silicon Valley Bank or other institutions that have been closed, we cannot guarantee that the banks or other financial institutions that hold our funds will not experience similar issues.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on terms favorable to us in connection with a potential business combination, or at all, and could have material adverse impacts on our liquidity, our business, financial condition or results of operations, as well as prospects. Our business may be adversely impacted by these developments in ways that we cannot predict at this time, there may be additional risks that we have not yet identified, and we cannot guarantee that we will be able to avoid negative consequences directly or indirectly from any failure of one or more banks or other financial institutions.
Market conditions, economic uncertainty or downturns could adversely affect our business, financial condition, and operating results.
In recent years, the United States and other markets have experienced cyclical or episodic downturns, and worldwide economic conditions remain uncertain, including as a result of the COVID-19 pandemic, supply chain disruptions, the ongoing Ukraine-Russia conflict, the ongoing conflict between Israel and Hamas, the recent seizures and attacks on vessels traveling through the Red Sea, the Gulf of Aden, the Persian Gulf and the Arabian Sea by the Houthi and Iran, advances of ISIS and other terrorist organizations in the Middle East and Africa and political tension or conflicts in the Asia Pacific Region such as in the South China Sea and North Korea, instability in the U.S. and global banking systems, rising fuel prices, increasing interest rates or foreign exchange rates and high inflation and the possibility of a recession.
We cannot predict the timing, strength, or duration of any future economic slowdown or any subsequent recovery generally, or in any industry. If the conditions in the general economy and the markets in which we operate worsen from present levels, our business, financial condition and operating results could be adversely affected. For example, in January 2023, the outstanding national debt of the U.S. government reached its statutory limit. The U.S. Department of the Treasury (the “Treasury Department”) has announced that, since then, it has been using extraordinary measures to prevent the U.S. government’s default on its payment obligations, and to extend the time that the U.S. government has to raise its statutory debt limit or otherwise resolve its funding situation. The failure by Congress to raise the federal debt ceiling could have severe repercussions within the U.S. and to global credit and financial markets. If Congress does not raise the debt ceiling, the U.S. government could default on its payment obligations, or experience delays in making payments when due. A payment default or delay by the U.S. government, or continued uncertainty surrounding the U.S. debt ceiling, could result in a variety of adverse effects for financial markets, market participants and U.S. and global economic conditions. In addition, U.S. debt ceiling and budget
56
deficit concerns have increased the possibility a downgrade in the credit rating of the U.S. government and could result in economic slowdowns or a recession in the U.S. Although U.S. lawmakers have passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States as a result of disputes over the debt ceiling. The impact of a potential downgrade to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect economic conditions, as well as our business, financial condition and operating results.
Public health crises, such as the COVID-19 pandemic, have had and could in the future have an adverse effect on our business, operating results, and financial condition.
Pandemics or disease outbreaks, such as the COVID-19 pandemic, have contributed and could continue to contribute to significant volatility, uncertainty and economic disruption in global financial markets, including the prices of crypto assets. During the peak of the COVID-19 pandemic, governments and businesses around the world imposed measures designed to reduce the transmission of COVID-19, including encouraging remote work and flexible working practices, which potentially expose technology-driven businesses like ours to heightened operational risks, including potentially increased cybersecurity risk if the security systems in place at our employees’ and service providers’ homes are less secure than those used in our offices, which could expose us to increased risks of data or financial loss and could disrupt our business operations. We also rely on third party service providers to perform certain functions. Any disruptions to a service provider’s business operations resulting from business restrictions, quarantines, or restrictions on the ability of personnel to perform their jobs could have an adverse impact on its ability to provide services to us. The extent to which fear of exposure to, or actual effects of, COVID-19, new variants, disease outbreaks, epidemics or a similar widespread health concern impacts our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, but could result in continued uncertain economic conditions in Japan and globally.
We may be adversely affected by natural disasters and other catastrophic events that could disrupt our business operations, and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Our business operations are subject to interruption by natural disasters, fire, power shortages, and other events beyond our control. Further, acts of terrorism, social unrest, and other geo-political events could cause disruptions in our business or the economy as a whole. In the event of a natural disaster, including a major earthquake, blizzard, or hurricane, or a catastrophic event such as a fire, power loss, or telecommunications failure, we may be unable to continue our operations and may endure system interruptions, reputational harm, interruptions in service, breaches of data security, and loss of critical data, all of which could have an adverse effect on our reputation, financial condition and operating results.
We do not maintain insurance sufficient to compensate us for the potentially significant losses that could result from disruptions to our services, including as a result of cyberattacks. Additionally, all the aforementioned risks may be further increased if we do not implement a disaster recovery plan or disaster recovery plans of our service providers prove to be inadequate. To the extent natural disasters or other catastrophic events concurrently impact data centers we rely on in connection with private key restoration, customers will experience significant delays in withdrawing funds, or in the extreme we may suffer loss of customer funds.
57
CAPITALIZATION AND INDEBTEDNESS
The following table sets forth the cash and cash equivalents and total capitalization of Coincheck Parent as of December 31, 2024.
As of December 31, 2024 (actual) |
(in millions of |
|
Cash and cash equivalents |
12,673 |
|
Total equity |
8,965 |
|
Liabilities: |
||
Liabilities (current) |
1,156,751 |
|
Liabilities (non-current) |
2,765 |
|
Total liabilities |
1,159,516 |
|
Total capitalization |
1,168,481 |
58
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Introduction
The unaudited pro forma condensed combined financial information gives effect to the Business Combination as if it had been consummated on April 1, 2023. The unaudited pro forma condensed combined financial information should be read in conjunction with the accompanying notes. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X.
We have not provided a pro forma condensed combined statement of financial position as of December 31, 2024 as the Business Combination has already been reflected in the Company’s unaudited condensed consolidated interim statements of financial position as of December 31, 2024.
The unaudited pro forma condensed combined statement of operations for the nine months ended December 31, 2024 combines the unaudited condensed consolidated interim statement of profit or loss and other comprehensive income of the Company for the nine months ended December 31, 2024 with the results of Thunder Bridge for the period from April 1 to December 9, 2024. The results of Thunder Bridge for the nine months ended December 31, 2024 were calculated as (i) the unaudited condensed interim statement of operations of Thunder Bridge for the nine months ended September 30, 2024; less (ii) the unaudited condensed interim statement of operations of Thunder Bridge for the three months ended March 31, 2024; plus (iii) the unaudited results for the period from October 1, 2024 to December 9, 2024.
The unaudited pro forma condensed combined statement of profit or loss and other comprehensive income for the year ended March 31, 2024 combines the historical audited statement of profit or loss and other comprehensive income of Coincheck for the year ended March 31, 2024 with the results of Thunder Bridge for the year ended March 31, 2024. The results of Thunder Bridge for the year ended March 31, 2024 were calculated as (i) the historical audited statement of operations of Thunder Bridge for the year ended December 31, 2023; less (ii) the unaudited condensed interim statement of operations of Thunder Bridge for the three months ended March 31, 2023; plus (iii) the unaudited condensed interim statement of operations of Thunder Bridge for the three months ended March 31, 2024.
The unaudited pro forma condensed combined financial information was derived from and should be read in conjunction with the following historical financial statements and the accompanying notes, which are included in this prospectus:
• The historical audited financial statements of Coincheck for the year ended March 31, 2024, and the unaudited interim condensed consolidated financial statements of the Company for the nine months ended December 31, 2024; and
• The historical audited financial statements of Thunder Bridge for the year ended December 31, 2023, and the unaudited condensed interim financial statements of Thunder Bridge as of and for the nine months ended September 30, 2024 and 2023 and for the three months ended March 31, 2024 and 2023.
The results of Thunder Bridge for the period from October 1, 2024 to December 9, 2024, are included in the historical results for Thunder Bridge. Financial statements of Thunder Bridge for such period are not included in this prospectus.
The historical financial statements of the Company and Coincheck have been prepared in accordance with IFRS as issued by the IASB and in its presentation and reporting currency of Japanese yen (“¥”). The historical financial statements of Thunder Bridge have been prepared in accordance with US GAAP and in its presentation and reporting currency of U.S. dollars (“$”).
The unaudited pro forma condensed combined financial information should also be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information and related notes included elsewhere in this prospectus.
59
Description of the Business Combination
Prior to the Coincheck Parent Subscription (as defined below), Monex advanced a loan in the amount of EUR 1,225,876.16 (the “M1 GK Loan Amount”) to M1 GK (the “M1 GK Loan Advancement”). Following the M1 GK Loan Advancement and prior to the M1 GK Contribution (as defined below), M1 GK subscribed for, and Coincheck Parent issued to M1 GK, a number of new Coincheck Parent Ordinary Shares equal to 122,587,616 (the “Coincheck Parent Exchange Shares”), in exchange for an aggregate subscription price payable to Coincheck Parent by M1 GK equal to $1,225,876,160 (the “Aggregate Coincheck Parent Share Consideration”), of which Aggregate Coincheck Parent Share Consideration (i) an amount equal to the M1 GK Loan Amount was paid in cash to satisfy the payment obligation on the Coincheck Parent Exchange Shares (the “Coincheck Parent Subscription Cash Consideration”) and (ii) an amount equal to the Aggregate Coincheck Parent Share Consideration minus the M1 GK Loan Amount remained outstanding in the form of a short-term note (the “Coincheck Parent Subscription Note Consideration”) (the “Coincheck Parent Subscription”).
Following the Coincheck Parent Subscription and prior to the Coincheck Parent Subscription Consideration Contribution (as defined below), Monex transferred all of the outstanding equity interests of M1 GK to Coincheck Parent as an in-kind contribution in respect of the one Coincheck Parent Ordinary Share held by it, whereby M1 GK became a wholly owned subsidiary of Coincheck Parent (the “M1 GK Contribution”).
Following the M1 GK Contribution but prior to the M1 GK Loan Repayment (as defined below), Coincheck Parent contributed (i) the Coincheck Parent Subscription Cash Consideration to M1 GK in cash, and (ii) the Coincheck Parent Subscription Note Consideration to M1 GK as an in-kind contribution, in respect of all of the outstanding equity interests of M1 GK held by it (the “Coincheck Parent Subscription Consideration Contribution,” and together with the M1 GK Loan Advancement, the Coincheck Parent Subscription and the M1 GK Contribution, the “Coincheck Parent Restructuring”).
Following the Coincheck Parent Restructuring but prior to the Share Exchange Effective Time, M1 GK repaid the M1 GK Loan Amount to Monex (the “M1 GK Loan Repayment”).
Prior to 12:01 a.m. Japan Time on the Closing Date (the “Share Exchange Effective Time”) and on the terms and subject to the conditions set forth in the Business Combination Agreement, Coincheck implemented, and Coincheck Parent caused M1 GK to implement, a share exchange (kabushiki koukan) (the “Share Exchange”) under and in accordance with the applicable provisions of the Companies Act, pursuant to which the ordinary shares of Coincheck outstanding immediately prior to the Share Exchange Effective Time were exchanged for Coincheck Parent Ordinary Shares.
At the Share Exchange Effective Time, the effect of the Share Exchange was that, amongst others, Coincheck Shareholders became holders of the Coincheck Parent Exchange Shares, and Coincheck became a direct, wholly owned subsidiary of M1 GK, which, in turn, became a wholly owned subsidiary of Coincheck Parent.
Immediately following the Share Exchange Effective Time on the Closing Date, on the terms and subject to the conditions set forth in the Business Combination Agreement and in accordance with the applicable provisions of the laws of the Netherlands, Coincheck Parent (a) converted its legal form, without ceasing to exist, from a private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid) to a public limited liability company (naamloze vennootschap) and (b) amended and restated its governing documents, which, as so amended and restated, became the governing documents of the Company until thereafter amended in accordance with the terms thereof and applicable law.
Following the Share Exchange Effective Time, on the terms and subject to the conditions set forth in the Business Combination Agreement and in accordance with the applicable provisions of the DGCL, Thunder Bridge and Merger Sub consummated the Merger, pursuant to which Merger Sub merged with and into Thunder Bridge, following which the separate corporate existence of Merger Sub ceased and Thunder Bridge continued as the surviving corporation and, ultimately, as a direct, wholly owned subsidiary of Coincheck Parent.
At the Merger Effective Time, the effect of the Merger was that, among others: (a) each Thunder Bridge Common Share issued and outstanding immediately prior to the Merger Effective Time was exchanged for the right to receive one Ordinary Share, and (b) without any action on the part of any holder of Thunder Bridge Warrants, each Thunder Bridge Warrant that was outstanding immediately prior to the Merger Effective Time, pursuant to and in accordance with the Warrant Agreement, automatically and irrevocably was modified to provide that such
60
Thunder Bridge Warrant no longer entitles the holder thereof to purchase the amount of Thunder Bridge Common Share(s) set forth therein and in substitution thereof such Thunder Bridge Warrant entitles the holder thereof to acquire such number of Ordinary Shares per Thunder Bridge Warrant, subject to adjustments as provided in the Warrant Agreement, that such holder was entitled to acquire pursuant to the terms and conditions of the Warrant Agreement if the Thunder Bridge Warrant was exercised prior to the Transactions. At the Closing, the Sponsor forfeited and surrendered, and Coincheck Parent repurchased for no consideration, 2,365,278 Ordinary Shares.
Coincheck Parent previously planned to issue 50,000,000 Earn-Out Shares (as defined in the Business Combination Agreement) to the equityholders of Coincheck; however, the parties to the Business Combination agreed that the Earn-Out Shares would not be issued as part of the Business Combination. As such, the historical financial information has not been adjusted to give pro forma effect to the Earn-Out Shares.
Non-Redemption Agreement
On December 4, 2024, Coincheck Parent and Thunder Bridge entered into the Non-Redemption Agreement with Ghisallo, pursuant to which Ghisallo agreed not to redeem (or to validly rescind any redemption requests on) an aggregate of 973,000 Thunder Bridge Public Shares (the “Non-Redemption Shares”) in connection with Thunder Bridge’s Special Meeting. In exchange for the foregoing commitments not to redeem the Non-Redemption Shares, Thunder Bridge paid Non-Redeeming Shareholder an amount equal to the product of (x) the number of Non-Redemption Shares and (y) the price at which each Thunder Bridge Public Share was redeemed in connection with the special meeting (the “Redemption Price”). For 90 days following the closing of the Reverse Recapitalization (the “Maturity Date”), if Ghisallo sells any Non-Redemption Shares, Ghisallo agrees to pay to Coincheck Parent an amount equal to the Redemption Price multiplied by the number of such Non-Redemption Shares sold. Ghisallo has agreed to transfer on the Maturity Date to Coincheck Parent, at no cost to Coincheck Parent and free and clear of any liens or encumbrances, any Non-Redemption Shares still retained by it.
The Company considered this transaction to be an equity transaction in accordance with IAS 32, Financial Instruments: Presentation, whereas cash paid to Ghisallo was treated as an equity distribution and subsequent cash receipts as equity contributions. As of December 31, 2024, the Company received ¥202 million from this arrangement, which has been recorded to capital surplus in the Company’s condensed consolidated interim statement of changes in equity for the nine months ended December 31, 2024. As a result, 856,242 Non-Redemption Shares were held by Ghisallo as of December 31, 2024.
Accounting Treatment
The Business Combination has been accounted as a reverse recapitalization. Under this method of accounting, Thunder Bridge has been treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination has been treated as the equivalent of Coincheck issuing shares at the Closing of the Business Combination for the net assets of Thunder Bridge as of the Closing Date, accompanied by a recapitalization. The net assets of Thunder Bridge have been stated at fair value, with no goodwill or other intangible assets recorded.
This determination was primarily based on the fact that as of the Closing Date, the existing Coincheck stockholders held a majority of the voting power of Coincheck Parent, and comprised a majority of the governing body of Coincheck Parent.
The Business Combination is not within the scope of IFRS 3 since there is no change in control based on the continued control of the Company by existing Coincheck stockholders and Thunder Bridge does not meet the definition of a business in accordance with IFRS 3; as such, the Business Combination has been accounted for within the scope of IFRS 2. Any excess of fair value of equity instruments deemed to have been issued by Coincheck over the fair value of Thunder Bridge’s identifiable net assets acquired represents compensation for the service of a stock exchange listing for its shares and is expensed as incurred.
Basis of Pro Forma Presentation
The historical financial information has been adjusted to give pro forma effect to the transaction accounting required for the Business Combination as per the Business Combination Agreement. The adjustments in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary for an accurate understanding of the combined entity upon the Closing.
61
The unaudited pro forma condensed combined financial information has been presented for illustrative purposes only and is not necessarily indicative of the financial position and results of operations that would have been achieved had the Business Combination and related transactions occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information may not be useful in predicting the future financial condition and results of operations of the Company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed. Coincheck and Thunder Bridge did not have any historical relationships prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.
62
Unaudited Pro Forma Condensed Combined Statement of Profit or Loss and Other Comprehensive Income
For the Nine Months Ended December 31, 2024
(in millions of yen, except share and per share data)
Coincheck |
Thunder |
IFRS |
Pro Forma |
Pro Forma |
||||||||||||
(AA) |
(AA) |
|||||||||||||||
Revenue |
|
|
|
|
||||||||||||
Revenue |
268,716 |
|
— |
|
|
268,716 |
|
|||||||||
Other revenue |
35 |
|
— |
|
|
|
|
35 |
|
|||||||
Total revenue |
268,751 |
|
— |
|
— |
— |
|
268,751 |
|
|||||||
|
|
|
|
|||||||||||||
Expenses |
|
|
|
|
||||||||||||
Cost of sales |
(258,818 |
) |
— |
|
|
(258,818 |
) |
|||||||||
Selling, general and administrative expenses |
(10,902 |
) |
— |
|
|
(10,902 |
) |
|||||||||
Formation costs and other operating expenses |
— |
|
(103 |
) |
|
|
|
(103 |
) |
|||||||
Operating profit |
(969 |
) |
(103 |
) |
— |
— |
|
(1,072 |
) |
|||||||
|
|
|
|
|||||||||||||
Other income (expenses) |
|
|
|
|
||||||||||||
Other income |
17 |
|
— |
|
|
17 |
|
|||||||||
Other expenses |
(33 |
) |
— |
|
|
(33 |
) |
|||||||||
Financial income |
485 |
|
— |
|
|
485 |
|
|||||||||
Listing expense |
(13,714 |
) |
|
|
(13,714 |
) |
||||||||||
Financial expenses |
(28 |
) |
— |
|
|
(28 |
) |
|||||||||
Change in fair value of warrant liability |
— |
|
(1,747 |
) |
|
(1,747 |
) |
|||||||||
Interest income |
— |
|
109 |
|
|
(109 |
) |
(BB) |
— |
|
||||||
Profit (loss) before income taxes |
(14,242 |
) |
(1,741 |
) |
— |
(109 |
) |
(16,092 |
) |
|||||||
Income tax expenses |
(750 |
) |
(21 |
) |
|
|
|
(771 |
) |
|||||||
Net profit (loss) |
(14,992 |
) |
(1,762 |
) |
— |
(109 |
) |
(16,863 |
) |
|||||||
|
|
|
|
|||||||||||||
Note: EPS included in Note 3 of Pro Formas. |
|
|
|
|
||||||||||||
|
|
|
|
|||||||||||||
Weighted-average shares outstanding, Class A ordinary shares |
|
|
|
|
||||||||||||
Basic and diluted |
123,130,979 |
|
3,322,437 |
|
|
123,130,979 |
|
|||||||||
Net income (loss) per Class A ordinary share |
|
|
|
|
||||||||||||
Basic and diluted |
(121.76 |
) |
30.60 |
|
|
(136.95 |
) |
|||||||||
Weighted-average shares outstanding, Class B ordinary shares |
|
|
|
|
||||||||||||
Basic and diluted |
|
6,561,252 |
|
|
|
|||||||||||
Net income (loss) per Class B ordinary share |
|
|
|
|
||||||||||||
Basic and diluted |
|
(19.89 |
) |
|
|
63
Unaudited Pro Forma Condensed Combined Statement of Profit or Loss and Other Comprehensive Income
(in millions of yen, except share and per share data)
For the |
For the Period |
For the Year Ended |
||||||||||||||
Coincheck |
Thunder |
IFRS |
Pro Forma |
Pro Forma |
||||||||||||
(AA) |
(AA) |
|||||||||||||||
Revenue |
|
|
|
|
||||||||||||
Revenue |
223,775 |
|
— |
|
|
223,775 |
|
|||||||||
Other revenue |
274 |
|
— |
|
|
|
|
274 |
|
|||||||
Total revenue |
224,049 |
|
— |
|
— |
— |
|
224,049 |
|
|||||||
|
|
|
|
|||||||||||||
Expenses |
|
|
|
|
||||||||||||
Cost of sales |
(214,786 |
) |
— |
|
|
(214,786 |
) |
|||||||||
Selling, general and administrative expenses |
(6,757 |
) |
— |
|
(68 |
) |
(CC) |
(6,825 |
) |
|||||||
Formation costs and other operating expenses |
— |
|
(182 |
) |
|
|
|
(182 |
) |
|||||||
Operating profit |
2,506 |
|
(182 |
) |
— |
(68 |
) |
2,256 |
|
|||||||
|
|
|
|
|||||||||||||
Other income (expenses) |
|
|
|
|
||||||||||||
Other income |
437 |
|
— |
|
|
437 |
|
|||||||||
Other expenses |
(153 |
) |
— |
|
|
(153 |
) |
|||||||||
Financial income |
67 |
|
— |
|
|
67 |
|
|||||||||
Financial expenses |
(17 |
) |
— |
|
|
(17 |
) |
|||||||||
Change in fair value of warrant liability |
— |
|
21 |
|
|
21 |
|
|||||||||
Interest income |
— |
|
576 |
|
|
(576 |
) |
(BB) |
— |
|
||||||
Profit (loss) before income taxes |
2,840 |
|
415 |
|
— |
(644 |
) |
2,611 |
|
|||||||
Income tax expense |
(873 |
) |
(116 |
) |
21 |
|
(CC) |
(968 |
) |
|||||||
Net profit (loss) |
1,967 |
|
299 |
|
— |
(623 |
) |
1,643 |
|
|||||||
|
|
|
|
|||||||||||||
Note: EPS included in Note 3 of Pro Formas. |
|
|
|
|
||||||||||||
|
|
|
|
|||||||||||||
Weighted-average shares outstanding, Class A ordinary shares |
|
|
|
|
||||||||||||
Basic and diluted |
2,021,967 |
|
8,357,929 |
|
|
129,703,076 |
|
|||||||||
Net income (loss) per Class A ordinary share |
|
|
|
|
||||||||||||
Basic and diluted |
972.89 |
|
36.01 |
|
|
12.67 |
|
|||||||||
Weighted-average shares outstanding, Class B ordinary shares |
|
|
|
|
||||||||||||
Basic and diluted |
|
6,561,252 |
|
|
|
|||||||||||
Net income (loss) per Class B ordinary share |
|
|
|
|
||||||||||||
Basic and diluted |
|
(18.72 |
) |
|
|
64
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
1. Basis of Presentation
The pro forma adjustments have been prepared as if the Business Combination had been consummated on April 1, 2023.
The unaudited pro forma condensed combined financial information has been prepared assuming the following methods of accounting in accordance with IFRS as issued by the IASB.
The Business Combination has been accounted for as a reverse recapitalization. Under this method of accounting, Thunder Bridge is treated as the “acquired” company for financial reporting purposes. Accordingly, the Business Combination has been treated as the equivalent of Coincheck issuing shares at the Closing of the Business Combination for the net assets of Thunder Bridge as of the Closing Date, accompanied by a recapitalization. The net assets of Thunder Bridge have been stated at fair value, with no goodwill or other intangible assets recorded.
This determination was primarily based on the former equityholders of Coincheck having a majority of the voting power of Coincheck Parent under the minimum and maximum redemption scenarios.
The Business Combination is not within the scope of IFRS 3 since there is no change in control based on the continued control of Coincheck Parent by existing Coincheck stockholders and Thunder Bridge does not meet the definition of a business in accordance with IFRS 3; as such, the Business Combination is accounted for within the scope of IFRS 2. Any excess of fair value of Coincheck shares issued over the fair value of Thunder Bridge’s identifiable net assets acquired represents compensation for the service of a stock exchange listing for its shares and is expensed as incurred.
The pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and additional analyses are performed. Management considers this basis of presentation to be reasonable under the circumstances.
2. Adjustments and Assumptions to the Unaudited Pro Forma Condensed Combined Statement of Profit or Loss and Other Comprehensive Income
The adjustments included in the unaudited pro forma condensed combined statement of profit or loss and other comprehensive income for the nine months ended December 31, 2024 and for the year ended March 31, 2024 are as follows:
AA. The historical financial statements of Coincheck have been prepared in accordance with IFRS as issued by the IASB and in its presentation and reporting currency of Japanese yen. The historical financial statements of Thunder Bridge have been prepared in accordance with U.S. GAAP and in its presentation and reporting currency of U.S. Dollars. IFRS differs from U.S. GAAP in certain material respects and thus may not be comparable to financial information presented by U.S. companies. However, it was determined that there were no adjustments required to convert Thunder Bridge’s historical statements of operations from U.S. GAAP to IFRS or to align Thunder Bridge’s accounting policies to those applied by Coincheck.
The financial statements of Thunder Bridge have been translated into Japanese yen for the purposes of presentation in the unaudited pro forma condensed combined financial statements (“As Converted”) using the following exchange rates:
• The average exchange rate for the period April 1, 2024 through December 31, 2024 of $1.00 to ¥152.9763 for the unaudited pro forma condensed combined statement of profit or loss and other comprehensive income for the nine months ended December 31, 2024;
• The average exchange rate for the period April 1, 2023 through March 31, 2024 of $1.00 to ¥144.0376 for the unaudited pro forma condensed combined statement of profit or loss and other comprehensive income for the year ended March 31, 2024.
65
BB. Reflects the elimination of interest earned on marketable securities held in the trust account.
CC. Reflects the pro forma adjustment to record the nonrecurring compensation expense and tax benefit related to additional compensation to be paid to Coincheck directors. This compensation expense is subject to a service period extending one year from Closing, at which time the compensation will be paid. This expense is considered to be nonrecurring as it will be fully recognized in the first year following Closing.
3. Net Profit per Share
Represents the net profit per share calculated using the historical weighted average shares outstanding, and the issuance of additional shares in connection with the Business Combination and other related events, assuming such additional shares were outstanding since April 1, 2023. As the Business Combination and related transactions are being reflected as if they had occurred at the beginning of the periods presented, the calculation of weighted average shares outstanding for basic net profit per share assumes the shares issued in connection with the Business Combination have been outstanding for the entire periods presented.
Coincheck settled all of its stock options prior to Closing. As such, none of Coincheck’s historical stock options have been included as potentially dilutive shares for purposes of pro forma diluted EPS.
The following table sets forth a reconciliation of the numerators and denominators used to compute pro forma basic and diluted net profit (loss) per share (in millions of yen, except share and per share data):
For the December 31, |
|||
Numerator |
|
||
Pro forma net profit (loss) – basic and diluted |
(16,863 |
) |
|
|
|||
Denominator |
|
||
Pro forma weighted average shares of Class A common stock outstanding – basic and diluted |
123,130,979 |
|
|
|
|||
Pro forma basic and diluted net profit (loss) per share |
(136.95 |
) |
For the March 31, |
||
Numerator |
||
Pro forma net profit (loss) – basic and diluted |
1,643 |
|
Denominator |
||
Pro forma weighted average shares of Class A common stock outstanding – basic and diluted |
129,703,076 |
|
Pro forma basic and diluted earnings (losses) per share |
12.67 |
The above calculation excludes the effects of dilutive shares from the computation of diluted net profit (loss) per share as the effect would have an antidilutive impact. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net profit (loss) per share attributable to common shareholders of the combined entity is the same. The above excludes the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net profit (loss) per share attributable to common shareholders for the periods indicated because including them would have had an antidilutive effect:
As of |
||
Private Placement Warrants |
129,611 |
|
Public Warrants |
4,730,557 |
66
All of the Ordinary Shares and the Warrants offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. We will not receive any of the proceeds from such sales. We will pay certain expenses associated with the registration of the securities covered by this prospectus, as described in the section titled “Plan of Distribution.”
With respect to the Ordinary Shares underlying the Warrants, we will not receive any proceeds from such shares except with respect to amounts received by us upon exercise of such Warrants to the extent such Warrants are exercised for cash. Assuming the exercise of all outstanding Warrants for cash, we would receive aggregate proceeds of approximately $55.9 million. Except as otherwise set forth in the applicable prospectus supplement, we intend to use the net proceeds from the exercise of the Warrants, if any, for general corporate purposes, which may include, but is not limited to, funding for working capital, investments in organic and inorganic growth and repayment of outstanding indebtedness. However, whether warrantholders will exercise their Warrants, and therefore the amount of cash proceeds we would receive upon exercise, is dependent upon the trading price of the Ordinary Shares. Each Warrant will become exercisable for one Ordinary Share at an exercise price of $11.50. Therefore, if and when the trading price of the Ordinary Shares is less than $11.50, we expect that warrantholders would not exercise their Warrants. On April 8, 2025, the last reported sale price of our Ordinary Shares was $4.37 per share. The Warrants may not be or remain in the money during the period they are exercisable and prior to their expiration and, therefore, it is possible that the Warrants may not be exercised prior to their maturity, even if they are in the money, and as such, may expire worthless with minimal proceeds received by us, if any, from the exercise of Warrants. To the extent that any of the Warrants are exercised on a “cashless basis,” we will not receive any proceeds upon such exercise. As a result, we do not expect to rely on the cash exercise of Warrants to fund our operations. Instead, we intend to rely on other sources of cash discussed elsewhere in this prospectus to continue to fund our operations.
We will bear all costs, expenses and fees in connection with the registration of the securities offered by this prospectus, including, without limitation, all registration and filing fees (including fees with respect to filings required to be made with FINRA (as defined herein)), Nasdaq listing fees, fees and expenses of compliance with securities or blue sky laws, if any, and fees and expenses of counsel and independent registered public accountants, whereas the Selling Securityholders will bear all incremental selling expenses, including commissions and discounts, brokerage fees, underwriting marketing costs, legal counsel fees that are not covered by us and any other expenses incurred by the Selling Securityholders in disposing of the securities.
The net proceeds to the Selling Securityholders will be the purchase price of the Securities less any discounts and commissions and other expenses borne by the Selling Securityholders.
67
We have not paid any cash dividends on our Ordinary Shares to date and have no current plans to pay cash dividends on Ordinary Shares for the foreseeable future. The payment of cash dividends in the future will be dependent upon our revenue and earnings, if any, capital requirements and general financial condition. The payment of annual dividends may be resolved upon by the general meeting of shareholders and any interim cash dividends will be within the discretion of our Board, or the general meeting of shareholders at the proposal by our Board, at such time. The ability of the general meeting of shareholders and the Board to declare dividends (including interim dividends) is limited to requirements (including capital requirements) specified in our articles of association and Dutch law and may also be limited by restrictive covenants pursuant to any debt financing agreements. See “Material Dutch Tax Considerations of Acquiring, Owning or Disposing of Ordinary Shares or Warrants — Withholding Tax” beginning on page 168 of this prospectus for a summary of the Dutch dividend withholding tax regime applicable to dividends distributed by us.
68
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, all references in this section to “we,” “us,” or “our” refer to Coincheck, Inc. prior to the closing of the Business Combination and Coincheck Group N.V. and subsidiaries after closing.
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and related notes included elsewhere in this prospectus. Our financial statements are prepared in accordance with IFRS, which differs in certain significant respects from accounting principles generally accepted in other jurisdictions, including U.S. GAAP and Japanese GAAP. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements as a result of many factors, including those factors set forth in the sections titled “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements,” which you should review for a discussion of some of the factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this prospectus.
Overview
We believe we are a leader in the Japanese cryptocurrency industry and are primarily engaged in providing a crypto asset marketplace for retail investors. We offer our customers a multi-currency crypto marketplace with a deep pool of liquidity for trading crypto assets through our user-friendly applications, along with an Exchange platform and several other retail-focused crypto services, such as Coincheck Periodic Purchases. We had a 24.3% market share in Japan by trading volume as of December 31, 2024, according to the JVCEA and 18.6% of the market share for retail users by number of verified accounts in Japan.
As of December 31, 2024, our number of verified accounts exceeds 2.2 million and approximately 51% of these accounts are held by customers under 40.
For the nine months ended December 31, 2024 and 2023, 99.4% and 99.5%, respectively, of our total revenue consisted of transaction revenue generated from trades of customers and cover counterparties on our Marketplace platform business, where we take a bid-ask spread on all customer trades on such platform and offer 29 different crypto assets as of December 31, 2024, an increase from 28 different crypto assets as of September 30, 2024. As of December 31, 2024, more than 90% of our users utilize our mobile trading application for our Marketplace platform, while the remaining users utilize our desktop trading application. We also operate an Exchange platform targeted at more experienced users that mediates order books between such users for a more limited number of crypto assets and for which we generally do not charge a commission on each transaction.
We believe that we are one of the leading innovators within the Japanese crypto markets. In 2021, we introduced an NFT platform and conducted the country’s first IEO.
The growth of crypto assets and crypto markets has come in waves aligned with crypto asset price cycles, which tend to be volatile and draw new customers, investments, and developers into the crypto ecosystem. For example, according to closing day pricing information from CoinMarketCap, as the price of Bitcoin increased from approximately ¥432,000 during March 2020 to more than ¥3,000,000 in December 2020 to new all-time highs of more than ¥7,500,000 in November 2021, we experienced a corresponding increase in the usage on our Marketplace platform. However, the price of Bitcoin fell to approximately ¥5,330,000 as of December 31, 2021, and was approximately ¥5,550,000 as of March 31, 2022, before falling further to approximately ¥3,800,000 as of March 31, 2023. These price trends and other uncertainties affecting the global crypto markets adversely affected trading volume on our Marketplace platform in the fiscal year ended March 31, 2023, contributing to a sharp decline in total revenue and recognition of a net loss for the fiscal year. Although the price of Bitcoin increased to approximately ¥5,960,000 as of December 31, 2023, and has been on a general trend upwards since, with prices reaching record highs at approximately ¥10,800,000 as of March 31, 2024, and remaining at relatively stable levels since then despite dropping slightly to approximately ¥9,790,000 as of December 31, 2024, there have been a number of major crypto asset price cycles over the past decade, and price cycles continue to be volatile.
69
Due to the highly volatile nature of crypto asset prices and trading activity, historically our operating results have fluctuated significantly from quarter to quarter in line with market sentiment and trading activity.
As of December 31, 2024, our customer assets (IFRS) were ¥1,096 billion, and our marketplace trading volume during the nine months ended December 31, 2024, was ¥245.6 billion.
For the three months ended December 31, 2024, our total revenue was ¥123,104 million; our net loss was ¥15,445 million; EBITDA, a non-IFRS measure, was a loss of ¥14,751 million; and adjusted EBITDA, a non-IFRS measure, was ¥2,767 million. For the nine months ended December 31, 2024, our total revenue was ¥268,751 million; our net loss was ¥14,992 million; EBITDA, a non-IFRS measure, was a loss of ¥13,750 million; and adjusted EBITDA, a non-IFRS measure, was ¥4,031 million. See “— Key Business Metrics and Trends — Non-IFRS Financial Measures” below for information regarding our use of EBITDA and a reconciliation of net profit, the most directly comparable IFRS measure, for the year to EBITDA.
Monthly KPIs
The below table shows monthly operating data from April 2021 to December 2024:
April |
May |
June |
|||||||
(millions of yen, except number of verified accounts) |
|||||||||
Exchange trading volume(1) |
¥ |
523,215 |
¥ |
809,848 |
¥ |
482,483 |
|||
Marketplace trading volume |
¥ |
133,741 |
¥ |
109,128 |
¥ |
29,854 |
|||
J-GAAP customer assets(2) |
¥ |
539,527 |
¥ |
386,763 |
¥ |
329,345 |
|||
Number of verified accounts |
|
1,269,249 |
|
1,327,832 |
|
1,354,927 |
July |
August |
September |
October |
November |
December |
|||||||||||||
(millions of yen, except number of verified accounts) |
||||||||||||||||||
Exchange trading volume(1) |
¥ |
275,681 |
¥ |
453,357 |
¥ |
445,137 |
¥ |
619,845 |
¥ |
492,229 |
¥ |
366,859 |
||||||
Marketplace trading volume |
¥ |
21,912 |
¥ |
38,017 |
¥ |
54,511 |
¥ |
40,573 |
¥ |
45,579 |
¥ |
28,536 |
||||||
J-GAAP customer assets(2) |
¥ |
398,997 |
¥ |
489,505 |
¥ |
444,547 |
¥ |
553,167 |
¥ |
544,109 |
¥ |
441,362 |
||||||
Number of verified accounts |
|
1,377,177 |
|
1,401,283 |
|
1,430,308 |
|
1,462,911 |
|
1,508,553 |
|
1,534,173 |
January |
February |
March |
April |
May |
June |
|||||||||||||
(millions of yen, except number of verified accounts) |
||||||||||||||||||
Exchange trading volume(1) |
¥ |
267,775 |
¥ |
267,740 |
¥ |
323,390 |
¥ |
247,033 |
¥ |
323,442 |
¥ |
289,704 |
||||||
Marketplace trading volume |
¥ |
23,608 |
¥ |
17,921 |
¥ |
25,047 |
¥ |
18,822 |
¥ |
26,171 |
¥ |
19,007 |
||||||
J-GAAP customer assets(2) |
¥ |
357,537 |
¥ |
386,712 |
¥ |
480,803 |
¥ |
398,762 |
¥ |
317,583 |
¥ |
233,357 |
||||||
Number of verified accounts |
|
1,568,892 |
|
1,594,032 |
|
1,620,025 |
|
1,643,603 |
|
1,676,509 |
|
1,705,307 |
July |
August |
September |
October |
November |
December |
|||||||||||||
(millions of yen, except number of verified accounts) |
||||||||||||||||||
Exchange trading volume(1) |
¥ |
300,918 |
¥ |
244,844 |
¥ |
210,837 |
¥ |
181,739 |
¥ |
224,326 |
¥ |
86,479 |
||||||
Marketplace trading volume |
¥ |
12,639 |
¥ |
11,335 |
¥ |
11,190 |
¥ |
8,120 |
¥ |
11,917 |
¥ |
7,597 |
||||||
J-GAAP customer assets(2) |
¥ |
291,494 |
¥ |
265,451 |
¥ |
279,496 |
¥ |
289,140 |
¥ |
231,473 |
¥ |
209,983 |
||||||
Number of verified accounts |
|
1,718,174 |
|
1,730,890 |
|
1,749,692 |
|
1,758,732 |
|
1,770,108 |
|
1,775,420 |
January |
February |
March |
April |
May |
June |
|||||||||||||
(millions of yen, except number of verified accounts) |
||||||||||||||||||
Exchange trading volume(1) |
¥ |
127,100 |
¥ |
155,880 |
¥ |
246,434 |
¥ |
161,783 |
¥ |
149,721 |
¥ |
180,541 |
||||||
Marketplace trading volume |
¥ |
8,269 |
¥ |
8,208 |
¥ |
13,818 |
¥ |
10,699 |
¥ |
7,873 |
¥ |
11,659 |
||||||
J-GAAP customer assets(2) |
¥ |
268,707 |
¥ |
293,465 |
¥ |
343,971 |
¥ |
350,930 |
¥ |
339,201 |
¥ |
362,200 |
||||||
Number of verified accounts |
|
1,784,789 |
|
1,791,980 |
|
1,802,203 |
|
1,810,351 |
|
1,820,242 |
|
1,830,148 |
70
July |
August |
September |
October |
November |
December |
|||||||||||||
(millions of yen, except number of verified accounts) |
||||||||||||||||||
Exchange trading volume(1) |
¥ |
153,038 |
¥ |
135,468 |
¥ |
107,179 |
¥ |
196,954 |
¥ |
264,854 |
¥ |
291,973 |
||||||
Marketplace trading volume |
¥ |
14,361 |
¥ |
11,061 |
¥ |
9,140 |
¥ |
16,366 |
¥ |
18,190 |
¥ |
24,101 |
||||||
J-GAAP customer assets(2) |
¥ |
377,833 |
¥ |
345,872 |
¥ |
350,553 |
¥ |
413,294 |
¥ |
440,822 |
¥ |
468,418 |
||||||
Number of verified accounts |
|
1,844,687 |
|
1,855,980 |
|
1,864,765 |
|
1,872,825 |
|
1,884,184 |
|
1,898,785 |
January |
February |
March |
April |
May |
June |
|||||||||||||
(millions of yen, except number of verified accounts) |
||||||||||||||||||
Exchange trading volume(1) |
¥ |
343,496 |
¥ |
368,272 |
¥ |
625,319 |
¥ |
463,858 |
¥ |
314,754 |
¥ |
271,697 |
||||||
Marketplace trading volume |
¥ |
24,808 |
¥ |
31,102 |
¥ |
55,208 |
¥ |
28,222 |
¥ |
23,112 |
¥ |
21,659 |
||||||
J-GAAP customer assets(2) |
¥ |
476,128 |
¥ |
669,686 |
¥ |
744,201 |
¥ |
658,150 |
¥ |
736,851 |
¥ |
747,890 |
||||||
Number of verified accounts |
|
1,915,646 |
|
1,935,987 |
|
1,981,152 |
|
2,014,832 |
|
2,040,838 |
|
2,060,379 |
July |
August |
September |
October |
November |
December |
|||||||||||||
(millions of yen, except number of verified accounts) |
||||||||||||||||||
Exchange trading volume(1) |
¥ |
371,801 |
¥ |
411,847 |
¥ |
278,985 |
¥ |
324,265 |
¥ |
728,271 |
¥ |
621,560 |
||||||
Marketplace trading volume |
¥ |
22,725 |
¥ |
18,992 |
¥ |
13,412 |
¥ |
18,916 |
¥ |
50,405 |
¥ |
48,116 |
||||||
J-GAAP customer assets(2) |
¥ |
750,365 |
¥ |
635,917 |
¥ |
669,358 |
¥ |
735,675 |
¥ |
1,106,688 |
¥ |
1,142,224 |
||||||
Number of verified accounts |
|
2,077,756 |
|
2,090,251 |
|
2,100,974 |
|
2,110,974 |
|
2,152,448 |
|
2,197,619 |
____________
(1) Monthly exchange trading volume, as set forth in the table above, includes trading between matched sellers and purchasers but does not include transactions in which we are a party (including purchases and sales with cover counterparties). Monthly exchange trading volume data reflects trading volume by sellers and purchasers on a gross basis, and we do not collect monthly data that includes purchases and sales with cover counterparties as the above data is based on information that we are required to prepare for purposes of monthly reporting to the JVCEA using the calculation methods they prescribe.
(2) J-GAAP customer assets = crypto currencies deposited by customers + fiat currency deposited by customers. J-GAAP customer assets are derived from monthly data prepared for management for purposes of understanding internal performance metrics, and such figures had not been prepared under IFRS basis and do not include NFTs deposited by customers.
We operated miime, an on-chain NFT marketplace, from February 2021 when we acquired Metaps Alpha Inc. On October 21, 2022, we decided to discontinue operation of the miime service on November 21, 2022 and to transfer the shares of relevant subsidiary to our parent company, which was completed on January 25, 2023. The financial impact to our business as a result of this disposition is insignificant. From the time of acquisition of the miime service in February 2021 until the suspension of the service in November 2022, the total transaction volume on miime was ¥64.2 million and the total commissions received were ¥4.7 million.
Key Business Metrics and Trends
In addition to our financial results, we use the following business metrics to evaluate our business, measure our performance, identify trends affecting our business, and make strategic decisions:
Verified Users
Verified users represent users who have fully completed the applicable KYC procedures with us. Accordingly, there should only be one account per user. The verified user total is adjusted for accounts that are subsequently closed, but not for those that are inactive. Our verified users increased sequentially for all quarters beginning from the three months ended June 30, 2019, until the three months ended September 30, 2022, primarily due to growth in our products and services and the overall increase in interest in BTC, Ethereum and other crypto assets in Japan. As of December 31, 2024, our number of verified accounts was approximately 2.2 million after deducting the number of closed accounts. Verified user metrics are used as a key performance indicator in our business management process because our current businesses principally serve retail users. We are able to compare our number of verified
71
users against industry data compiled by the JVCEA to assess our competitive position. In addition, our definition of verified users may be revised in the future in accordance with any revisions in the KYC/AML procedures required in Japan.
Verified Users
Source: Public information made available by the JVCEA.
Monthly Users
Monthly users represent our verified users with at least one transaction on either our Marketplace or Exchange platforms, including the buying or selling of a crypto asset or the depositing or withdrawing of crypto assets or funds, in the prior calendar month and constitute the active transacting base of retail users on our cryptocurrency exchanges. Monthly users drive retail trading volume, and growth in our monthly users has historically been correlated with both the price of Bitcoin, Ethereum, and other crypto assets and volatility within the crypto asset market. We have aimed to expand our revenue opportunities by adding new cryptocurrencies to give more investment options and promote cryptocurrency trading for retail investors in recent years. Our number of monthly users was on a declining trend since its peak in the first quarter of the fiscal year ended March 31, 2022; however, from the third quarter of the fiscal year ended March 31, 2024, we have seen an increase in the number of monthly users. Our number of monthly users was approximately 141,000 for the three months ended December 31, 2024.
72
Monthly Users
Source: Internal data.
Customer Assets (by Currency)
Customer assets is a measure of the scale of total value held on our cryptocurrency exchanges as of the period indicated. We believe that customer assets reflect the trusted nature of our cryptocurrency exchanges and services. The value of our customer assets is driven by the price, quantity, and type of crypto assets held by customers. Customer assets include cash deposited by customers, which is segregated in a money trust with a trust bank, and customers’ crypto assets, for which we maintain custody and a corresponding safeguard liability is recorded in our condensed consolidated interim statements of financial position.
Changes in the price and quantity, particularly for Bitcoin and Ethereum, or type of crypto asset held on our cryptocurrency exchanges can result in growth or decline in customer assets within a particular period. For example, we could see an increase in the quantity of assets held on our cryptocurrency exchanges — measured in units of crypto assets or fiat currencies — but the value of customer assets could decline if the corresponding price of a crypto asset declines. Conversely, customer assets can increase in a particular period despite a decline in the quantity of assets held on our cryptocurrency exchanges if the decline is offset by rising crypto asset prices.
Our ability to safeguard our customers’ crypto assets is also an important factor, since any inability to do so could result in our customers losing trust in our services, the withdrawal of customer assets or a reduction in the deposit of customer assets. We work continuously to comply with applicable safeguarding measures to ensure that customer assets are protected. For more information, see “Risk Factors — Risks Relating to Our Business and Industry — We suffered a significant loss of customer funds due to hacking in 2018 and any future failure to safeguard and manage our customers’ crypto assets could adversely impact our business, operating results, and financial condition” and “Business — Regulatory Environment — Regulations on Crypto Asset Exchange Service.” We provide custody services to our customers for their crypto assets. As of March 31, 2024, and December 31, 2024, we recognized ¥649,211 million and ¥1,033,997 million, respectively, of safeguard liabilities in our condensed consolidated interim statements of financial position with respect to such custody obligations, which correspond to the amount of crypto assets deposited by our customers, excluding any crypto assets our customers have lent to us. In addition to such deposited crypto assets we hold in custody, total customer assets include fiat currency amounts deposited by customers.
73
Because the amount and value of our customer assets are driven by multiple factors, some of which are market dependent, this metric has fluctuated in recent periods. For example, during our fiscal year ended March 31, 2022, we saw decreases in our customer assets when crypto asset prices, in particular those of Bitcoin and Ethereum, declined between April and July, and increases when such crypto asset prices temporarily recovered in November 2021. According to closing day pricing information from CoinMarketCap, the price of Bitcoin and Ethereum reached their lowest levels during the fiscal year of approximately ¥3,260,000 and ¥196,000, respectively, in July 2021, while the price of Bitcoin and Ethereum reached their highest levels during the same fiscal year of approximately ¥7,667,000 and ¥546,000, respectively, in November 2021. However, despite these short-term fluctuations, our customer assets (IFRS) grew to ¥485 billion as of March 31, 2022, driven by growth in the price, quantity, and types of crypto assets we support. We also saw significant growth in other crypto assets during these periods, primarily XRP and IOST. As of March 31, 2024, our customer assets (IFRS) grew further still to ¥708 billion, of which ¥54 billion of customer assets (IFRS) consisted of XRP while ¥17 billion consisted of IOST. As of December 31, 2024, our customer assets (IFRS) continued to grow to ¥1,096 billion, of which ¥198 billion of customer assets (IFRS) consisted of XRP while ¥9 billion consisted of IOST.
J-GAAP Customer Assets and NFTs Deposited by Customers(1)
____________
(1) Calculated by adding the amount of J-GAAP customer assets and the amount of NFTs deposited by customers. J-GAAP customer assets are derived from monthly data prepared for management for purposes of understanding internal performance metrics, and such figures had not been prepared under IFRS basis and do not include NFTs deposited by customers.
Source: Coincheck Internal data.
Trading Volume (by Currency)
The trading volume of our customers is directly correlated with our revenue and is influenced by both price and volatility of Bitcoin, Ethereum, and other crypto assets. We have experienced periods of low and high trading volume, and therefore revenue, driven by periods of rising or declining crypto asset prices and/or lower or higher volatility within the crypto asset market. During periods of rising Bitcoin prices and higher volatility, we have generally observed higher trading volume on both our Marketplace and Exchange platforms.
74
There are a number of factors that contribute to changes in price and volatility of a given crypto asset, including, but not limited to, changes in the supply and demand for a particular crypto asset; crypto market sentiment; macroeconomic factors; utility of a particular crypto asset; and other events, such as exchange outages or social media commentary. Market participation by well-known investors can also affect consumer sentiment. For example, over the course of 2020 and 2021, we observed institutions, such as Square, Inc., invest in Bitcoin at an accelerated rate.
Occasionally, planned network events, such as an airdrop, where the network provides holders of a particular crypto asset with a reward, or a “halving,” when the reward for validating transactions for a crypto network is reduced by half, can lead to shifts in customer interest in a specific crypto asset. Event-driven changes in customer interest tend to be temporary, and as a result, our financial performance following such events may not be indicative of future operating performance or financial condition.
The following table shows the trading volume by currency on our Marketplace platform for each quarter:
For the three months ended |
||||||||||||
December 31, |
March 31, |
June 30, |
September 30, |
|||||||||
(Billion yen) |
||||||||||||
BTC |
¥ |
13.1 |
¥ |
14.8 |
¥ |
15.3 |
¥ |
13.6 |
||||
ETH |
|
6.9 |
|
6.6 |
|
7.5 |
|
10.6 |
||||
XRP |
|
3.2 |
|
3.5 |
|
3.2 |
|
5.6 |
||||
IOST |
|
1.5 |
|
1.8 |
|
1.0 |
|
0.8 |
||||
ENJ |
|
0.5 |
|
0.7 |
|
0.4 |
|
0.3 |
||||
LTC |
|
0.5 |
|
0.6 |
|
0.5 |
|
0.7 |
||||
SAND |
|
0.5 |
|
0.6 |
|
0.4 |
|
0.4 |
||||
XLM |
|
0.4 |
|
0.4 |
|
0.3 |
|
0.5 |
||||
XEM |
|
0.3 |
|
0.3 |
|
0.2 |
|
0.2 |
||||
BCH |
|
0.2 |
|
0.2 |
|
0.5 |
|
0.7 |
||||
BAT |
|
0.1 |
|
0.2 |
|
0.1 |
|
0.1 |
||||
OMG |
|
0.1 |
|
0.2 |
|
0.3 |
|
0.2 |
||||
DOT |
|
0.2 |
|
0.2 |
|
0.1 |
|
0.1 |
||||
QTUM |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
||||
MONA |
|
0.0 |
|
0.1 |
|
0.1 |
|
0.1 |
||||
LSK |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
||||
ETC |
|
0.0 |
|
0.0 |
|
0.0 |
|
0.0 |
||||
FCT |
|
0.0 |
|
0.0 |
|
0.0 |
|
0.0 |
||||
Total |
|
27.7 |
|
30.4 |
|
30.1 |
|
34.1 |
For the three months ended |
|||||||||||||||
December 31, |
March 31, |
June 30, |
September 30, |
December 31, |
|||||||||||
(Billion yen) |
|||||||||||||||
BTC |
¥ |
26.7 |
¥ |
51.4 |
¥ |
33.4 |
¥ |
27.2 |
¥ |
45.5 |
|||||
ETH |
|
19.1 |
|
26.5 |
|
17.9 |
|
16.0 |
|
24.8 |
|||||
XRP |
|
4.5 |
|
7.4 |
|
6.4 |
|
5.1 |
|
24.7 |
|||||
IOST |
|
1.3 |
|
2.3 |
|
1.2 |
|
0.4 |
|
0.9 |
|||||
ENJ |
|
0.3 |
|
0.6 |
|
0.2 |
|
0.1 |
|
0.1 |
|||||
LTC |
|
0.4 |
|
0.9 |
|
0.4 |
|
0.3 |
|
1.1 |
|||||
SAND |
|
0.6 |
|
0.8 |
|
0.4 |
|
0.2 |
|
1.3 |
|||||
XLM |
|
0.3 |
|
0.5 |
|
0.2 |
|
0.2 |
|
3.7 |
|||||
XEM |
|
0.0 |
|
0.0 |
|
0.6 |
|
0.0 |
|
0.0 |
|||||
BCH |
|
0.4 |
|
2.0 |
|
1.8 |
|
0.7 |
|
1.4 |
|||||
BAT |
|
0.1 |
|
0.2 |
|
0.1 |
|
0.1 |
|
0.3 |
75
For the three months ended |
||||||||||
December 31, |
March 31, |
June 30, |
September 30, |
December 31, |
||||||
(Billion yen) |
||||||||||
OMG |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||||
DOT |
0.3 |
0.8 |
0.4 |
0.2 |
0.7 |
|||||
QTUM |
0.1 |
0.3 |
0.2 |
0.1 |
0.3 |
|||||
MONA |
0.1 |
0.3 |
0.1 |
0.1 |
0.2 |
|||||
LSK |
0.1 |
0.3 |
0.2 |
0.0 |
0.0 |
|||||
ETC |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||||
FCT |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||||
WBTC |
0.1 |
0.2 |
0.1 |
0.0 |
0.1 |
|||||
AVAX |
0.9 |
1.8 |
0.8 |
0.4 |
1.0 |
|||||
SHIB |
1.3 |
10.8 |
5.1 |
2.4 |
5.8 |
|||||
FNCT |
0.0 |
1.0 |
0.2 |
0.1 |
0.4 |
|||||
BRIL |
0.0 |
0.0 |
1.7 |
0.4 |
0.5 |
|||||
BC |
0.0 |
0.0 |
0.0 |
0.0 |
1.1 |
|||||
Total |
56.6 |
108.1 |
71.4 |
54.0 |
113.9 |
IEO Revenue
We launched our IEO platform, Coincheck IEO, in July 2021, which is the first of its kind in Japan, and completed our first IEO under this platform shortly thereafter. We collaborated with Hashpalette Inc. to complete the first IEO for Palette Token, an ERC-20 utility token that can be used on Palette, which is a blockchain platform for manga, anime, music, and other forms of multimedia content. We charge fees to companies seeking to list on our exchange using our IEO platform, including a certain proportion of the tokens to be sold on the exchange. As a result, commissions received from the issuer and customers, including the fair value of the tokens received as commission, were ¥273 million and ¥256 million, respectively, and these amounts were recorded in commissions received for the years ended March 31, 2022 and 2023, respectively. In the year ended March 31, 2024, we did not receive any commissions. In the nine months ended December 31, 2024, we recorded ¥397 million of commissions attributable to IEOs.
Factors Affecting Our Results of Operations
The success and historical growth of our business as well as our financial condition and operating results have been and will continue to be affected by a number of factors described in more detail below.
Price and volatility of crypto assets
In the year ended March 31, 2024, and in the nine months ended December 31, 2024, 99.6% and 99.5%, respectively, of our total revenue consisted of transaction revenue generated from trades of customers and cover counterparties on our Marketplace platform business. As a result, our total revenue is highly correlated with the price and volatility of crypto assets. There are a number of factors that contribute to changes in crypto asset prices and volatility, including, but not limited to, changes in the supply and demand for a particular crypto asset; overall crypto market sentiment; macroeconomic factors; the utility of a particular crypto asset; and other events, such as exchange outages, social media commentary, and government policies.
Adoption of crypto assets and offering of new crypto assets
Our financial performance is dependent on the continued growth-in-interest and adoption of crypto assets by investors in Japan. Moreover, our growth strategy depends on our continued ability to add customers, expand the breadth of crypto assets on our cryptocurrency exchanges, and launch innovative products.
The number of crypto assets that are tradeable on our cryptocurrency exchanges has increased over time, and we offer 29 different crypto assets on our Marketplace platform as of December 31, 2024, an increase from 28 different crypto assets as of September 30, 2024. We only offer trading in crypto assets which have been approved for trading by crypto asset exchange service providers under the guidelines of the JVCEA. Our overall
76
trading volume, and in particular our altcoin trading volume, grew dramatically from March 2020 to April 2021 as prices of crypto assets increased strongly, which drove our prior growth and profitability. While the average of Bitcoin and Ethereum trading volume of the total trading volume within the cryptocurrency industry as a whole in Japan (according to the JVCEA data that includes all types of exchanges) was approximately 58% and 17%, respectively, for the year ended March 31, 2022, 70% and 16%, respectively, for the year ended March 31, 2023, 73% and 12%, respectively, for the year ended March 31, 2024, and 71% and 12%, respectively, for the nine months ended December 31, 2024, our trading volume of Bitcoin and Ethereum on our Marketplace platform was 46% and 27%, respectively, for the year ended March 31, 2024, and 43% and 24%, respectively, for the nine months ended December 31, 2024. We believe that our high share of altcoin trading volume and market share, which is higher than the industry average within Japan and higher than other global cryptocurrency exchange platforms, demonstrates the uniqueness of our Marketplace platform and helps us to retain customers from switching to other trading marketplaces.
Over time, we have observed a positive trend in the total market capitalization of crypto assets which indicates increased adoption. However, these historical trends are not indicative of future adoption, and it is possible that the adoption of crypto assets and blockchain technology may slow, take longer to develop, or never be broadly adopted, which would negatively impact our business and operating results.
Offering leading technology and providing successful products and services
We believe that the development of new products and services to enhance the value proposition of our cryptocurrency exchanges for our customers is important in maintaining our existing customer base as well as reaching new customer segments. We are continually focused on having leading UI/UX-design features and utilizing our mobile application to attract and engage retail users as customers’ first access point to trading of crypto assets.
We also focus on offering distinct trading services on our two separate platforms that target different segments of users, our Marketplace platform and our Exchange platform. Each of these platforms was designed independently, provides different functionalities and has different features. We are also focused on our easy-to-use infrastructure and plan to continue to develop new products and services, offer more crypto assets on our cryptocurrency exchanges, and continue to differentiate between our various customer segments with our optimized Marketplace and Exchange platforms. We believe that our Marketplace platform will continue to drive our growth and revenue, and we intend to launch products that complement our existing marketplace, such as our NFT and IEO product offerings. We believe that our NFT offerings can successfully leverage the existing customer base of our Marketplace platform.
Substantially all of our customers are retail users and we are currently aiming to introduce our products and services to institutional investors, such as insurance companies, to the extent that such companies begin investing in crypto assets in the future. However, we may not be able to introduce attractive products or services to such institutional users, or such institutions may choose to do business with our competitors. If we are able to successfully offer improved and new products and services, we believe that we will be able to both expand our user base to new types of customers and sell additional products and services to our existing customers, which will have a positive effect on our total revenue. Conversely, if we are unable to do so, our operating results may be negatively impacted.
Ability to competitively price our products and services
Our operating results also depend on our ability to competitively price our products and services. Similar to other financial products, as the crypto asset industry matures, we anticipate increased pressure on spreads and commission fees to emerge over time as new, and potentially larger and more established, financial institutions enter the market.
While we believe that we will be able to maintain our position as a trusted brand in Japan and continue to enhance our customer-value proposition and grow our scale in order to offset the effects of any future fee pressure, if we are unable to do so or if fee pressure emerges more rapidly than we anticipate, our operating results may be adversely affected in the future.
77
Marketing
Our primary means of marketing is digital marketing, which allows us to respond flexibly to the impact of changes in the market price of crypto assets. We use television advertisements only to the extent investments can be collected within a reasonable period of time based on our analysis using estimated conversion ratio and other factors. Similarly in our marketing campaigns, we estimate the return of investment per campaign and make investments to the extent investments are estimated to be recoverable.
Our advertising and promotion expenses are directed towards customer acquisition and totaled ¥415 million and ¥1,265 million, for the nine months ended December 31, 2023, and the nine months ended December 31, 2024, respectively, while the number of new accounts opened with us during these periods totaled, 178,949 and 216,467, respectively. In light of the adverse market environment, we reduced our advertising and promotion expenses during the fiscal year ended March 31, 2024. From May 2024, we have resumed the airing of television advertisements and as such, anticipate increased advertising costs in the year ending March 31, 2025. Within the advertisement and promotional expenses, web advertisement, affiliated programs, television advertising, and campaign expenses, respectively, accounted for 37.4%, 38.6%, 23.4% and 0.5% for the fiscal year ended March 31, 2022, 16.0%, 73.3%, 0.2% and 9.2% for the fiscal year ended March 31, 2023, 12.8%, 69.7%, 0.0%, and 16.5% for the nine months ended December 31, 2023 and 17.8%, 45.8%, 24.2% and 11.3% for the nine months ended December 31, 2024.
We monitor our total marketing costs for customer acquisition (MCC), cost per acquisition (CPA) and customer payback to assess the effectiveness of our marketing. Relevant measures for recent periods are summarized below:
Revenue and Total MCC (Marketplace platform)
____________
(1) The table above provides our total MCC, CPA, and customer payback for the periods from April 2019 to December 2024. The left bar for each quarter details our total marketing costs, whereas the right bar for each quarter details our customer payback amount for 24 months, including the month in which each customer completed the KYC process (and if 24 months have not passed, from the month in which each customer completed the KYC process to the end of December 2024), for the cohort of customers that were acquired within the quarter. The line above each set of bars provides our CPA for each given quarter. This number is derived by taking the MCC in a given period and dividing it by the total incremental customers that completed our KYC process in that respective quarter.
(2) MCC and revenue in the table above also include items that are recognized as deductions from sales for accounting purposes.
78
(3) For example, for the three months ended June 2021, our total MCC was ¥1,441 million, which equated to approximately ¥9,579 in CPA for each customer that completed our KYC process in that quarter. This total MCC of ¥1,441 million should be viewed in context of the revenue generated from the month each customer completed our KYC process for that cohort of customers acquired during the three months ended June 2021, which is ¥3,523 million for those customers through to the 24 months from, and including, the month in which each customer completes the KYC process (and if 24 months have not passed, from the month in which each customer completed the KYC process to the end of December 2024). The left bar is static as that represents the total amount of marketing costs that were incurred during the three months ended June 2021. The right bar represents the total of cumulative revenue generated from for the 24 months from, and including, the month each customer completed the KYC process (and if 24 months have not passed, represents the cumulative revenue from the month each customer completed the KYC process to the end of December 2024) for the cohort of customers acquired during the three months ended June 2022. The gray portion of the stacked bar represents revenue generated in the first to third month for each customer post-acquisition, the light blue represents revenue generated in the fourth to sixth month for each customer post-acquisition, the purple represents revenue generated in the seventh to ninth month for each customer post-acquisition, and the light green represents revenue generated 10 to 24 months onwards for each customer post-acquisition.
Source: Coincheck Internal data.
The markets for crypto assets are new and evolving, and the number of new accounts opened in a certain period is heavily influenced by a variety of external factors, including price trends of the cryptocurrencies supported on our cryptocurrency exchanges and media coverage regarding crypto asset markets. Because of the volatility in markets for crypto assets and the highly variable nature of our advertising and promotion expenses, these historical metrics may be of limited value in predicting future performance. We expect to continue to consider the latest market trends, our financial condition and other factors in addition to historical experience of marketing effectiveness in any given period in determining appropriate levels of marketing expenditures. In addition, we plan to continue to invest in the development of and market new products and services, including our services focused on NFTs and our IEO service. To the extent we are able to successfully sell new products and services to our customers, our total revenue will be positively affected.
Regulation in Japan and international markets
Our financial prospects and continued growth depend in part on our ability to continue to operate in a manner compliant with applicable regulations. Our business is subject to the oversight of numerous regulatory agencies in Japan, including, but not limited to, JFSA and the JVCEA. We received our license as a crypto asset exchange service provider from the JFSA in January 2019.
Our strategy is to continue to invest significantly in our finance, legal, compliance, and security functions in order to remain at the forefront of crypto policy initiatives and regulatory trends in Japan. Mr. Satoshi Hasuo, our Chief Operating Officer, is also a director of the JVCEA and we also lead the regulatory working group of the JVCEA, which we believe demonstrates the strong regulatory trust that we have. However, as the industry matures, we may experience fluctuations in our operating results as a result of changes in the law and regulations that are applicable to our business, which may limit our ability to support new blockchains and crypto assets and offer our products and services.
We may in the future expand our services into markets outside of Japan. Several regulatory bodies across the world have enacted or signaled changes to regulatory policy. For example, in the United States, on January 21, 2025, the SEC announced the formation of the Crypto Task Force, chaired by Commissioner Hester Peirce. Also in January 2025, the SEC released SAB No. 122, rescinding SAB No. 121, Accounting for Obligations to Safeguard Crypto-Assets an Entity Holds for Platform Users, which required an entity to record a liability to reflect its obligation to safeguard the crypto assets held for its platform users with a corresponding asset and required disclosures related to the entity’s safeguarding obligations. SAB No. 122 is effective for annual periods beginning after December 15, 2024, and is required to be applied on a fully retrospective basis, with early adoption permitted. Upon application of the rescission of SAB No. 121, the Company will no longer recognize the safeguard liabilities and corresponding safeguard assets on its consolidated financial statements. If the Company determines to recognize a liability related to the risk of loss under such an obligation, the measurement of such a liability will be determined by applying the recognition and measurement requirements for liabilities arising from contingencies in IAS 37, Provisions, Contingent Liabilities and Contingent Assets, under IFRS. As of the date of this prospectus, the Company is evaluating the impact of adopting the guidance. The related impact will be disclosed when the Company completes its evaluation.
79
Given the rapid pace of change in the crypto exchange industry and the evolving regulatory environment globally, any such expansion could subject us to differing regulatory regimes and significant compliance costs as discussed under “Risk Factors — Risks Relating to Our Business and Industry — If we expand our international activities, our obligations to comply with the laws, rules, regulations, and policies of a variety of jurisdictions will increase and we may be subject to investigations and enforcement actions by non-Japanese regulators and governmental authorities.”
Additionally, as an SEC-registered company that is listed on Nasdaq, we are subject to certain reporting and regulatory requirements in the United States.
Components of Results of Operations
Total revenue
Total revenue consists of transaction revenue, commission received, and other revenue. Our primary revenue stream is from our Marketplace platform where 29 different types of cryptocurrencies can be traded as of December 31, 2024, including BTC, Ethereum and other altcoins. However, our revenue is susceptible to significant fluctuations as trading volumes in our Marketplace platform depend on cryptocurrency market volatility and prices, which ultimately impacts how much revenue we earn.
Transaction revenue
Our Marketplace platform business is the main source of transaction revenue. Transaction revenue from our Marketplace platform business is derived from transactions with customers and cover counterparties. The table below shows this breakdown of transaction revenue for the fiscal years indicated:
For the fiscal year ended |
For the nine months ended |
For the three months ended |
|||||||||||||||||||
2022 |
2023 |
2024 |
2023 |
2024 |
2023 |
2024 |
|||||||||||||||
Transactions with customers |
¥ |
436,071 |
¥ |
125,491 |
¥ |
158,358 |
¥ |
86,059 |
¥ |
174,549 |
¥ |
40,907 |
¥ |
79,986 |
|||||||
Transactions with cover counterparties |
|
252,367 |
|
49,446 |
|
64,688 |
|
35,893 |
|
92,930 |
|
17,902 |
|
42,709 |
|||||||
Transaction revenue |
¥ |
688,437 |
¥ |
174,937 |
¥ |
223,046 |
¥ |
121,952 |
¥ |
267,479 |
¥ |
58,809 |
¥ |
122,695 |
Transaction revenue mainly refers to revenue from these sales transactions and is recognized at the time the transaction is processed and is directly correlated with the trading volume on our Marketplace platform, which has historically been influenced by the price of Bitcoin, Ethereum and the volatility of the cryptocurrency markets. We have experienced periods of low and high-trading volume, and therefore transaction revenue, driven by periods of rising or declining Bitcoin prices and/or lower or higher-cryptocurrency volatility. During periods of rising Bitcoin prices and higher volatility, we have generally observed higher-trading volume on our Marketplace platform. For the years ended March 31, 2022, 2023 and 2024 and for the nine months ended December 31, 2023 and 2024, the average spread, or the difference between transaction revenue and cost of sales, for each transaction respectively was 4.05%, 3.45%, 3.45%, 3.36% and 3.50%, showing a generally flat trend with slight fluctuation due to the change in the mix of cryptocurrencies being traded, and had a total transaction volume of ¥568.4 billion, ¥157.1 billion ¥123.5 billion and ¥245.6 billion, respectively, on our Marketplace platform.
For the fiscal years ended March 31, 2022 and 2023, we received cryptocurrencies in relation to our IEO business and sold them on the Exchange platform. The revenue was recognized as transaction revenue. We did not receive any cryptocurrencies in relation to our IEO business for the fiscal year ended March 31, 2024. In the nine months ended December 31, 2024, we recorded ¥397 million of commissions attributable to IEOs.
Over the long term, we expect further diversification of market participants, to add support for more cryptocurrencies, and for cryptocurrencies use cases to expand. We believe these factors will contribute to diversification in the composition of our trading volume and reduce the correlation to the price and volatility of specific cryptocurrencies.
80
Commission received
Our commission received primarily consists of remittance fees, deposit and withdrawal fees, commissions received from the issuer and applicants in the IEO business, commissions that arise from transactions on the Coincheck NFT marketplace and commissions that arise from transactions on our Exchange platform and other commissions.
Expenses
Expenses consist of cost of sales and selling, general, and administrative expenses.
Cost of sales
Our cost of sales mainly consists of crypto assets once acquired from users and cover counterparties on the Marketplace platform or Exchange platform.
Previously, the cost of cryptocurrencies sold was offset with the selling price of cryptocurrencies on our Marketplace platform. Our cost of sales has been changed to present cryptocurrencies delivered to the customers as cost of sales since the fiscal year ended March 31, 2023 and reflected retrospectively in all previous periods presented.
Selling, general, and administrative expenses
Personnel expenses and advertising and promotion expenses are our biggest cost drivers. Our personnel expenses are expected to scale as our revenues grow. In addition, systems-related expenses are correlated with user numbers and trading volumes and are incurred in order to support our mobile and desktop web applications. From May 2024, we have resumed the airing of television advertisements and as such, anticipate increased advertising costs in the year ending March 31, 2025. For the three months ended December 31, 2023 and 2024, our advertising and promotion expenses were ¥126 million and ¥541 million, respectively. For the nine months ended December 31, 2023 and 2024, our advertising and promotion expenses were ¥415 million and ¥1,265 million, respectively.
Our other cost items are relatively fixed in nature, which we believe allow us to target significant operating leverage. We also believe we have been able to create an expense system capable of securing profits even in periods with low trading volume.
Selling, general, and administrative expenses consist primarily of the following:
• Personnel expenses. Personnel expenses consist of the salaries, bonuses, and incentives of our employees.
• Advertising and promotion expenses. Advertising and promotion expenses primarily include expenses incurred for the advertising of our products on various media, including television, press, and internet (including social media and online video-sharing platforms).
• Professional fees. Professional fees consist of advisory fees in relation to the listing of our Ordinary Shares.
• Communication expenses. Communication expenses include cloud service expenses such as Amazon Web Services.
• Subcontract expenses. Subcontract expenses include outsourcing costs.
Selling, general, and administrative expenses also include depreciation and amortization, business management service fees, transaction related costs, subcontract labor costs, tax expenses, and other expenses.
Other Income and Expenses
Other income and expenses consist of other income and other expenses.
81
Other income
Other income consists primarily of gain on sale of business and gain on sale of crypto assets held for the year ended March 31, 2024, and miscellaneous income for the three and nine months ended December 31, 2023, and miscellaneous income for the nine months ended December 31, 2024.
Other expenses
Other expenses primarily consist of lease contract cancellation penalty, loss on sales and disposals of intangible assets, and termination benefits and exchange loss for the three and nine months ended December 31, 2023 and for the year ended March 31, 2024, and disposals of tangible/intangible assets for the three and nine months ended December 31, 2024.
Financial Income and Expenses
Financial income
Financial income consists primarily of derivative gains for the three and nine months ended December 31, 2023 and the year ended March 31, 2024, and change in fair value of warrant liabilities for the three and nine months ended December 31, 2024.
Financial expenses
Financial expenses consist primarily of interest expenses for the three and nine months ended December 31, 2023 and 2024 and impairment losses of other financial assets (non-current assets) for the year ended March 31, 2024 and for the nine months ended December 31, 2024.
Historical Results of Operations
Comparison of the three and nine months ended December 31, 2023, with the three and nine months ended December 31, 2024
The following table shows selected condensed consolidated interim statements of profit or loss data for the three months ended December 31, 2023 and 2024:
(Millions of yen) |
||||||||
2023 |
2024 |
|||||||
Revenue: |
|
|
|
|
||||
Revenue |
¥ |
59,007 |
|
¥ |
123,084 |
|
||
Other revenue |
|
109 |
|
|
20 |
|
||
Total revenue |
|
59,116 |
|
|
123,104 |
|
||
Expenses: |
|
|
|
|
||||
Cost of sales |
|
56,880 |
|
|
118,311 |
|
||
Selling, general, and administrative expenses |
|
1,638 |
|
|
6,429 |
|
||
Total expenses |
|
58,518 |
|
|
124,740 |
|
||
Operating profit (loss) |
|
598 |
|
|
(1,636 |
) |
||
Other income and expenses: |
|
|
|
|
||||
Other income |
|
8 |
|
|
— |
|
||
Other expenses |
|
(10 |
) |
|
(30 |
) |
||
Financial income |
|
— |
|
|
476 |
|
||
Listing expense |
|
— |
|
|
(13,714 |
) |
||
Financial expenses |
|
(6 |
) |
|
(4 |
) |
||
Profit (loss) before income taxes |
|
590 |
|
|
(14,908 |
) |
||
Income tax expense |
|
(193 |
) |
|
(537 |
) |
||
Net profit (loss) for the period attributable to owners of Coincheck Parent |
|
397 |
|
|
(15,445 |
) |
82
The following table shows selected condensed consolidated interim statements of profit or loss data for the nine months ended December 31, 2023 and 2024:
(Millions of yen) |
||||||||
2023 |
2024 |
|||||||
Revenue: |
|
|
|
|
||||
Revenue |
¥ |
122,394 |
|
¥ |
268,716 |
|
||
Other revenue |
|
255 |
|
|
35 |
|
||
Total revenue |
|
122,649 |
|
|
268,751 |
|
||
Expenses: |
|
|
|
|
||||
Cost of sales |
|
117,818 |
|
|
258,818 |
|
||
Selling, general, and administrative expenses |
|
4,730 |
|
|
10,902 |
|
||
Total expenses |
|
122,548 |
|
|
269,720 |
|
||
Operating profit (loss) |
|
101 |
|
|
(969 |
) |
||
Other income and expenses: |
|
|
|
|
||||
Other income |
|
28 |
|
|
17 |
|
||
Other expenses |
|
(143 |
) |
|
(33 |
) |
||
Financial income |
|
51 |
|
|
485 |
|
||
Listing expense |
|
— |
|
|
(13,714 |
) |
||
Financial expenses |
|
(1 |
) |
|
(28 |
) |
||
Profit (loss) before income taxes |
|
36 |
|
|
(14,242 |
) |
||
Income tax expense |
|
(21 |
) |
|
(750 |
) |
||
Net profit (loss) for the period attributable to owners of Coincheck Parent |
|
15 |
|
|
(14,992 |
) |
Revenue. Revenue was ¥123,084 million in the three months ended December 31, 2024, an increase of ¥64,077 million, or 109%, from ¥59,007 million in the three months ended December 31, 2023. Revenue was ¥268,716 million in the nine months ended December 31, 2024, an increase of ¥146,322 million, or 120%, from ¥122,394 million in the nine months ended December 31, 2023. The increase for the three and nine months was due mainly to increased transaction revenue due to the increased Marketplace trading volume.
Other revenue. Other revenue was ¥20 million in the three months ended December 31, 2024, a decrease of ¥89 million, from ¥109 million in the three months ended December 31, 2023. Other revenue was ¥35 million in the nine months ended December 31, 2024, a decrease of ¥220 million or 86%, from ¥255 million in the nine months ended December 31, 2023. The decrease for the three and nine months was mainly due to decreased revenue from general shareholder meeting services related to the sale of the Sharely business.
Cost of sales. Cost of sales were ¥118,311 million in the three months ended December 31, 2024, an increase of ¥61,431 million, or 108%, from ¥56,880 million in the three months ended December 31, 2023. Cost of sales were ¥258,818 million in the nine months ended December 31, 2024, an increase of ¥141,000 million, or 120%, from ¥117,818 million in the nine months ended December 31, 2023. This increase for the three and nine months was due mainly to an increase in trading volume on our Marketplace platform.
Selling, general, and administrative expenses. Selling, general, and administrative expenses were ¥6,429 million in the three months ended December 31, 2024, an increase of ¥4,792 million, or 293%, from ¥1,638 million in the three months ended December 31, 2023. Selling, general, and administrative expenses were ¥10,902 million in the nine months ended December 31, 2024, an increase of ¥6,172 million, or 131%, from ¥4,730 million in the nine months ended December 31, 2023. The increase for the three and nine months was due mainly to an increase in professional fees.
83
Operating profit (loss). As a result of the foregoing, operating loss was ¥1,636 million in the three months ended December 31, 2024, a decrease of ¥2,234 million from an operating profit of ¥598 million in the three months ended December 31, 2023. As a result of the foregoing, operating loss was ¥969 million in the nine months ended December 31, 2024, a decrease of ¥1,070 million from an operating profit of ¥101 million in the nine months ended December 31, 2023.
Other income. Other income (loss) was ¥0 million in the three months ended December 31, 2024, a decrease of ¥8 million, from ¥8 million in the three months ended December 31, 2023. Other income was ¥17 million in the nine months ended December 31, 2024, a decrease of ¥11 million, from ¥28 million in the nine months ended December 31, 2023. The changes for the three and nine months were due mainly to a decrease in gain on sale of crypto assets held.
Other expenses. Other expenses were ¥30 million in the three months ended December 31, 2024, an increase of ¥20 million from ¥10 million in the three months ended December 31, 2023. The increase primarily relates to a loss on a disposal of asset of ¥23 million that occurred in the three months ended December 31, 2024. Other expenses were ¥33 million in the nine months ended December 31, 2024, a decrease of ¥110 million from ¥143 million in the nine months ended December 31, 2023. The decrease primarily relates to a larger loss on a disposal of asset of ¥100 million that occurred in the nine months ended December 31, 2023.
Financial income. Financial income (loss) was ¥476 million in the three months ended December 31, 2024, an increase of ¥476 million from ¥0 million in the three months ended December 31, 2023. Financial income was ¥485 million in the nine months ended December 31, 2024, an increase of ¥434 million from ¥51 million in the nine months ended December 31, 2023. The change was due mainly to the decrease in the fair value of our warrant liabilities.
Listing expense. Listing expense was ¥13,714 million in the three months ended December 31, 2024, an increase of ¥13,714 million from ¥0 million in the three months ended December 31, 2023. Listing expense was ¥13,714 million in the nine months ended December 31, 2024, an increase of ¥13,714 million from ¥0 million in the three months ended December 31, 2023. The listing expense relates to the completion of the Reverse Recapitalization. The listing expense represents the excess of fair value of Coincheck shares deemed to have been issued over the fair value of Thunder Bridge’s identifiable net assets acquired represents compensation for the service of a stock exchange listing for its shares and is expensed as incurred.
Financial expenses. Financial expenses were ¥4 million in the three months ended December 31, 2024, a decrease of ¥4 million from ¥0 million in the three months ended December 31, 2023. Financial expenses were ¥28 million in the nine months ended December 31, 2024, an increase of ¥27 million from ¥1 million in the nine months ended December 31, 2023. The change was due mainly to an increase in interest expenses.
Income tax (expenses) benefits. Income tax expenses were ¥536 million in the three months ended December 31, 2024, an increase in expenses of ¥344 million from income tax expenses of ¥193 million in the three months ended December 31, 2023. Income tax expenses were ¥750 million in the nine months ended December 31, 2024, an increase in expenses of ¥729 million from income tax benefits of ¥21 million in the nine months ended December 31, 2023. The increase in income tax expenses was due mainly to increased profits for the periods in the Japanese jurisdiction.
84
Comparison of the year ended March 31, 2023 with the year ended March 31, 2024
The following table shows selected statements of profit or loss data for the years ended March 31, 2023 and 2024:
For the year ended |
||||||||
2023 |
2024 |
|||||||
(in millions of yen) |
||||||||
Statements of profit or loss: |
|
|
|
|
||||
Revenue: |
|
|
|
|
||||
Revenue |
¥ |
175,992 |
|
¥ |
223,775 |
|
||
Other revenue |
|
932 |
|
|
274 |
|
||
Total revenue |
|
176,924 |
|
|
224,049 |
|
||
Expenses: |
|
|
|
|
||||
Cost of sales |
|
(169,604 |
) |
|
(214,786 |
) |
||
Selling, general and administrative expenses |
|
(8,039 |
) |
|
(6,757 |
) |
||
Total expenses |
|
(177,643 |
) |
|
(221,543 |
) |
||
Operating profit (loss) |
|
(719 |
) |
|
2,506 |
|
||
Other income and expenses: |
|
|
|
|
||||
Other income |
|
45 |
|
|
437 |
|
||
Other expenses |
|
(165 |
) |
|
(153 |
) |
||
Financial income |
|
0 |
|
|
67 |
|
||
Financial expenses |
|
(7 |
) |
|
(17 |
) |
||
Profit (loss) before income taxes |
|
(846 |
) |
|
2,840 |
|
||
Income tax (expenses) benefits |
|
287 |
|
|
(873 |
) |
||
Net profit (loss) for the year |
¥ |
(559 |
) |
¥ |
1,967 |
|
Revenue. Revenue was ¥223,775 million in the year ended March 31, 2024, an increase of ¥47,783 million, or 27.2%, from ¥175,992 million in the year ended March 31, 2023. The increase was due mainly to increased transaction revenue due to the increased Marketplace trading volume.
Other revenue. Other revenue was ¥274 million in the year ended March 31, 2024, a decrease of ¥658 million, from ¥932 million in the year ended March 31, 2023. The decrease was due mainly to a decrease in the sale of various crypto assets.
Total revenue. As a result of the foregoing, total revenue was ¥224,049 million in the year ended March 31, 2024, an increase of ¥47,125 million, or 26.6%, from ¥176,924 million in the year ended March 31, 2023. The increase was due mainly to an increase in transaction revenue due to an increase in trading volume on our Marketplace platform.
Cost of sales. Cost of sales were ¥214,786 million in the year ended March 31, 2024, an increase of ¥45,182 million, or 26.6%, from ¥169,604 million in the year ended March 31, 2023. This increase was due mainly to an increase in trading volume.
85
Selling, general and administrative expenses. Selling, general and administrative expenses were ¥6,757 million in the year ended March 31, 2024, a decrease of ¥1,282 million, or 15.9%, from ¥8,039 million in the year ended March 31, 2023. The decrease was due mainly to a decrease in advertising and promotion expenses and a decrease in professional fees.
For the year ended |
||||||
2023 |
2024 |
|||||
(in millions of yen) |
||||||
Selling, general and administrative expenses: |
|
|
||||
Personnel expenses |
¥ |
2,020 |
¥ |
2,287 |
||
Advertising and promotion expenses |
|
1,294 |
|
661 |
||
Professional fees |
|
1,262 |
|
710 |
||
Communication expenses |
|
873 |
|
769 |
||
Subcontract expenses |
|
787 |
|
473 |
||
Depreciation and amortization |
|
483 |
|
679 |
||
Business management service fees |
|
363 |
|
458 |
||
Transaction related costs |
|
297 |
|
335 |
||
Subcontract labor costs |
|
280 |
|
130 |
||
Tax expenses |
|
27 |
|
116 |
||
Other |
|
353 |
|
139 |
||
Total of above selling, general and administrative expense items: |
¥ |
8,039 |
¥ |
6,757 |
Operating profit (loss). As a result of the foregoing, operating profit was ¥2,506 million in the year ended March 31, 2024, an increase of ¥3,225 million from an operating loss of ¥719 million in the year ended March 31, 2023. The change was due mainly to an increase in total revenue due in part to a slowly recovering cryptocurrency market.
Other income. Other income was ¥437 million in the year ended March 31, 2024, an increase of ¥392 million, or 871.1%, from ¥45 million in the year ended March 31, 2023. The increase was due mainly to an increase in gain on sale of business as a result of the sale of our Sharely business.
Other expenses. Other expenses were ¥153 million in the year ended March 31, 2024, a decrease of ¥12 million from ¥165 million in the year ended March 31, 2023. Although there was an increase due to lease contract cancellation penalty and termination benefits, there was a decrease due to lack of impairment loss of crypto assets held (non-current assets) occurred in 2023.
Financial income. Financial income was ¥67 million in the year ended March 31, 2024, an increase of ¥67 million from ¥0 million in the year ended March 31, 2023.
Financial expenses. Financial expenses were ¥17 million in the year ended March 31, 2024, an increase of ¥10 million from ¥7 million in the year ended March 31, 2023.
Profit (loss) before income taxes. As a result of the foregoing, profit before income taxes was ¥2,840 million in the year ended March 31, 2024, after recognizing loss of ¥846 million in the year ended March 31, 2023.
Income tax (expenses) benefits. Income tax expenses were ¥873 million in the year ended March 31, 2024, a decrease in benefits of ¥1,160 million from income tax benefits of ¥287 million in the year ended March 31, 2023. The decrease in income tax benefits was due mainly to our increased profit for the period.
Net profit (loss) for the period. As a result of the foregoing, net profit was ¥1,967 million in the year ended March 31, 2024, after recognizing net loss of ¥559 million in the year ended March 31, 2023.
86
Comparison of the year ended March 31, 2022 with the year ended March 31, 2023
The following table shows selected consolidated statement of profit or loss data for the years ended March 31, 2022 and 2023:
For the year ended |
||||||||
2022 |
2023 |
|||||||
(in millions of yen) |
||||||||
Consolidated statements of profit or loss: |
|
|
|
|
||||
Revenue: |
|
|
|
|
||||
Revenue |
¥ |
690,016 |
|
¥ |
175,992 |
|
||
Other revenue |
|
950 |
|
|
932 |
|
||
Total revenue |
|
690,966 |
|
|
176,924 |
|
||
Expenses: |
|
|
|
|
||||
Cost of sales |
|
(662,485 |
) |
|
(169,604 |
) |
||
Selling, general and administrative expenses |
|
(14,638 |
) |
|
(8,039 |
) |
||
Total expenses |
|
(677,123 |
) |
|
(177,643 |
) |
||
Operating profit (loss) |
|
13,843 |
|
|
(719 |
) |
||
Other income and expenses: |
|
|
|
|
||||
Other income |
|
95 |
|
|
45 |
|
||
Other expenses |
|
(19 |
) |
|
(165 |
) |
||
Financial income |
|
1 |
|
|
0 |
|
||
Financial expenses |
|
(2 |
) |
|
(7 |
) |
||
Profit (loss) before income taxes |
|
13,918 |
|
|
(846 |
) |
||
Income tax (expenses) benefits |
|
(4,123 |
) |
|
287 |
|
||
Net profit (loss) for the year |
¥ |
9,795 |
|
¥ |
(559 |
) |
Revenue. Revenue was ¥175,992 million in the year ended March 31, 2023, a decrease of ¥514,024 million, or 74.5%, from ¥690,016 million in the year ended March 31, 2022. The decrease was due mainly to decreased transaction revenue due to the lower trading volume.
Other revenue. Other revenue was ¥932 million in the year ended March 31, 2023, a decrease of ¥18 million, from ¥950 million in the year ended March 31, 2022. The decrease was due mainly to a decrease in sales of NFTs.
Total revenue. As a result of the foregoing, total revenue was ¥176,924 million in the year ended March 31, 2023, a decrease of ¥514,042 million, or 74.4%, from ¥690,966 million in the year ended March 31, 2022. The decrease was due mainly to the decrease in transaction revenue due to the fall in trading volume on our Marketplace platform.
Cost of sales. Cost of sales were ¥169,604 million in the year ended March 31, 2023, a decrease of ¥492,881 million, or 74.4%, from ¥662,485 million in the year ended March 31, 2022. This decrease was due mainly to a decrease in trading volume.
87
Selling, general and administrative expenses. Selling, general and administrative expenses were ¥8,039 million in the year ended March 31, 2023, a decrease of ¥6,599 million, or 45.1%, from ¥14,638 million in the year ended March 31, 2022. The decrease was due mainly to decrease of ¥4,312 million and ¥1,495 million in advertising and promotion expenses and personnel expenses, respectively, as we took measures to reduce expenses in light of the adverse market conditions.
For the year ended |
||||||
2022 |
2023 |
|||||
(in millions of yen) |
||||||
Selling, general and administrative expenses: |
|
|
||||
Personnel expenses |
¥ |
3,515 |
¥ |
2,020 |
||
Advertising and promotion expenses |
|
5,606 |
|
1,294 |
||
Professional fees |
|
717 |
|
1,262 |
||
Communication expenses |
|
627 |
|
873 |
||
Subcontract expenses |
|
703 |
|
787 |
||
Depreciation and amortization |
|
448 |
|
483 |
||
Business management service fees |
|
1,427 |
|
363 |
||
Transaction related costs |
|
697 |
|
297 |
||
Subcontract labor costs |
|
371 |
|
280 |
||
Tax expenses |
|
233 |
|
27 |
||
Other |
|
294 |
|
353 |
||
Total of above selling, general and administrative expense items: |
¥ |
14,638 |
¥ |
8,039 |
Operating profit (loss). As a result of the foregoing, operating loss was ¥719 million in the year ended March 31, 2023, a decrease in profit of ¥14,562 million from an operating profit of ¥13,843 million in the year ended March 31, 2022. The change was due mainly to the decrease in total revenue due to the slow cryptocurrency market environment despite the decrease in our expenses.
Other income. Other income was ¥45 million in the year ended March 31, 2023, a decrease of ¥50 million, or 52.6%, from ¥95 million in the year ended March 31, 2022. The decrease was due mainly to decreased gain on sale of crypto assets held.
Other expenses. Other expenses were ¥165 million in the year ended March 31, 2023, an increase of ¥146 million from ¥19 million in the year ended March 31, 2022. The increase was due mainly to recording of impairment loss of crypto assets held (non-current assets), loss on sales and disposals of intangible assets and loss on sale of crypto assets (non-current assets).
Financial income. Financial income was ¥0 million in the year ended March 31, 2023, a decrease of ¥1 million from ¥1 million in the year ended March 31, 2022.
Financial expenses. Financial expenses were ¥7 million in the year ended March 31, 2023, an increase of ¥5 million from ¥2 million in the year ended March 31, 2022.
Profit (loss) before income taxes. As a result of the foregoing, loss before income taxes was ¥846 million in the year ended March 31, 2023, after recognizing profit of ¥13,918 million in the year ended March 31, 2022.
Income tax (expenses) benefits. Income tax benefits were ¥287 million in the year ended March 31, 2023, a decrease in expense of ¥4,410 million from income tax expenses of ¥4,123 million in the year ended March 31, 2022. The decrease in income tax expenses was due mainly to our decreased profit for the period.
Net profit (loss) for the period. As a result of the foregoing, net loss was ¥559 million in the year ended March 31, 2023, after recognizing net profit of ¥9,795 million in the year ended March 31, 2022.
88
Non-IFRS Financial Measures
In addition to our results determined in accordance with IFRS, we present EBITDA and Adjusted EBITDA, non-IFRS measures, because we believe they are useful in evaluating our operating performance. EBITDA represents net profit (loss) for the period before the impact of taxes, interest, depreciation, and amortization of intangible assets, and Adjusted EBITDA represents EBITDA, further adjusted for transaction expenses that are directly attributable to the Reverse Recapitalization, as well as Nasdaq listing expenses.
We use EBITDA and Adjusted EBITDA to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that EBITDA and Adjusted EBITDA may be helpful to investors because it provides consistency and comparability with past financial performance. However, EBITDA and Adjusted EBITDA are presented for supplemental informational purposes only, have limitations as an analytical tool and should not be considered in isolation or as a substitute for our financial information presented in accordance with IFRS.
A reconciliation is provided below for each non-IFRS financial measure to the most directly comparable financial measure stated in accordance with IFRS. Investors are encouraged to review the related IFRS financial measures and the reconciliation of these non-IFRS financial measures to their most directly comparable IFRS financial measures, and not to rely on any single financial measure to evaluate our business.
The following tables present reconciliations of our non-IFRS financial measures:
Reconciliation of EBITDA to Net Profit
For the fiscal year ended |
For the nine months ended |
For the three months ended |
||||||||||||||||||||||
2022 |
2023 |
2024 |
2023 |
2024 |
2023 |
2024 |
||||||||||||||||||
(millions of yen) |
||||||||||||||||||||||||
Reconciliation of EBITDA: |
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Net profit (loss) for the year or the period |
¥ |
9,795 |
¥ |
(559 |
) |
¥ |
1,967 |
¥ |
15 |
¥ |
(14,992 |
) |
¥ |
397 |
¥ |
(15,444 |
) |
|||||||
Add: Income tax expenses (benefits) |
|
4,123 |
|
(287 |
) |
|
873 |
|
21 |
|
750 |
|
|
193 |
|
536 |
|
|||||||
Profit (loss) before income |
|
13,918 |
|
(846 |
) |
|
2,840 |
|
36 |
|
(14,242 |
) |
|
590 |
|
(14,908 |
) |
|||||||
Add: interest expense |
|
2 |
|
3 |
|
|
6 |
|
1 |
|
18 |
|
|
0 |
|
8 |
|
|||||||
Add: Depreciation and amortization |
|
448 |
|
483 |
|
|
679 |
|
431 |
|
474 |
|
|
114 |
|
149 |
|
|||||||
EBITDA |
¥ |
14,368 |
¥ |
(360 |
) |
¥ |
3,525 |
¥ |
468 |
¥ |
(13,750 |
) |
¥ |
704 |
¥ |
(14,751 |
) |
Reconciliation of Adjusted EBITDA to Net Profit
For the |
For the |
|||||||||||||
2023 |
2024 |
2023 |
2024 |
|||||||||||
(millions of yen) |
||||||||||||||
Reconciliation of Adjusted EBITDA: |
|
|
|
|
|
|
||||||||
Net profit (loss) for the year or the period |
¥ |
15 |
¥ |
(14,992 |
) |
¥ |
397 |
¥ |
(15,444 |
) |
||||
Add: Income tax expenses |
|
21 |
|
750 |
|
|
193 |
|
536 |
|
||||
Profit (loss) before income taxes |
|
36 |
|
(14,242 |
) |
|
590 |
|
(14,908 |
) |
||||
Add: interest expense |
|
1 |
|
18 |
|
|
0 |
|
8 |
|
||||
Add: Professional fees in connection with the Reverse Recapitalization |
|
196 |
|
4,067 |
|
|
72 |
|
3,804 |
|
||||
Add: Listing expense |
|
— |
|
13,714 |
|
|
— |
|
13,714 |
|
||||
Add: Depreciation and amortization |
|
431 |
|
474 |
|
|
114 |
|
149 |
|
||||
Adjusted EBITDA |
¥ |
664 |
¥ |
4,031 |
|
¥ |
776 |
¥ |
2,767 |
|
89
Liquidity and Capital Resources
We finance our operations primarily with our cash flow from operating activities. Our fundamental principles are to build and maintain a financial base for the purpose of maintaining soundness and efficiency of operations and achieving sustainable growth. According to these principles, we plan on conducting capital investment, profit distribution, and repayment of any loans based on our operating cash flows through the development and rendering of our crypto asset exchange services.
In addition, we will receive $55.9 million from the exercise of the Warrants, assuming the exercise in full of all of the Warrants for cash at the current exercise price of $11.50 per share. However, whether warrantholders will exercise their Warrants, and therefore the amount of cash proceeds we would receive upon exercise, is dependent upon the trading price of the Ordinary Shares. Each Warrant will become exercisable for one Ordinary Share at an exercise price of $11.50. Therefore, if and when the trading price of the Ordinary Shares is less than $11.50, we expect that warrantholders would not exercise their Warrants. On April 8, 2025, the last reported sale price of our Ordinary Shares was $4.37 per share.
Cash and cash equivalents mainly consist of bank deposits. As of December 31, 2024, we had cash and cash equivalents of ¥12,673 million. As of December 31, 2024, we also had cash segregated as deposits of ¥60,648 million. In accordance with Japanese laws and regulations, from the year ended March 31, 2021, at least 100% of the legal tender deposited by customers shall be protected by trust companies. Therefore, cash deposited by customers is accounted for under different accounts depending on whether it is protected by trust companies or not. Additionally, Coincheck entered into a line of credit with Monex Finance Corporation, with aggregate commitments as of March 31, 2024, and December 31, 2024 of ¥6,000 million and ¥6,000 million, respectively. No amounts were outstanding under this arrangement as of March 31, 2024 or December 31, 2024, after drawing down and subsequently repaying ¥6,000 million in June of 2024. Coincheck Parent entered into its own commitment line contract of ¥2,540 million as a debtor with Monex Finance Corporation as of December 31, 2024, for the purpose of stable operating capital. As of December 31, 2024, the balance outstanding under this was ¥2,526 million.
In addition, Coincheck entered into a loan agreement for ¥200 million with JSF Trust and Banking Co., Ltd. in June 2021, which balance was increased to ¥500 million as of December 31, 2024, and has been making short-term borrowings under this agreement several times a year, however, all of the borrowings were repaid within about a week of the making of each respective loan and are currently unused. As stated above, we believe our existing cash and cash equivalents are sufficient to meet our immediate working capital and capital expenditure needs.
We hold crypto assets on our condensed consolidated interim statements of financial position principally to facilitate customer transaction on our Marketplace platform. These crypto assets consist of cryptocurrencies. Because 100% of customer crypto assets (excluding crypto assets we have borrowed under the Coincheck Lending program) are held in segregated cold wallets and are not accessible for settlement purposes, our holding of crypto assets facilitates the prompt settlement of transactions, including requested remittances and trades executed with cover counterparties. As of December 31, 2024, we had ¥55,299 million of crypto assets held (current assets). These cryptocurrencies are held with the purpose of acquiring broker-traders’ margin and treated as inventories that are recorded at fair value as of the end of the reporting period. The fair value is measured at the transaction prices of main cryptocurrency exchanges. Almost all of these cryptocurrencies consist of cryptocurrencies we have borrowed from our customers. As of December 31, 2024, crypto asset borrowings totaled ¥54,971 million. We determine the amount of crypto assets to hold based on the total size of our customer assets and recent trading levels. Our accounting and finance department is responsible for monitoring and determining the appropriate amount, and our dealing department is then responsible for managing what amount of crypto assets to hold in hot wallets and to deposit with cover counterparties in accordance with our internal policies. In the interest of security, our policy is to hold the majority of borrowed customer crypto assets in cold wallets and to hold in hot wallets the amount of crypto assets we deem necessary in light of expected settlement transactions with cover counterparties and external transfer requests.
90
The following table shows the amounts held by crypto asset, as well as in hot wallets and cold wallets as of March 31, 2022, September 30, 2022, March 31, 2023, September 30, 2023, March 31, 2024, September 30, 2024 and December 31, 2024. Customer crypto assets held by us in cold wallets are recorded as safeguard assets and are not included in crypto assets held (current assets).
As of |
As of |
As of |
As of |
As of |
As of |
As of |
|||||||||||||||
(in billions of yen) |
|||||||||||||||||||||
BTC |
¥ |
19.8 |
¥ |
9.7 |
¥ |
11.8 |
¥ |
12.6 |
¥ |
32.6 |
¥ |
28.0 |
¥ |
39.8 |
|||||||
ETH |
|
6.7 |
|
2.7 |
|
3.3 |
|
3.2 |
|
6.2 |
|
3.9 |
|
5.6 |
|||||||
XRP |
|
3.4 |
|
2.2 |
|
2.2 |
|
2.2 |
|
2.9 |
|
2.5 |
|
8.1 |
|||||||
IOST |
|
1.4 |
|
0.4 |
|
0.4 |
|
0.2 |
|
0.4 |
|
0.2 |
|
0.2 |
|||||||
ENJ |
|
0.5 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.0 |
|
0.0 |
|||||||
XEM |
|
0.3 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.0 |
|
0.0 |
|||||||
XLM |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.3 |
|||||||
BCH |
|
0.2 |
|
0.1 |
|
0.1 |
|
0.2 |
|
0.4 |
|
0.2 |
|
0.3 |
|||||||
LTC |
|
0.2 |
|
0.1 |
|
0.2 |
|
0.1 |
|
0.2 |
|
0.1 |
|
0.2 |
|||||||
LSK |
|
0.2 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.0 |
|
0.0 |
|||||||
BAT |
|
0.2 |
|
0.1 |
|
0.1 |
|
0.0 |
|
0.1 |
|
0.0 |
|
0.1 |
|||||||
QTUM |
|
0.2 |
|
0.1 |
|
0.1 |
|
0.0 |
|
0.1 |
|
0.0 |
|
0.1 |
|||||||
OMG |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.0 |
|
0.0 |
|
0.0 |
|
0.0 |
|||||||
MONA |
|
0.1 |
|
0.0 |
|
0.0 |
|
0.0 |
|
0.0 |
|
0.0 |
|
0.0 |
|||||||
Others |
|
0.8 |
|
0.5 |
|
0.4 |
|
0.3 |
|
0.9 |
|
0.5 |
|
0.6 |
|||||||
Total crypto assets held (current assets) |
¥ |
34.1 |
¥ |
16.4 |
¥ |
19.0 |
¥ |
19.3 |
¥ |
44.2 |
¥ |
35.6 |
¥ |
55.3 |
|||||||
Amount held in cold |
|
27.9 |
|
13.4 |
|
15.8 |
|
17.5 |
|
39.7 |
|
33.1 |
|
50.8 |
|||||||
Amount held in hot |
|
3.9 |
|
1.9 |
|
2.0 |
|
1.6 |
|
3.6 |
|
2.2 |
|
3.8 |
|||||||
Amount deposited with counterparties |
|
2.3 |
|
1.1 |
|
1.1 |
|
0.3 |
|
0.8 |
|
0.4 |
|
0.7 |
The following table shows the amount of borrowed crypto assets by crypto asset as of March 31, 2022, September 30, 2022, March 31, 2023, September 30, 2023, March 31, 2024, September 30, 2024 and December 31, 2024:
As of |
As of |
As of |
As of |
As of |
As of |
As of |
|||||||||||||||
(in billions of yen) |
|||||||||||||||||||||
BTC |
¥ |
19.8 |
¥ |
9.6 |
¥ |
11.8 |
¥ |
12.6 |
¥ |
32.6 |
¥ |
28.0 |
¥ |
39.7 |
|||||||
ETH |
|
6.7 |
|
2.7 |
|
3.3 |
|
3.2 |
|
6.2 |
|
3.9 |
|
5.5 |
|||||||
XRP |
|
3.4 |
|
2.2 |
|
2.2 |
|
2.2 |
|
2.9 |
|
2.5 |
|
8.1 |
|||||||
IOST |
|
1.4 |
|
0.4 |
|
0.4 |
|
0.2 |
|
0.4 |
|
0.2 |
|
0.2 |
|||||||
ENJ |
|
0.5 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.0 |
|
0.0 |
|||||||
XEM |
|
0.3 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.0 |
|
0.0 |
|||||||
XLM |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.2 |
|||||||
BCH |
|
0.2 |
|
0.1 |
|
0.1 |
|
0.2 |
|
0.4 |
|
0.2 |
|
0.3 |
|||||||
ETC |
|
0.2 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.2 |
|
0.1 |
|
0.1 |
|||||||
LSK |
|
0.2 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.0 |
|
0.0 |
|||||||
LTC |
|
0.2 |
|
0.1 |
|
0.2 |
|
0.1 |
|
0.2 |
|
0.1 |
|
0.2 |
91
As of |
As of |
As of |
As of |
As of |
As of |
As of |
|||||||||||||||
(in billions of yen) |
|||||||||||||||||||||
BAT |
|
0.2 |
|
0.1 |
|
0.1 |
|
0.0 |
|
0.1 |
|
0.0 |
|
0.1 |
|||||||
QTUM |
|
0.2 |
|
0.1 |
|
0.1 |
|
0.0 |
|
0.1 |
|
0.0 |
|
0.1 |
|||||||
OMG |
|
0.1 |
|
0.1 |
|
0.1 |
|
0.0 |
|
0.0 |
|
0.0 |
|
0.0 |
|||||||
MONA |
|
0.1 |
|
0.0 |
|
0.0 |
|
0.0 |
|
0.0 |
|
0.0 |
|
0.0 |
|||||||
Others |
|
0.6 |
|
0.2 |
|
0.2 |
|
0.1 |
|
0.5 |
|
0.3 |
|
0.3 |
|||||||
Total borrowed crypto assets |
¥ |
34.0 |
¥ |
16.2 |
¥ |
18.8 |
¥ |
19.1 |
¥ |
44.0 |
¥ |
35.5 |
¥ |
55.0 |
Accordingly, a substantial majority of borrowed customer assets (IFRS) are held in cold wallets controlled by us and are available to meet our obligation to return crypto assets at the end of the relevant borrowing period. We monitor the risk related to crypto assets held in hot wallets or deposited with cover counterparties closely, and our policy is to restrict such amounts to the level necessary to support our operations. As of December 31, 2024, our crypto assets held (current assets) were ¥55,299 million, of which crypto assets borrowed from customers accounted for ¥54,971 million. As of December 31, 2024, the aggregate of crypto assets held in hot wallets and crypto assets deposited with our cover counterparties was ¥4.5 billion, as compared to our cash and cash equivalents of ¥9.5 billion.
Borrowing cryptocurrencies from our customers enables us to facilitate trading on our Marketplace platform at a lower cost than procuring from alternate sources. The terms of the borrowing arrangements also limit our exposure to the price risk of the underlying crypto assets, because we return such crypto assets in kind at the end of the borrowing period. Both our crypto assets held in current assets and our crypto asset borrowings are reported at fair value so the impact of price changes in the underlying crypto assets are offset. We utilize borrowed crypto assets to facilitate the prompt execution of cover transactions before we subsequently transfer the subject crypto assets to or from customers’ segregated cold wallets. We do not use borrowed crypto assets for proprietary trading or to enter into unhedged positions. We have not experienced difficulties in borrowing crypto assets from our customers or in executing cover transactions with our cover counterparties in order to support the operation of our Marketplace platform. Nevertheless, in the event that borrowing from our customers becomes limited or unavailable, we would secure the crypto assets necessary to facilitate the operation of our Marketplace platform by borrowing from third parties. However, there is no guarantee that we would be able to find third parties to borrow enough amount of crypto assets from, in which case we will purchase and hold such crypto assets, exposing us to price fluctuation risk to the extent of such holdings. In our Marketplace platform trading operations, we limit our net open position at any given time by setting policy threshold amounts for each cryptocurrency supported and executing cover transactions when the relevant threshold is reached.
We have not invested in cryptocurrencies for our own account, but we may do so in the future. In addition, the ¥22 million of crypto assets we held for use included in non-current assets as of December 31, 2024, consisted of a Build and Build, a crypto currency.
Under IFRS, there are no accounting standards related to the transactions of crypto assets. In order to determine the accounting treatment, we follow the requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and refer to the conceptual framework for financial reporting, and standards related to similar matters. In this context, we consider various factors to evaluate whether we have control for accounting purposes over crypto assets, and account for these transactions accordingly. See Note 8 to our financial statements for the nine months ended December 31, 2024 included elsewhere in this prospectus for more information on our accounting treatment for our crypto assets held.
Under the Payment Services Act, we are defined as a CAESP and are subject to certain regulations of the management of the crypto assets of our customers. For example, we must segregate all such fiat currency and cryptocurrencies of our customers from our own property, keep any cryptocurrencies and our own assets in separate wallets and keep at least 95% of our customers’ cryptocurrencies in wallets that are not connected to the internet, or “cold wallets.” For more information on the regulations applicable to our business and our holdings of crypto assets, see “Business — Regulation.”
92
Accordingly, the cryptocurrencies deposited by customers are mainly held in such electronic wallets administered by us. Although we have the private key that is necessary to dispose of cryptocurrencies deposited by customers, we are obliged to purchase and sell the cryptocurrencies at the instructions of the customers based on the contractual arrangement with the customers. In addition, we clearly distinguish between the wallets for our holdings of cryptocurrencies on our own account and the wallets for those deposited by customers and manage them separately.
As of December 31, 2024, we recorded ¥1,033,997 million of safeguard liabilities on our condensed consolidated interim statements of financial position with respect to the obligation to safeguard our customers’ crypto assets, which included ¥637,802 million of Bitcoin, ¥134,863 million of Ethereum, and ¥261,332 million of other crypto assets. Crypto assets that are deposited by customers and considered not to be controlled by us are not recognized as crypto assets in our condensed consolidated interim statements of financial position. However, we recognize our obligation to safeguard customers’ crypto assets as safeguard liabilities in the condensed consolidated interim statements of financial position and record corresponding safeguard assets in the condensed consolidated interim statements of financial position. Because we safeguard customers’ cryptocurrencies in accordance with the requirements of the Payment Services Act, the Cabinet Office Ordinance on Virtual Currency Exchange Service Providers, and other laws and regulations, we estimate that the possibility of potential loss events is remote. Therefore, the corresponding safeguard assets were recognized at the same amount as the safeguard liabilities as of December 31, 2024. See Note 9 to our financial statements as of and for the nine months ended December 31, 2024, included elsewhere in this prospectus.
Airdrops and forks are events that are unique to our business. As these events occur independently of our decision-making process, it is challenging for us to comprehensively understand and value each specific airdrop or fork. We have limited ability to predict whether the sale of cryptocurrencies received from airdrops or forks will be material to our future earnings, which is dependent on the future market viability and fair value of such cryptocurrencies. On the other hand, for airdrops and forks that may have a significant impact, we consider granting such crypto assets to our customers depending on the volume of cryptocurrencies deposited with us. When considering whether or not to grant such cryptocurrencies to customers, we first confirm that the cryptocurrencies can be transferred securely, and after such confirmation, we recognize the granted cryptocurrencies based on the active-market price of such asset. Under our current policy, we do not monetize any cryptocurrencies granted through airdrops and forks that have not yet been granted to customers.
Sales of a substantial number of Ordinary Shares in the public market by the Selling Securityholders and/or by our other existing securityholders, or the perception that those sales might occur, could depress the market price of our Ordinary Shares and could impair our ability to raise capital through the sale of additional equity securities. The BCA Selling Securityholders acquired the BCA Ordinary Shares covered by this prospectus at prices ranging from ¥18.86 ($0.13) per Ordinary Share to $1.55 (¥226.25) per Ordinary Share. By comparison, the offering price to public shareholders in Thunder Bridge’s initial public offering was $10.00 per unit, which consisted of one Ordinary Share and one fifth of one Public Warrant. Consequently, certain Selling Securityholders may realize a positive rate of return on the sale of their Ordinary Shares covered by this prospectus even if the market price of the Ordinary Shares is below $10.00 per Ordinary Share. Given the substantial number of securities being registered for potential resale by the Selling Securityholders pursuant to this registration statement, the sale of such securities by the Selling Securityholders, or the perception in the market that the Selling Securityholders may or intend to sell all or a significant portion of such securities, could increase the volatility of the market price of our Ordinary Shares or Warrants or result in a significant decline in the public trading price of our Ordinary Shares or Warrants. A decline in the market price of our Ordinary Shares, resulting from sale of all or substantial amounts of the Ordinary Shares or Warrants being offered in this prospectus, or the perception in the market that the Selling Securityholders may or intend to sell all or a significant portion of such securities, could adversely affect our ability to issue additional securities and our ability to raise additional capital on acceptable terms at a time that we deem appropriate or at all in the future. See “Risk Factors — Certain existing securityholders purchased securities in the Company at a price below the current trading price of such securities, and may experience a positive rate of return based on the current trading price. Future investors may not experience a similar rate of return” and “— The Ordinary Shares being registered in this prospectus represent a substantial percentage of our public float and of our outstanding Ordinary Shares, and the sale of such shares could cause the market price of our Ordinary Shares to decline significantly, even if our business is doing well.” for more details.
93
In addition, following the Business Combination, we had 4,860,148 Warrants outstanding, each exercisable at $11.50 per one Ordinary Share. Whether holders will exercise their Warrants, and therefore the amount of cash proceeds we would receive upon exercise, is dependent upon the trading price of the Ordinary Shares. On April 8, 2025, the last reported sale price of our Ordinary Shares was $4.37 per share. Those Warrants may not be, or remain, in the money during the period they are exercisable and they may not be exercised prior to their maturity even if they are in the money, and as such, we may receive minimal proceeds, if any, from the exercise of Warrants. To the extent that any of the Warrants are exercised on a “cashless basis,” we will not receive any proceeds upon such exercise. As a result, we do not expect to rely on the cash exercise of Warrants to fund our operations and we do not need such proceeds in order to support working capital and capital expenditure requirements for the next twelve months. Instead, we intend to rely on the sources of cash described herein and elsewhere in this prospectus, if available on reasonable terms or at all.
Our future capital requirements will depend on many factors, including market acceptance of crypto assets and blockchain technology, our growth, our ability to attract and retain customers on our cryptocurrency exchanges, the continuing market acceptance of products and services, the introduction of new products and services on our cryptocurrency exchanges, expansion of sales and marketing activities, and overall economic conditions. While we believe we have sufficient liquidity and expect to have funds from operations to support our operations and meet our current business plans, we may be required to seek additional funding to the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities. We expect to monitor financial conditions and from time to time may opportunistically raise additional funds through the offer and sale of equity securities or incurrence of debt financing. Any sale of additional equity securities may result in additional dilution to our shareholders. Any incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. In the event that additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition could be adversely affected.
Cash flows
The following tables show our cash flow data for the years ended March 31, 2022, 2023 and 2024 and for the nine months ended December 31, 2023 and 2024:
For the year ended |
For the nine months ended |
|||||||||||||||||||
2022 |
2023 |
2024 |
2023 |
2024 |
||||||||||||||||
(in millions of yen) |
||||||||||||||||||||
Net cash provided by (used in) operating activities |
¥ |
7,403 |
|
¥ |
(3,803 |
) |
¥ |
3,902 |
|
¥ |
1,643 |
|
¥ |
(144 |
) |
|||||
Net cash used in investing activities |
|
(219 |
) |
|
(749 |
) |
|
(435 |
) |
|
(292 |
) |
|
(524 |
) |
|||||
Net cash (used in) provided by financing activities |
|
(6,649 |
) |
|
(5,455 |
) |
|
(327 |
) |
|
(182 |
) |
|
2,558 |
|
|||||
Effect of exchange rate changes on cash |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(54 |
) |
|||||
Net increase (decrease) in cash and cash equivalents |
|
535 |
|
|
(10,007 |
) |
|
3,140 |
|
|
1,169 |
|
|
1,836 |
|
|||||
Cash and cash equivalents at the beginning of the year or the period |
|
17,169 |
|
|
17,704 |
|
|
7,697 |
|
|
7,697 |
|
|
10,837 |
|
|||||
Cash and cash equivalents at the end of the year or the period |
|
17,704 |
|
|
7,697 |
|
|
10,837 |
|
|
8,866 |
|
|
12,673 |
|
Comparison of nine months ended December 31, 2024 with the nine months ended December 31, 2023
In the nine months ended December 31, 2024, we had ¥(144) million net cash used in operating activities, ¥(524) million net cash used in investing activities, and ¥2,558 million net cash provided by financing activities. Additionally, there is a ¥(54) million effect of exchange rate changes on cash. As a result, cash and cash equivalents at the end of the nine months ended December 31, 2024, increased by ¥1,836 million to ¥12,673 million, from ¥10,837 million at the end of the year ended March 31, 2024.
94
Net cash used in operating activities was ¥144 million in the nine months ended December 31, 2024, a change of ¥1,842 million from net cash provided by operating activities of ¥1,643 million in the nine months ended December 31, 2023. This change was due to a decrease in net profit before tax after considering non-cash operating adjustments of ¥991 million. This decrease primarily relates to an increase of professional fees in connection with the closing of the Reverse Recapitalization. Additionally, there was an increase in our Crypto assets held, other financial assets, and other current assets of ¥5,426 million. This was partially offset by increases in our crypto asset borrowings and other financial liabilities of ¥4,729 million.
Net cash used in investing activities was ¥524 million in the nine months ended December 31, 2024, compared to ¥292 million in the nine months ended December 31, 2023. Net cash used in investing activities mainly consisted of ¥164 million of property and equipment purchases (compared to ¥4 million in the prior period), ¥393 million of expenditure on internally generated intangible assets (compared to ¥268 million in the prior period).
Net cash provided by financing activities was ¥2,558 million in the nine months ended December 31, 2024, compared to cash used in financing activities of ¥182 million in the previous year, which was due primarily to an increase in borrowings from related parties and proceeds from the Reverse Recapitalization.
Comparison of the year ended March 31, 2024 with the year ended March 31, 2023
In the year ended March 31, 2024, we had ¥3,902 million net cash provided by operating activities, ¥435 million net cash used in investing activities and ¥327 million net cash used in financing activities. As a result, cash and cash equivalents at the end of the year ended March 31, 2024 increased by ¥3,140 million to ¥10,837 million, from ¥7,697 million at the end of the year ended March 31, 2023.
Net cash provided by operating activities was ¥3,902 million in the year ended March 31, 2024, a change of ¥7,705 million from net cash used in operating activities of ¥3,803 million in the previous year. This change was due to a profit before income taxes of ¥2,840 million (compared to a loss before income taxes of ¥846 million in the prior period), an increase in deposits received of ¥18,218 million (compared to a decrease of ¥15,287 million in the prior period), an increase in crypto asset borrowings of ¥25,264 million (compared to a decrease of ¥15,270 million in the prior period), partially offset by an increase in cash segregated as deposits of ¥18,320 million (compared to a decrease of ¥14,552 million in the prior period) and an increase in crypto assets held (current assets) of ¥25,093 million (compared to a decrease of ¥15,115 million in the prior period).
Net cash used in investing activities decreased by ¥314 million to ¥435 million in the year ended March 31, 2024, from ¥749 million in the previous year. This decrease was due in part to proceeds from refund of guarantee deposits of ¥155 million and the sale of business, net of cash and cash equivalents divested of ¥281 million.
Net cash used in financing activities decreased by ¥5,128 million to ¥327 million in the year ended March 31, 2024, from ¥5,455 million in the previous year. This decrease was due mainly to the absence of cash dividends paid (compared to ¥5,000 million in the prior period) in the year ended March 31, 2024.
Comparison of the year ended March 31, 2023 with the year ended March 31, 2022
In the year ended March 31, 2023, we had ¥3,803 million net cash used in operating activities, ¥749 million net cash used in investing activities and ¥5,455 million net cash used in financing activities. As a result, cash and cash equivalents at the end of the year ended March 31, 2023 decreased by ¥10,007 million to ¥7,697 million, from ¥17,704 million at the end of the year ended March 31, 2022.
Net cash used in operating activities increased by ¥11,206 million to ¥3,803 million in the year ended March 31, 2023, from net cash provided by operating activities of ¥7,403 million in the previous year. This increase was due to a loss before income taxes of ¥846 million (compared to a profit before income taxes of ¥13,918 million in the prior period), a decrease in deposits received of ¥15,287 million (compared to an increase of ¥5,950 million in the prior period), a decrease in crypto asset borrowings of ¥15,270 million (compared to an increase of ¥5,939 million in the prior period), partially offset by a decrease in cash segregated as deposits of ¥14,552 million (compared to an increase of ¥6,006 million in the prior period) and a decrease in crypto assets held (current assets) of ¥15,115 million (compared to an increase of ¥5,926 million in the prior period).
95
Net cash used in investing activities increased by ¥530 million to ¥749 million in the year ended March 31, 2023, from ¥219 million in the previous year. This increase was due in part to an increase in purchase of intangible assets of ¥298 million (compared to ¥182 million in the prior period), our payment for guarantee deposits of ¥225 million and sale of shares of subsidiary, net of cash and cash equivalents divested of ¥81 million.
Net cash used in financing activities decreased by ¥1,194 million to ¥5,455 million in the year ended March 31, 2023, from ¥6,649 million in the previous year. This decrease was due mainly to lower cash dividends paid of ¥5,000 million (compared to ¥7,000 million in the prior period).
Contractual Obligations and Commitments
The following table sets forth our aggregate annual maturities of loans and lease liabilities for the next several years, as of March 31, 2024:
Carrying |
Contractual |
Within |
Within |
Within |
More than |
|||||||||||||
(in millions of yen) |
||||||||||||||||||
Lease liabilities |
¥ |
1,661 |
¥ |
1,687 |
¥ |
394 |
¥ |
384 |
¥ |
356 |
¥ |
553 |
||||||
Total |
¥ |
1,661 |
¥ |
1,687 |
¥ |
394 |
¥ |
384 |
¥ |
356 |
¥ |
553 |
Off-Balance Sheet Arrangements
During the periods presented, we did not have, and we do not currently have, any off-balance sheet financing arrangements or any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
96
Overview
We operate one of the largest multi-cryptocurrency marketplaces and exchanges in Japan and are regulated by the JFSA. We are a leader in the Japanese crypto exchange industry, providing Marketplace and Exchange platforms on which diverse cryptocurrencies, including Bitcoin and Ethereum, are held and exchanged, and offering other retail-focused crypto services. We are also increasing Japanese users’ access to innovative digital products and solutions beyond cryptocurrencies, such as non-fungible tokens (“NFTs”), and seek to enable Japanese users to access the benefits of emerging new technologies. We believe we are well positioned to benefit from increasing adoption of cryptocurrencies and other new technologies within the world’s fourth largest economy.
We estimate that 18.6% of cryptocurrency users in Japan have a verified Coincheck account, or approximately 2.2 million users as of December 31, 2024, based on data compiled by the JVCEA. We believe that our users choose us due to our trusted and recognized brand, robust product offering and strong customer service. Approximately 51% of these accounts are held by customers under 40 as of December 31, 2024, providing the opportunity for our business to grow alongside our customers as they reach their prime earning years. We believe that this, combined with our constant innovation and robust KYC/AML and compliance infrastructure, positions us to capitalize on the potential growth of the Japanese crypto economy.
We derive most of our total revenue from trading on our Marketplace platform business. We support trading in 31 different types of cryptocurrencies across all our Marketplace and Exchange platforms as of December 31, 2024. We also continue to be an innovator in the Japanese crypto economy to ensure that Japanese customers and institutions have broad access to the latest technological developments. We conducted Japan’s first IEO during 2021 and have launched a marketplace for NFTs, which we expect to have synergies with our other businesses. Our smartphone application is our main point of contact with our customers, and we believe it provides a user friendly experience with sophisticated UI/UX. To maintain the quality of customer experience we offer, we continuously invest in flexible system and software development, and engineers accounted for 37.1% of our staff as of December 31, 2024.
We believe our combination with Thunder Bridge Capital Partners IV, Inc. will enable us to access international capital markets, which will help us to finance accelerated growth through increased customer acquisition, additional innovation in crypto asset solutions, and increased opportunities for customers and institutions to more deeply access the crypto economy. Under the Coincheck Parent holding company structure, we will have the ability to establish independent subsidiaries focused on crypto asset-adjacent business opportunities. We will also have the ability to enhance hiring and retention via equity compensation incentives to further support our competitiveness in our target markets.
We have identified several growth opportunities that may be pursued organically or accelerated through M&A or partnerships, including:
• continuing to grow our customer base and revenue to retain our leading market position, to build on our first-of-its-kind IEO launch and to expand supported crypto asset coverage;
• accelerating our development of NFT platforms in Japan, including by partnering with content creators and gaming companies;
• building new Web3 services supporting the Coincheck crypto asset ecosystem both organically and through mergers and acquisitions;
• capturing nascent and growing institutional interest, capitalizing on our trusted brand name within Japan and in the overall global crypto economy;
• continuing to explore new financial service businesses that would appeal to our young customer base, such as payments and commerce enablement; and
• seeking to provide and explore additional on-ramp services between fiat and crypto assets, and various user applications.
97
As of March 31, 2022, 2023 and 2024 and December 31, 2024, our customer assets (IFRS) were ¥485 billion, ¥330 billion, ¥708 billion and ¥1,096 billion, respectively. Our marketplace trading volume was ¥568.4 billion, ¥157.1 billion, ¥234.6 billion and ¥245.6 billion during the years ended March 31, 2022, 2023 and 2024 and the nine months ended December 31, 2024, respectively.
Our Mission
Our mission is to increase the accessibility of new forms of investing and commerce for our highly-engaged customer base. With Japan as our first and only current market, we believe that in achieving our mission we will also contribute to the revitalization of the Japanese economy. In pursuit of our mission, we will continue to create crypto asset solutions that enable our users to access and transact utilizing crypto assets and blockchain technologies. Since the launch of our crypto exchange in 2014, we have provided our young, highly-engaged retail customer base with the opportunity to become familiar with crypto assets by offering a service that is easy to use for anyone, regardless of financial or technological literacy.
Our History
After our establishment in 2012 as ResuPress K.K., we launched our crypto asset trading service, “Coincheck” in 2014 and subsequently changed our corporate name to Coincheck, Inc. in 2017.
In April 2018, we were acquired by Monex Group, Inc., or Monex, for ¥3.6 billion. At the time of the acquisition, we were implementing ongoing improvements to our security systems to strengthen customer protection and corporate governance through more fully developed risk management systems following a cybersecurity incident in January 2018 in which our NEM hot wallet was hacked and we lost 526.3 million NEM, or ¥46.6 billion, of customer funds. Although we compensated customers who were adversely affected by the cybersecurity incident, we were subject to lawsuits relating to the calculation of the compensation provided. Some of these lawsuits have been resolved by judgment or alternative dispute resolutions but as of December 31, 2024 there is one remaining lawsuit demanding approximately ¥5 million.
In part as a response to this cybersecurity incident, as well as similar hacking incidents that occurred at other cryptocurrency exchanges at around the same time, we joined with the 16 domestic cryptocurrency exchanges in operation in Japan as of March 2018, to form the JVCEA in order to strengthen rules in the industry to prevent future incidents. In October 2018, the JFSA granted the cryptocurrency industry in Japan self-regulatory status, giving the JVCEA the ability to establish standardized operating procedures, including the ability to set guidelines on the crypto assets that may be traded by exchange operators. The JFSA also authorized the JVCEA to monitor and penalize Japanese cryptocurrency exchanges for noncompliance.
After the consummation of the acquisition, Monex worked closely with the JFSA to further implement heightened security measures and better corporate governance. As part of these initiatives, Monex also engaged a financial cybersecurity consulting firm to conduct a holistic review of our processes and system architecture, allowing us to further improve the security of our cryptocurrency exchanges. Under Monex’s control, we also appointed four new directors and three corporate auditors, as well as seven executive officers. These appointments helped to strengthen the supervisory function of the Board of Directors and to improve the independence of auditing matters through the expertise of outside members, and the clarification of this separation of supervision and execution of business matters in order to reinforce our overall management control system. Additionally, we amended our Bylaws in order to transition to become a company that has an audit and supervisory board and created a new management strategy and plan to focus on strengthening our security and governance in order to ensure customer protection and rebuild customer trust. Furthermore, we improved management of segregated customer assets by monitoring such assets on an ongoing basis as well as discussing and reporting them monthly at compliance committee meetings attended by external law firms and full-time audit and supervisory board members.
We also improved our risk management policies pursuant to which our risk committee monitors on a monthly basis the state of development and operation of our risk management system as a whole, including by monitoring our financial risk by confirming our positions on a daily basis, monitoring our credit risk by verifying our positions held against a limit amount determined with respect to each cover counterparty, and monitoring our liquidity risk by confirming the supply of each crypto asset and the corresponding number of transactions on a daily basis since October 2018. We also reviewed our risk assessment criteria for crypto assets and amended and restated our criteria for handling crypto assets in February and March 2018, and of the 13 types of crypto assets that were handled prior to the cybersecurity incident, we stopped the handling of four types of crypto assets based on our revised criteria.
98
In January 2019, after these significant improvements to our risk management and governance systems, we received a license as a crypto asset exchange service provider from the JFSA and registered with the Kanto Financial Bureau under the Payment Services Act. We are also a member of the Japan Cryptoasset Business Association. We intend to continue to actively work with all of our regulators to improve the regulatory standards of crypto assets in Japan, and Coincheck’s Chairman, Representative Director & Executive Director, Satoshi Hasuo, currently serves as a director of the JVCEA. See “— Regulatory Environment.”
Our Market Opportunity
Crypto assets are becoming more accepted as a new asset class.
Since 2020, the number of institutional investors who regard crypto assets as a meaningful investment class has been expanding rapidly, mainly in North America. We believe the entry of traditional institutional investors is not to engage in speculative short-term trading, but because they increasingly accept the premise that crypto assets form part of a diversified asset portfolio to be held over the medium- to long-term. A significant development occurred in October 2021 when an exchange-traded fund (ETF) linked to Bitcoin futures, the ProShares Bitcoin Strategy ETF, began trading after approval by the United States Securities and Exchange Commission. The trading on the first day after listing exceeded $1 billion and this and future similar vehicles may have a major impact on the crypto asset market. In addition, traditional financial institutions such as Fidelity Investments and BNY Mellon have announced their entry into the custody business that could underpin broad-based investment in crypto assets. In September 2024, BNY Mellon received a “no-objection” letter from the SEC in response to its request to safeguard digital assets without the need to classify them as balance-sheet liabilities, creating a pathway to providing cryptocurrency custody services for institutional investors. In Japan as well, Nomura has announced its entry into the crypto asset custody business and Mitsubishi UFJ Trust has also announced its intention to settle securities transactions by using blockchain for trading and cryptocurrency for payment, and we anticipate that the infrastructure for institutional investors in Japan that wish to conduct transactions in crypto assets will continue to improve over time. Following a high for the value of Bitcoin during November 2021, the value of Bitcoin and many other crypto assets decreased significantly during 2022, including declines seen in November 2022 following the Chapter 11 bankruptcy filing of FTX Trading Ltd., a Bahamas-based cryptocurrency exchange, and allegations of fraud and mismanagement of funds against its founder and former CEO, which has created heightened uncertainty about the markets for crypto assets and calls for improved global regulation. The FTX bankruptcy has highlighted risks and abusive market practices and led to financial difficulties at other global crypto asset market participants. In addition, in the United States, Coinbase announced that it received a “Wells Notice” from the SEC recommending an enforcement action alleging the violation of federal securities laws on March 22, 2023, while the CFTC filed an enforcement action against Binance alleging the violation of the Commodity Exchange Act and CFTC regulations on March 27, 2023. On June 5, 2023, the SEC filed a civil complaint in the U.S. District Court for the District of Columbia against Binance and other related entities, as well as Changpeng Zhao, Binance’s co-founder and CEO. The complaint consists of thirteen charges, including misleading investors and operating as an unregistered securities exchange, broker and clearing agency in violation of U.S. securities laws. Furthermore, on June 6, 2023, the SEC filed a complaint in the U.S. District Court for the Southern District of New York against Coinbase for operating as an unregistered securities exchange, broker and clearing agency, and for the unregistered offer and sale of securities in connection with its staking-as-a-service program. On November 2, 2023, Sam Bankman-Fried, the founder of FTX, was found guilty of all seven criminal counts of fraud against him, and on November 21, 2023, Binance and Changpeng Zhao, the co-founder and CEO of Binance, pled guilty to federal criminal charges that Binance violated and caused a financial institution to violate the Bank Secrecy Act, with Binance entering into a $4.3 billion settlement with the U.S. Justice Department in addition to the confiscation of certain assets and Changpeng Zhao stepping down as CEO and accepting an individual fine of $50 million. On May 31, 2024, Japanese crypto exchange operator DMM Bitcoin announced that it had lost 4,502.9 Bitcoin (approximately ¥48.2 billion) of customer assets held in cold wallets as a result of a hacking incident in which such assets were transmitted outside of the company through an “unauthorized leak.”
On June 27, 2024, Coinbase filed lawsuits against both the SEC and the FDIC in order to shed light on their approaches to regulation in the industry and gain access to internal records to uncover alleged efforts by the financial regulators to pressure financial institutions to deny crypto firms access to the federal banking system. On July 1, 2024, the SEC filed suit against Silvergate, the parent company of a bank which allegedly helped to facilitate fraud at FTX before its collapse, former CEO Alan Lane and former Chief Risk Officer Kathleen Fraher, claiming that they misled investors regarding the strength of Silvergate’s Bank Secrecy Act/Anti-Money Laundering compliance program and the monitoring of crypto customers, including FTX, by Silvergate’s wholly owned subsidiary, Silvergate Bank. The SEC also charged Silvergate and its former Chief Financial Officer, Antonio
99
Martino, with misleading investors about Silvergate’s losses from expected securities sales following the collapse of FTX. All parties charged, with the exception of Antonio Martino, have agreed to settle with the SEC. On July 2, 2024, in relation to the civil complaint filed by the SEC against Binance and other related entities, a U.S. federal court dismissed several claims, including that Binance’s fiat-backed stablecoin, BUSD, qualifies as an investment contract, although certain other claims by the SEC were allowed to proceed.
On August 7, 2024, Ripple Labs was fined $125 million in relation to the complaint initially filed by the SEC in December 2020 with respect to the institutional sales of the XRP token, which a Manhattan court judge ruled were unregistered securities offerings; the SEC has since filed an appeal. On September 24, 2024, the SEC spoke before the United States Congress to address concerns surrounding the impediment of financial innovation and reduction of consumer protections related to the SEC’s new rules on digital asset custody under SAB 121. On September 27, 2024, the SEC gave “no-objection” to the Bank of New York Mellon’s request to safeguard digital assets without needing to list them as balance sheet liabilities, as was previously required under SAB 121, and which many financial institutions view as restrictive, and as a result could lead to an increase in the number of financial institutions able to target institutional clients wanting to invest in digital assets through ETFs. On September 27, 2024, the SEC also filed settled charges against Mango DAO and Blockworks Foundation for engaging in the unregistered offer and sale of crypto assets called “MNGO” tokens, as well as settled charges against Blockworks Foundation and Mango Labs LLC for engaging in unregistered broker activity in connection with various crypto assets being offered and sold as securities on the Mango Market platform. On May 31, 2024, Japanese crypto exchange operator DMM Bitcoin announced that it had lost 4,502.9 Bitcoin (approximately ¥48.2 billion) of customer assets held in cold wallets as a result of a hacking incident in which such assets were transmitted outside of the company through an “unauthorized leak.” As a result, on September 26, 2024, Japan’s Kanto Local Finance Bureau issued a business improvement order to DMM Bitcoin which required DMM Bitcoin to, among other things, investigate the root causes of the incident, adequately compensate affected customers and improve the risk management systems of the company. On February 21, 2025, Dubai-based cryptocurrency exchange Bybit announced it had detected unauthorized activity related to ETH cold wallets, and this sophisticated attack led to the transfer and possible loss of over 400,000 ETH worth approximately $1.5 billion.
In reaction to these recent developments, over the long term we expect the legal and regulatory environment surrounding crypto assets to develop further in order to regulate intermediaries to ensure market integrity and user protection.
The cryptocurrency markets have grown significantly despite recent declines from highs reached in late 2021.
The total global market capitalization of crypto assets increased from approximately $1.1 billion to approximately $3.2 trillion between June 30, 2013 and December 31, 2024, equivalent to a CAGR of over 100%.
(Source: CoinMarketCap)
100
Based on a report entitled “Digital Currency and Securities Structure and Practice” in 2021 by KPMG Japan, Anderson Mori & Tomotsune, Foreign Law Joint Enterprise, Tomokazu Sekiguchi and Ken Kawai (pgs. 24-30), the following discussion summarizes recent developments in the cryptocurrency markets.
The crypto asset market experienced rapid expansion beginning in 2017, with a market capitalization of approximately ¥86.6 trillion globally on January 8, 2018, an increase of 50 times from a market capitalization of approximately ¥1.8 trillion exactly one year prior on January 8, 2017. During this period of growth, the market participants consisted mainly of individual investors, and with the exception of Japan, few countries had clear regulations surrounding crypto assets, whose legal status was not yet clearly defined. From a business perspective, the main focus was on crypto asset exchanges, which raised funds by issuing crypto assets and provided a secondary market for retail investors. During this period, the use of Bitcoin for payments, which was the original purpose of these exchanges, did not progress, and the market became dominated by speculative trading.
After this period of expansion, two of the most significant changes in the crypto asset market were the gradual development of laws and regulations surrounding crypto assets as well as the formation of the ecosystems necessary to conduct business with crypto assets, including the diversification of market participants. The diversification of market participants can be seen in the trends in the market capitalization of the crypto asset market. For example, the lowest market capitalization since early 2018 was approximately ¥10.7 trillion, which is approximately eight times higher than the market capitalization of approximately ¥1.8 trillion on January 8, 2017, just before the period of rapid expansion. In addition to the growth in market capitalization, one of the main features of the crypto asset market during this period was the increase in trading volume. For example, the 24-hour trading volume peaked at ¥6.9 trillion on January 5, 2018, but since 2019 the volume has continued to grow and has regularly exceeded ¥10 trillion, occasionally exceeding ¥30 trillion, surpassing the volume of transaction seen during the peak in 2018. Developments in crypto asset ecosystems include the entry of institutional investors and the creation of futures markets. Other improvements in the market include the development of related businesses, such as custody services for storing crypto assets, the composition of indexes based on crypto asset price information, the development of accounting and taxation systems and the increase of lawyers and other professionals knowledgeable in the area.
Following a high for the value of Bitcoin during November 2021, the value of Bitcoin and many other crypto assets traded on our Marketplace platform decreased significantly and remained low through September 30, 2022 and there has been a trend of declining trading volume. The prices of some crypto assets have recovered since November 2022 following the Chapter 11 bankruptcy filing of FTX and allegations of fraud and mismanagement of funds in November 2022. In the second half of 2024 through January 2025, the price of Bitcoin rose further to several record highs, with some exchanges quoting over ¥16,000,000 per Bitcoin in January 2025. The prices of many crypto assets have continued to remain highly volatile. Despite the volatility in prices, we believe the crypto asset markets continue to hold potential for future growth. There has been a structural shift in the market brought about by the spread of decentralized systems. As a result of this shift, we expect the legal and regulatory environment surrounding crypto assets to develop further in order to regulate intermediaries to ensure market integrity and user protection. It is not clear at this time what alternative legal and/or regulatory approach will be adopted, however it may result in direct regulation of end users. Alternatively, hybrid regulatory approaches may be adopted, where end users will be subject to direct regulation unless they engage in the crypto asset markets through regulated service providers which will themselves be subject to direct regulation.
101
The Japanese cryptocurrency market is a large and underpenetrated market, representing a compelling opportunity in East Asia.
Considerable transaction volume of cryptocurrencies on exchanges in Japan.
Japan’s domestic cryptocurrency market has had periods of strong transaction volume despite recent periods of volatility. In September 2024, the cash trading volume on domestic cryptocurrency exchanges, including our cryptocurrency exchanges, was approximately ¥2.8 trillion, after reaching much higher volumes during 2021. The below graph illustrates recent trends in trading volume:
Source: Created by us based on public information made available by the JVCEA.
Potential for growth in the number of registered accounts
According to the Japan Securities Dealers Association, the number of brokerage accounts held by individuals in Japan was approximately 37 million as of September 30, 2024. However, according to the JVCEA, there were only approximately 11.8 million accounts engaged in trading of crypto assets, including both physical transactions and margin trading, as of December 31, 2024. We believe this shows real potential for growth in investment and trading of crypto assets by Japanese individuals.
While Japan is the fourth largest global economy, only 7.7% of the Japanese population owns crypto assets as of February 2024 (versus 17% of the United States population as of January 2024), according to data from the JVCEA and Morning Consult. We believe that this shows the potential for further development of the Japanese crypto asset market. We believe that the Japanese public is highly engaged and willing to participate in the crypto asset revolution and encouraged by the country’s thoughtful crypto regulation model, which is designed around protecting the consumer. In addition, there is a large opportunity to cater to institutional demand in a market with significant regulatory, language, and cultural barriers to entry. Declines in crypto asset prices seen in 2022, negative
102
publicity following the bankruptcy of FTX in November 2022, recent lawsuits filed against large crypto exchanges in June 2023, recent settlements by crypto exchanges and convictions of prominent figures in the crypto industry in November 2023 and ongoing lawsuits by both the SEC and crypto industry leaders in early 2024, have impacted our monthly users, which is on a declining trend since its peak in the first quarter of the year ended March 31, 2022. However, we have continued to see growth in our number of verified accounts through December 31, 2024.
Selected Crypto Adoption Rankings
Source: The 2024 Geography of Cryptocurrency Report: Analysis of Geographic Trends in Cryptocurrency Adoption and Usage by Chainalysis, September 2024. Index of crypto adoption determined by rating 151 countries’ peer-to-peer exchange trade volume and on-chain cryptocurrency and retail value received at centralized exchanges and from DeFi protocols from 0 (lowest rank) to 1 (highest rank).
A well-developed, domestic regulatory environment for safe and secure trading.
While the legal status of crypto assets is unclear in many countries around the world, Japan was one of the first countries to define crypto assets in law and to introduce regulations for crypto asset exchanges, which serve as hubs for the trading and exchange of crypto assets in Japan. In April 2017, the revised Payment Services Act and the revised Act on Prevention of Transfer of Criminal Proceeds, which introduced a definition of virtual currency and a regulatory framework for virtual currency exchanges, came into effect, and cryptocurrency exchange businesses became subject to registration by the JFSA. The term “virtual currency” was later changed to “crypto assets” in accordance with the amendment to the Payment Services Act, which went into effect on May 1, 2020, although the requirements to qualify as a crypto asset remain unchanged. As a result, anti-money laundering (“AML”) and counter-terrorist financing (“CFT”) regulations began to be applied to cryptocurrency exchanges. Additionally, in order to protect users and enforce proper and reliable business practices, the JFSA’s administrative guidelines required cryptocurrency exchange companies to establish a system for examining how cryptocurrencies are handled and a system for appropriately verifying risks. In March 2018, the JVCEA was established and became a certified self-regulatory organization in October of the same year. The JVCEA formulates and publishes self-regulatory guidelines and rules in compliance with various JFSA guidelines to protect users and strengthen the AML/CFT system. Domestic cryptocurrency exchange companies and self-regulatory organizations are currently developing rules for AML/CFT systems and the establishment of an international framework of remittance rules is expected in the future in response to the Financial Action Task Force Recommendation 16 in the annual report of the Japan Financial Intelligence Center, an organization of the Japanese Police Agency. We believe that Japan’s robust regulatory environment has been developed ahead of other markets in the world, contributes to greater acceptance of crypto assets by Japanese individuals and places domestic exchanges in an advantageous position.
103
Our Strengths
We have a leading position in the Japanese retail market.
As of December 31, 2024, we had a significant share of the Japanese market, with 18.6% of domestic verified accounts, based on data provided by the JVCEA:
Source: Created by us based on public information made available by the JVCEA.
Our product and business strategy is driven in large part by our customer demographics, with broad token coverage, NFT support, and Web3 all appealing to millennials and later generations. One of our founding missions is to provide enhanced products and services to digital/mobile-native users in the crypto market. We provide our young, loyal retail customer base with exposure to crypto assets via a user-friendly crypto trading marketplace, mobile-native user interface (app), seamless KYC onboarding and a dedicated NFT marketplace. Our strong market position facilitates further brand recognition which helps us attract not only users, but also engineers and product developers. This allows us to continue to operate a consistent cycle of innovation and leadership. We also believe this brand recognition will be an advantage as we seek to develop the institutional market for crypto assets in Japan.
Our overall marketplace trading volume, and in particular our altcoin trading volume, grew dramatically as the global crypto asset industry saw growth in asset prices and trading volumes in 2021. During 2022, however, there were significant declines in the value of Bitcoin and many other crypto assets traded on our Marketplace platform and we have seen a declining trend in trading volume since then. The average share of trading volume of Bitcoin on all domestic platforms and exchanges during the nine months ended December 31, 2024 was approximately 71% according to the JVCEA, while the share of trading volume of Bitcoin on our marketplace (excluding our exchange) during the same period was approximately 43%. Our high proportion of altcoin share, which is significantly higher than the industry average in Japan, demonstrates the uniqueness of our Marketplace platform and provides benefits for our profitability and customer stickiness.
104
The below graphics further illustrate our overall trading volume, as well as trading volume composition as a result of our unique cryptocurrency composition:
Source: Internal data.
Source: Amounts for Coincheck represent trading on our Marketplace platform, amounts for Japan are derived from JVCEA data that include all types of exchanges, and amounts for Coinbase are taken from their public disclosure.
105
We have a young, highly-engaged customer base.
We believe a key long-term advantage of our business is our young customer base, with approximately 51% of verified accounts held by customers under 40 as of December 31, 2024. Our platform strongly aligns with our user base and with products and services that cater to a young demographic. As our users mature and grow their financial assets over time, we expect them to likewise grow their crypto assets with us. We also expect to deepen our relationships with our customers as we continue to innovate and launch more services to provide for their changing needs. Our customers in their 40s present a significant growth opportunity as well because they typically have greater assets and trade more frequently than our younger users.
The below graphics illustrate our users by age as of December 31, 2024:
Source: Internal data.
Our user-friendly platform and product offerings.
One of our key strengths is our ability to provide not only an intuitive and simple platform for first-time users who may be inexperienced in crypto asset trading, but also offer robust features for more experienced users through a web browser platform. As of December 31, 2024, our easy-to-use smartphone trading application was being used by over 90% of our customers, and we believe the proportion of customers taking advantage of the smartphone application will remain at a high level. This application was built with a focus on the user experience and targets digital/mobile-native customers that have very little experience in using a trading service. We designed our mobile application and web browser offerings independently, as they each provide very different functionalities. This helps ensure a variety of options for different kinds of customers.
106
The below image is an example of the interfaces of our two platforms:
As of December 31, 2024, our Marketplace and Exchange platforms together currently support trading of 31 cryptocurrencies, an increase from 28 different types of cryptocurrencies as of September 30, 2024, and we are continually seeking to expand our offerings to better meet the needs of our retail customer base.
We have a fast-growing product portfolio which is underpinned by robust technology.
Our Marketplace platform is built on industry-leading technology that prioritizes security, compliance and monitoring, as well as scalability and customer experience. We believe our Marketplace platform will continue to drive our growth and revenue. We also continue to introduce new products, providing entry points for new users as well as innovative ways to engage our existing customer base and facilitate growth, such as our NFT and IEO businesses. Our Coincheck NFT Marketplace leverages our infrastructure while also presenting us with the opportunity to cross-sell to and from our core offering. In compliance with guidelines developed by the JVCEA, we conducted the first approved IEO in Japan, which 63,853 users applied to and was oversubscribed by 24 times.
Trusted brand.
We believe that we have a strong brand that is trusted by users, and that a strong trusted brand is critical in acquiring customers who are first-time crypto users and is a long-term advantage in our strategy to bring crypto assets to traditional financial institutions. Following our acquisition by Monex Group in April 2018, we strengthened our cybersecurity and governance and invested in the stability of our Marketplace and Exchange platforms. We have also played a constructive role in the JVCEA, which was granted self-regulatory status by the JFSA in October 2018 to set standardized operating procedures for cryptocurrency exchanges in Japan. Coincheck’s Chairman, Representative Director & Executive Director, Satoshi Hasuo, currently serves as a director of the JVCEA. As the first to provide other crypto services in addition to a crypto exchange, including the launch of an NFT platform and the first ever IEO in Japan, we believe our customers consider us the company of choice to begin using crypto assets safely.
We have a robust and historically profitable financial model.
We believe our historical growth and profitability, combined with re-investment in our platform and brand, position us to pursue further opportunities. We have historically had a strong financial profile, as reflected in our high revenue growth and positive net profit throughout various cycles in the market through the year ended March 31, 2022. Declines in the prices of crypto assets and trading volume led to a sharp decline in our total revenue in the year ended March 31, 2023. After taking measures to reduce our variable expenses in light of market conditions, we recorded a net loss of ¥559 million for the year ended March 31, 2023, a net profit of ¥1,967 million for the year ended March 31, 2024 and a net profit of ¥452 million for the six months ended September 30, 2024. We expect to continue to invest in new products and services to enable us to grow during various market cycles.
107
Our net profit was ¥9,795 million for the fiscal year ended March 31, 2022, and we recorded a net loss of ¥559 million for the fiscal year ended March 31, 2023. However, we recorded a net profit of ¥1,967 million for the year ended March 31, 2024 and a net profit of ¥452 million for the six months ended September 30, 2024 despite previously difficult and continuously fluctuating market conditions. For the three months ended December 31, 2024, we recorded a net loss of ¥15,444 million. We had EBITDA of ¥14,368 million for the fiscal year ended March 31, 2022, before declining to an EBITDA loss of ¥360 million for the year ended March 31, 2023. However, we improved to achieve EBITDA of ¥3,525 million for the year ended March 31, 2024 and ¥1,001 million for the six months ended September 30, 2024. For the three months ended December 31, 2024, we had an EBITDA loss of ¥14,751 million, which included professional fees in connection with the Reverse Recapitalization of ¥3,804 and listing fees of ¥13,714. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-IFRS Financial Measures — Reconciliation of EBITDA to Net Profit” for details on the reconciliation of EBITDA to net profit in accordance with IFRS.
Strong and experienced management team to support continued growth.
Our management team is comprised of experts from across the Monex Group and the crypto asset industry. We believe that our team gives us a competitive advantage over other exchanges and our corporate culture combines compliance and regulatory engagement with an innovation mindset that permeates throughout our company. We also continuously support the development of our management team with guidance from a seasoned group of directors.
Our Services
As a licensed cryptocurrency exchange services provider in Japan, our main business activity is opening accounts for retail investors in Japan to invest in cryptocurrency. We provide a Marketplace platform where users can buy and sell cryptocurrency, an Exchange platform targeted at more experienced users that mediates order books between such customers for a more limited number of cryptocurrency, and other ancillary services to drive retail engagement and broaden the use of cryptocurrencies.
Cryptocurrency Trading Services
We operate our trading services on a Marketplace platform and an Exchange platform, which target different types of customers. We do not offer margin trading to our customers.
108
Marketplace Platform
Our Marketplace platform is our core offering and enables customers to purchase and sell 29 different crypto assets as of December 31, 2024, an increase from 28 different crypto assets as of September 30, 2024. Our user-friendly smartphone application allows for comprehensive yet easy-to-use functionality for beginning customers. Although the Marketplace platform targets less experienced customers, our more experienced traders may also use the smartphone application or our more detailed web browser-based interface.
Transaction revenue from our Marketplace platform business is derived from transactions with users and cover counterparties. In the business, we buy and sell cryptocurrencies to users with a spread, which is the difference between the prices that customers buy or sell cryptocurrencies on the Marketplace platform and the prices that the Company procures or sells to cover counterparties as transactions with users and a corresponding cover transaction are entered into within a short period of time in order to acquire broker-dealer margins. The spread is set/revised by us in a range of 0.1% to 5.0% for each cryptocurrency based on prevailing market conditions, including competitors’ offers. We hold the discretion to add a spread which might be higher than the above-mentioned range in instances where there is sudden market movement and shortage of liquidity in the market to ensure the execution of the transactions with customers. The price of cryptocurrencies, reflecting our bid-ask spreads, are displayed to our customers and generally updated every 10 seconds. Under our terms of service, a customer’s order is executed and settled immediately upon the customer’s acceptance of the quoted price and cannot be changed or canceled after that point. In order to ensure the execution and settlement of transactions with customers, we may utilize bid-ask spreads greater than this range in the event of sudden market movements and shortage of liquidity in the market. There are no defined limits on the fees we charge, but under the Japanese cabinet orders applicable to crypto asset exchange service providers and the guidelines of the JVCEA we are required to provide information about the fees we charge to our customers. We provide explanatory materials regarding our bid-ask spreads as well as fees for the completion of transfers and other services to customers at the time they open an account and also provide such information via our website and smartphone application.
Our trading operations system is designed to offset any open position created by transactions with customers of our Marketplace platform to limit our exposure to price risk with respect to the crypto assets traded. After we accept a customer’s sale or purchase order for a particular crypto asset, our system will:
• first offset any other transactions by customers in the same crypto asset;
• compare our total exposure to the subject crypto asset against policy thresholds we have set, as of December 31, 2024 a range from -¥4 million to ¥5 million for Bitcoin and a range from as low as -¥1.5 million to ¥13 million for each other crypto asset; and
• execute a hedging or cover transaction with respect to the subject crypto asset when the threshold is exceeded with either a cover counterparty, meaning an outside exchange or other third party, or on our Exchange platform depending on where the highest liquidity is available.
The customer’s sale or purchase of the crypto assets is reflected in our database when the sale or purchase order is settled on our platforms, resulting in the transfer of control over the crypto assets. With respect to a sale order, we execute cover transactions by selling our crypto assets held on our Exchange platform or to a cover counterparty. We subsequently withdraw the corresponding crypto assets to be sold from the segregated cold wallet in which we maintain the customer’s crypto assets, normally within 24 hours. Depending on the customer’s order instructions (whether the sale is in exchange for another crypto asset or for fiat currency), we either deposit crypto assets acquired through the sale into the segregated cold wallet in which we maintain the customer’s crypto assets or fiat currency proceeds into the customer’s amounts on deposit with our trust bank custodian within the same timeframe. For a purchase order, we execute cover transactions by utilizing our crypto assets held, normally BTC, to acquire the crypto asset to be purchased. Depending on the customer’s order instructions, we subsequently withdraw either BTC from the segregated cold wallet in which we maintain the customer’s crypto assets or fiat currency from the customer’s amounts on deposit with our trust bank custodian. In addition, in order to hedge against price risk between the price of BTC and fiat currency, for a customer purchase order denominated in fiat currency, we will use fiat currency to purchase the corresponding amount of BTC needed to purchase such crypto asset and fulfill
109
the customer’s purchase order and then deduct the applicable amount of fiat currency from the customer’s account. The crypto asset acquired on behalf of the customer will be deposited into the segregated cold wallet in which we maintain the customer’s crypto assets, normally within 24 hours.
Settlement of cover transactions usually occurs within 20 to 30 seconds of the initial buy/sell order transaction. We assume that the average frequency of cover transactions is once every 20 to 30 seconds, and that the frequency and the time it takes to settle can be considered to be the same, given the constant stream of orders from users on our platform and the limited size of our positions. In selecting cover counterparties, we conduct a credit investigation and KYC process before transacting with them. The bid-ask spread that we recognize for individual transactions does not change based on the manner of covering any open position created.
Exchange Platform
We also act as an intermediary to match sellers and purchasers on our Exchange platform between customers selling and other customers purchasing cryptocurrencies, where 20 different types of cryptocurrencies can be traded as of December 31, 2024. We also place orders on our Exchange platform to execute cover transactions. Order books are created where sellers and purchasers share their respective trading prices, and once orders with similar trading prices and conditions are matched, these transactions are executed and settled immediately. Under our terms of service, a sales contract binding on both parties is formed as soon as a match is completed and the trade is immediately executed and settled. Although we provide a platform for customers to buy and sell cryptocurrencies in this manner, we historically have not charged commissions to retail customers of our Exchange platform. However, we began charging commissions of 0.05% or 0.1% for the purchase and sale of Ethereum Classic (“ETC”) beginning August 10, 2022 and Palette Token (“PLT”) beginning December 7, 2022, and we also began charging the same amount of commissions for the purchase and sale of FiNANCiE (“FNTC”) beginning January 10, 2024, Brilliantcrypto Token (“BRIL”) beginning June 17, 2024 and IOST on September 4, 2024, and Blood Crystal (“BC”) beginning October 16, 2024.
We derive benefit from our Exchange platform by trading on it as a transacting party on the same basis as other users to cover positions created when operating our Marketplace platform at lower cost than would be incurred by trading through other means, and we differentiate ourselves from competition by generally not charging for the use of the platform. However, we do charge commissions for trading by certain corporate clients including competitors that also use our Exchange platform service to secure liquidity. Our Exchange platform is operated via a web browser-based version of our software to give experienced customers a high level of functionality to access deep markets in select cryptocurrencies.
The below summarizes the service details of both our Marketplace and Exchange platforms:
As of December 31, 2024, we support the following 31 cryptocurrencies across our Marketplace or Exchange platforms:
• Bitcoin (BTC) |
• Monacoin (MONA) |
|||
• Ethereum (ETH) |
• Stellar Lumens (XLM) |
|||
• Ethereum Classic (ETC) |
• Quantum (QTUM) |
|||
• Bitcoin Cash (BCH) |
• Basic Attention Token (BAT) |
|||
• Ripple (XRP) |
• IOST (IOST) |
|||
• NEM (XEM) |
• Enjin Coin (ENJ) |
110
• Litecoin (LTC) |
• Chiliz (CHZ) |
|||
• Lisk (LSK) |
• Palette Token (PLT) |
|||
• The Sandbox (SAND) |
• Polkadot (DOT) |
|||
• FiNANCiE (FNCT) |
• Chainlink (LINK) |
|||
• Dai (DAI) |
• Maker (MKR) |
|||
• Polygon (MATIC) |
• Immutable (IMX) |
|||
• ApeCoin (APE) |
• Axie Infinity (AXS) |
|||
• Wrapped Bitcoin (WBTC) |
• Shiba Inu (SHIB) |
|||
• Avalanche (AVAX) |
• Brilliantcrypto Token (“BRIL”) |
|||
• Blood Crystal (BC) |
The below summarizes what services are available for each supported cryptocurrency.
We continuously evaluate new cryptocurrencies for trading and we are required to confirm with the JVCEA that it has no objection prior to the introduction on our platforms of any cryptocurrencies being handled for the first time in Japan. In addition, our internal evaluation process requires any cryptocurrencies to be newly traded on our platforms to meet all of the following criteria prior to and after the introduction on our platforms, regardless of whether such cryptocurrencies have been handled by another Japanese exchange:
• the asset is a “crypto asset” under the definition set out in Section 14 Article 2 of the Payment Services Act;
• the currency is appropriate for us to introduce from user protection and public interest perspectives;
• the stability of the chain is guaranteed;
• equal purchasing opportunity is guaranteed;
• the program is disclosed to the public and no material vulnerability has been identified;
• the marketing materials do not include contents that are misleading;
• the asset does not breach public policy (for example, whether the asset is similar to gambling);
• the asset is compatible with cold wallets;
• the transactions are traceable and do not remain confidential or anonymous from an AML and CFT perspective;
• the asset meets the “sufficient liquidity” requirement for the relevant crypto asset in our exchange service or is with two or more cover counterparties in principle;
• the asset is neither being used nor likely to be used in a manner that violates laws and regulations or public order and morals;
• the asset is neither being used nor likely to be used in crimes, including money laundering and financing of terrorism;
• the asset has no significant concerns or obstacles as to its transferability and traceability to record and update possessions;
• the asset can properly be audited by an auditor;
111
• the asset can be screened before transfer using a blockchain analysis tool;
• the asset can be safely stored and transferred in the system or otherwise without difficulties;
• the asset can properly and reliably fulfill obligations under the PSA; and
• the transfer record of the asset can be traced without any difficulties.
We further evaluate the following risks to confirm that the asset has no exposure to any of them:
• market risk: the risk of significant price decline due to oversupply and other factors;
• credit risk: the risk that operation of the project may fail and the asset may substantively extinguish;
• liquidity risk: the risk that holders are unable to transfer or redeem the asset due to low liquidity; and
• other risks that are general to crypto assets or unique to certain assets, including hacking risk, risk of losing the asset due to falsification of records and reputation risk to us.
In addition, we also evaluate such cryptocurrencies from a commercial point of view by comprehensively considering a variety of factors including the industry trends, market penetration of such cryptocurrencies (determined based on factors including market capitalization and trading volume) and status of the JVCEA evaluation. Our Accounting & Listing Department reviews, verifies and revises the above evaluation criteria periodically or on an as-needed basis. Our internal process for the approval of such cryptocurrencies for trading is as follows: first, our Accounting & Listing Department and other key project members conduct an initial evaluation based on the above criteria; second, our Legal & Compliance Department conducts an additional review to determine whether it is appropriate that we handle such cryptocurrency; third, based on the results of this review, our Accounting & Listing Department formulates a proposal relating to the handling of such cryptocurrency and submits this proposal to our Management Meetings; fourth, our Management Meetings, which includes our President, Executive Director in charge of legal (CLO), Executive Director in charge of finance (CFO), Executive Director in charge of risk and Executive Director in charge of information technology (CTO), will review such proposal and if such cryptocurrency is determined to be appropriate for our handling, the President will approve such proposal through a discussion at such Management Meetings; and finally, this resolution is reported to our Board of Directors. After this internal approval process is completed, the relevant internal departments in charge of the new cryptocurrency will develop the systems necessary to handle the cryptocurrency on our platforms and prepare brief explanatory materials for the benefit of our users after confirming that this operational framework has been established and is in working order. We conduct this internal approval process based on risk-based judgments.
As stated above, in addition to our internal approval process, we are required to confirm with the JVCEA, pursuant to the relevant regulations of the JVCEA, that it has no objection to the introduction of a new cryptocurrency on our platforms. Please refer to the “— Regulatory Environment” section for details on the rules governing the handling of new crypto assets in the JVCEA. We also provide advance notice to the JFSA of our intention to support trading of a new crypto asset. We understand that the decision by the JVCEA is final and we are not aware of any case in which the JVCEA has overturned its decision to date. Completion of this approval process and a determination of no objection by the JVCEA is not binding on a regulatory authorities or courts in Japan in the event of a subsequent legal proceeding.
Corporate Services
We offer several services which are uniquely tailored to meet the needs of our corporate clients, as detailed below.
Coincheck IEO
We launched our IEO business in 2021, which was the first of its kind in Japan, to support the creation of an environment in which Japanese companies, blockchain companies and blockchain communities can fundraise and further develop the industry, and cryptocurrency investors can participate in promising initiatives more safely and easily. IEOs enable crypto start-ups to raise money through a cryptocurrency exchange, such as ours. Generally, these start-ups are charged fees, including a certain proportion of tokens sold on the exchange, and the tokens initially sold on the exchange can be listed on the exchange after the IEO is completed. An IEO may be more
112
secure and transparent for customers than other methods of fundraising, because exchanges such as ours perform a listing review of start-up projects and their sponsors before allowing fundraising to begin. In our review process, we comprehensively assess the issuer based on the following criteria:
• uniqueness of issuer’s business model;
• financial condition and internal control of the issuer;
• sustainability of issuer’s business;
• evaluation of technology (including robustness and versatility);
• utility of the token; and
• synergy of the token with industry trends and our existing businesses.
Furthermore, tokens introduced through our IEO business are also subject to substantially the same screening process by the CAESP and the JVCEA as applied to other crypto assets handled by the CAESP (See “Business — Regulatory Environment”). Therefore, we only support tokens that are approved to be traded as crypto assets (which do not fall under the category of either ERTR or ERTRIS) on our Marketplace platform. We have not set any criteria for the minimum size of an IEO and consider the potential size together with the above factors in evaluating a proposal.
Through our application platform, Coincheck IEO, our customers can apply for the desired purchase amount of tokens, and their account will then be debited for the yen amount required for the desired purchase. All tokens sold in the IEO are held in the issuer’s account opened with us prior to the start of the IEO subscription. After the subscription period and in the event of an oversubscription, a lottery will be conducted and settlement occurs to the account of the customer on the delivery date. After delivery of tokens to the subscribers is completed, the sales proceeds are transferred to a bank account designated by the issuer of the tokens.
For our IEOs, we only accept payment for tokens sold in yen and do not permit payment with cryptocurrencies at this time. Although we underwrite the tokens, if the total subscription amount falls below the total sales amount, we do not buy back any unsold tokens. Tokens sold through an IEO are transferred to the cryptocurrency account of the Coincheck customer and are treated like any other cryptocurrency held by such customer.
Our first IEO, the Hashpalette IEO, had a total subscription amount that exceeded the funding target of ¥931.5 million within 6 minutes of launch, was 24 times oversubscribed and received ¥22.4 billion in subscriptions from over 63,000 accounts.
We have also conducted a second IEO with Financie, Inc. to raise funds issuing Financie Tokens, which exceeded the funding target of ¥1,066 million within 60 minutes of launch, was approximately 19 times oversubscribed and received over ¥20.0 billion in subscriptions from approximately 25,000 accounts. Financie, Inc. is an established business which assists more than 100 individuals and organizations in issuing, selling and trading cryptocurrencies.
On July 20, 2023, we also publicly announced that we had entered into an agreement with Brilliantcrypto, Inc., a wholly owned subsidiary of COLOPL, Inc., to conduct an IEO in order to further collaborative efforts to create a new gaming experience and GameFi market. COLOPL, Inc. has been involved in GameFi businesses utilizing blockchain technology, and the new crypto assets that Brilliantcrypto plans to issue through our Coincheck IEO platform will be used in a blockchain-based game being developed by their team and will subsequently be traded on our Marketplace platform.
On March 4, 2024, we publicly announced that we had entered into an agreement with Fanpla, Inc. to conduct an IEO as part of a project that aims to connect artists and creators directly with fans to create a new platform for fan activities where both content creators and consumers can participate.
Account Management and Custody of Customer Crypto Assets
Our intuitive and easy-to-use customer interface design provides access to our Marketplace platform via a smartphone application to allow for a user-friendly crypto gateway for beginning customers. We also offer both our Marketplace and Exchange services via a web browser-based version of our software. Crypto assets have no physical presence because they are managed on a ledger using blockchain technology. However, key information such as
113
transaction history and balance information can be accessed online through visual representations that illustrate transactions on these blockchain ledgers. Although we charge fees for depositing and withdrawing funds in yen to and from accounts, we do not charge any fees for basic account maintenance.
We provide custody for cryptocurrencies received from customers of our Marketplace and Exchange platforms in compliance with the regulations established under Japan’s Payment Services Act as described under “— Regulatory Environment — Regulations on Crypto Asset Exchange Service.” Those regulations require clear segregation of customer cryptocurrencies and our policy is to hold 100% of deposited customer crypto assets (other than crypto assets borrowed from customers) in secure cold wallets to minimize security risks so that our customers can trade safely and securely. Funds deposited by our customers are managed separately from our own funds through a money trust with JSF Trust and Banking Co., Ltd.
Cryptocurrencies we hold, including crypto assets borrowed from customers, are held in cold wallets, hot wallets or deposited with our cover counterparties, depending on market conditions. In accordance with our operational policy, most of our crypto assets are held in cold wallets and the amount of cryptocurrencies held in hot wallets is maintained at an amount equivalent to less than five percent of the total amount of crypto assets held in cold wallets (including, for this purpose, both customer crypto assets in custody and crypto assets we have borrowed from our customers). We determine the amount of crypto assets to hold based on the total size of our customer assets and recent trading levels. Our Accounting & Finance Department is responsible for monitoring and determining the appropriate amount, and our Dealing Department is then responsible for managing what amount of crypto assets to hold in hot wallets and to deposit with cover counterparties in accordance with our internal policies. Our policy from a security point of view is to hold the majority of our crypto assets in cold wallets and to hold in hot wallets only the amount of crypto assets we deem necessary in light of expected settlement transactions with cover counterparties and external transfer requests.
In addition to the above security measures, we have systems in place for the timely reporting of cybersecurity incidents to management. In accordance with our internal policies, when a cybersecurity incident occurs, a person currently designated as being in charge of incident responses will provide an initial incident report to our relevant personnel, including the Representative Director and the Executive Officer responsible for such matters, and thereafter report on subsequent updates concerning the incident and the results of the incident response. The person in charge of incident responses is designated as the person responsible for overall management of incidents from the Incident Detection or Response Department. Additionally, cybersecurity incidents are routinely reported to and discussed at our System Risk Committee. Material incidents above a certain internal threshold are also reported to and discussed at our Risk Committee, and we also have a system in place for reporting to our Management Committee and Board of Directors. Monthly reports made at meetings of the Board of Directors also include a discussion point related to security for which reporting and monitoring is conducted, including cybersecurity.
The following table shows the total amount of crypto assets held we recorded in current assets (substantially all of which are crypto assets borrowed from customers) as of March 31, 2022, September 30, 2022, March 31, 2023, September 30, 2023, March 31, 2024, September 30, 2024 and December 31, 2024, and amounts showing what portion of such crypto assets held were held by us in cold wallets, hot wallets or deposited in our accounts with counterparties. All the amounts shown as held in cold wallets, hot wallets and deposited with counterparties consist of borrowed crypto assets with the exception of NFTs included in the amounts held in hot wallets. Customer crypto assets held by us in cold wallets are recorded as safeguard assets and are not included in amounts of crypto assets held (current assets).
As of |
As of |
As of |
As of |
As of |
As of |
As of |
|||||||||||||||
(in billions of yen) |
|||||||||||||||||||||
Crypto assets held (current assets) |
¥ |
34.1 |
¥ |
16.4 |
¥ |
19.0 |
¥ |
19.3 |
¥ |
44.2 |
¥ |
35.6 |
¥ |
55.3 |
|||||||
Amount held in cold wallets |
|
27.9 |
|
13.4 |
|
15.8 |
|
17.5 |
|
39.7 |
|
33.1 |
|
50.8 |
|||||||
Amount held in hot wallets |
|
3.9 |
|
1.9 |
|
2.0 |
|
1.6 |
|
3.6 |
|
2.2 |
|
3.8 |
|||||||
Amount deposited with counterparties |
|
2.3 |
|
1.1 |
|
1.1 |
|
0.3 |
|
0.8 |
|
0.4 |
|
0.7 |
____________
(1) For reference, customer crypto assets in custody in cold wallets and recorded as safeguard assets were ¥428.5 billion, ¥237.8 billion, ¥287.1 billion, ¥295.4 billion, ¥645.7 billion, ¥587.5 billion and ¥1,030.5 billion as of March 31, 2022, September 30, 2022, March 31, 2023, September 30, 2023, March 31, 2024, September 30, 2024 and December 31, 2024, respectively.
114
Other than NFTs we hold as inventory, all of our crypto assets held consist of crypto assets borrowed from our customers under the Coincheck Lending program described below under “— Additional Cryptocurrency-related Services.” We utilize such crypto assets in executing cover transactions in the course of operating our Marketplace platform. When there is a customer order for the sale or purchase of crypto assets on the Marketplace platform, we will accept the order and reflect the sale or purchase in the customer’s account. If not offset by other customer transactions, in order to cover the position created by the customer’s order we will utilize crypto assets held to sell or purchase the subject crypto assets in a cover transaction on a third-party exchange or on the Company’s Exchange platform. We will subsequently withdraw or deposit crypto assets corresponding to the customer’s order from or into the segregated cold wallets we maintain for custody of customer assets, normally within 24 hours. We utilize borrowed crypto assets to facilitate the prompt execution of cover transactions before we subsequently transfer the subject crypto assets to or from customers’ segregated cold wallets. We do not use borrowed crypto assets for proprietary trading or to enter into unhedged positions.
We maintain cold wallets and private key information for the custody of customer crypto assets at a secure storage facility we operate in Japan where access is strictly limited by multiple levels of security. Release of crypto assets we maintain from a cold wallet requires use of a private key on a computer that is stored in a fireproof safe in a dedicated cold wallet room in a building with a reinforced structure and modern earthquake-resistant features. Separate card key and PIN authorizations are needed to access the cold wallet room and opening of the fireproof safe. The private key in the computer is encrypted and requires a password for decryption. The decryption is performed by a tamper-proof program written to a DVD stored with the computer so that the private key stored in the computer is not directly displayed or disclosed to the person performing the authorization. These multiple safeguards are designed so that the participation of multiple trusted individuals is necessary for the release of crypto assets and no single individual is able to authorize release. Individuals entrusted with any role in the process are limited to senior management personnel of the Company with a tenure of longer than one year. As of December 31, 2024, fewer than 10 members of management are authorized to participate in the release of the crypto assets, as per our internal practices, and although this number can be increased in line with updates to internal practices, we continue to limit the members of management so authorized for enhanced security. With respect to our crypto assets which we hold in a hot wallet, release is made using an automated program with the private key stored securely with our cloud services provider. Transfers are limited to wallets instructed by our trading counterparties. Access to the private key’s secure storage is limited to the same type of personnel as those who have access to our cold wallet storage and is also designed to require the approval of multiple individuals for any change to the program settings.
All access is logged and reviewed on a periodic basis and our protocols and internal controls over access to customer crypto assets are subject to assessment as part of our internal and external audit processes. Our Accounting & Finance Department conducts procedures to compare assets recorded on the blockchain to our internal database in order to monitor for the accuracy of our records. We also provide our independent auditors with the addresses of our cold and hot wallets to enable them to verify the existence of cryptocurrencies in the course of their audit procedures. We do not use an external wallet custodian.
Regarding NFTs, there are no clear legal regulations in Japan as of December 31, 2024 on custody of NFTs, but according to our internal rules, we hold NFTs acquired by customers of our Coincheck NFT Marketplace in hot wallets on behalf of each customer.
Insurance Coverage
As is customary in the Japanese crypto industry, we do not have insurance for customer crypto assets in our custody or for our own crypto assets. Under our terms of service, in the case of loss or damage caused by our negligence, we are not liable for any damages caused to our corporate users and only liable for the direct damages caused to our individual users up to the amount of fees paid to us by such individual users. We are fully responsible for loss or damage incurred by our customers under Japanese law only when such damage or loss was caused by our gross negligence, willful misconduct or fraud. Under Japanese law, liability is limited to monetary compensation for actual damages, and no punitive damages or liability in excess of the amount of actual damages may be awarded.
115
Large-lot OTC Trading Service
We offer a large-lot trading service for cryptocurrencies in Japan supporting five cryptocurrencies (BTC, ETH, BCH, XRP and LTC). Customers who trade large amounts of cryptocurrencies (ten million yen or more) can buy and sell cryptocurrencies through block trades 24 hours a day, 365 days a year, at premium rates. However, in view of the service availability of our liquidity providers (cover counterparties), we suspended our large-lot trading service on March 14, 2024, with no plans currently for the resumption of this service. As a result of the suspension of this service, there will not be a significant impact on our revenue or overall operations or business.
Additional Cryptocurrency-related Services
Our revenue from our Marketplace and Exchange platforms is highly influenced by the volatility of the cryptocurrency market. To increase the utility of cryptocurrencies to our customers and to generate asset-based revenue, we have steadily introduced additional services, including our Coincheck Periodic Purchase Plans service, our large-lot OTC trading service, a cryptocurrency lending service and Coincheck Electricity and Coincheck Gas.
Coincheck Periodic Purchases
Our Coincheck Periodic Purchases service is a cryptocurrency accumulation service and allows customers to automatically purchase a fixed amount of any cryptocurrency supported on our Marketplace platform periodically to support more stable asset building. Customers are able to choose between a monthly purchase plan and daily purchase plan. Our monthly purchase plan targets customers who prefer to make one single purchase each month, while our daily purchase plan targets customers who prefer to minimize timing risks associated with large, one-time purchases, allowing them to make daily purchases.
Coincheck Lending
In keeping with the provisions of the Cabinet Office Ordinance on Crypto Asset Exchanges and after consultation with the JFSA, we provide a service, Coincheck Lending, through which customers lend their cryptocurrencies to us for a contracted period of time. All cryptocurrencies supported on our Marketplace and Exchange platforms are eligible. Upon expiration of the contract period, we are required to return the borrowed crypto assets in kind under the terms of the agreement. Although there is no absolute limit to the amount of cryptocurrencies customers can lend to us, our customers are limited in the amount and size of loans they make up to the amount of cryptocurrencies they have deposited with us. Participation in Coincheck Lending by our customers is completely voluntary. As of December 31, 2024, we had borrowed approximately 5% of total customer crypto assets under the Coincheck Lending program.
Our customer crypto assets are held in custody in segregated cold wallets and thus are not accessible for immediate settlement. As a result, we need to hold crypto assets for our own account in order to facilitate prompt fulfillment of remittance requests and settlement of cover transactions. For example, when we receive a customer remittance request, we use our crypto assets held in order to remit the crypto assets and will subsequently withdraw the corresponding amount of crypto assets we have deducted from the remitting customer’s account from the segregated cold wallets we maintain for the custody of customer assets.
In order to acquire the crypto assets we use for these operational purposes, we borrow crypto assets from customers under the Coincheck Lending program in order to minimize price risk with respect to the underlying crypto assets. We are able to minimize price risk because the terms of the borrowing provide for the return of the subject crypto assets in kind as noted above. As of December 31, 2024, we recognized “crypto assets held (current assets)” of ¥55,299 million, no current assets of NFTs and “crypto asset borrowings” of ¥54,971 million in the statement of financial position. The factors we consider in determining the amount of crypto assets to borrow and the manner in which we hold and utilize such crypto assets in our cover transactions are described above under the heading “— Account Management and Custody of Customer Crypto Assets.”
Customers can participate in amounts greater than ¥10,000, and select lending periods from 14 days, 30 days, 90 days, 180 days and 365 days, at an implied yield of 1%, 2%, 3%, 4% and 5% per year, respectively, which may be changed in the future subject to approval by our executive officers. The fee is paid to the user together with the return of the borrowed crypto assets at the expiration of the lending period. As of December 31, 2024, we had
116
¥54,971 million in crypto asset borrowings, an increase from ¥44,020 million in crypto asset borrowings as of March 31, 2024, and the top ten lenders accounted for 11% of our crypto asset borrowings as of December 31, 2024. Under the borrowing agreements, there is no restriction on our use of the borrowed crypto assets during the relevant lending period. As of December 31, 2024, we held ¥55.3 billion of crypto assets in current assets, of which ¥50.8 billion were held in cold wallets, ¥3.8 billion were held in our hot wallets and ¥0.7 billion were deposited with counterparties.
Coincheck Electricity and Coincheck Gas
Coincheck Electricity is an electricity service we provide that offers two rate plans: a “Bitcoin payment” plan that allows customers to pay their electricity bills with Bitcoin, and a “Bitcoin grant” plan that gives customers Bitcoin after payment of electricity bills. We also offer Coincheck Gas, which operates in a similar manner to Coincheck Electricity to allow customers to pay gas bills.
Coincheck NFT Marketplace
A non-fungible token (“NFT”) is a digital item that is unique and non-interchangeable, unlike Bitcoin. In recent years, NFTs have been attracting attention not only as a means of exchanging items in blockchain games, but also to prove ownership of artwork and to appeal to fan communities. See “— Regulatory Environment — Non-Fungible Tokens” for information regarding the regulation in Japan for non-fungible tokens. Our Coincheck NFT Marketplace, the beta version of which began operations on March 24, 2021 and is offered only to Coincheck accountholders who submit an application, was the first off-chain NFT exchange platform in Japan operated by a crypto asset exchange company on which customers can buy and sell NFTs. Through the Coincheck NFT Marketplace, we handle NFTs that are popular globally, including The Sandbox, a blockchain game funded by Softbank’s Vision Fund 2, and Meebits, created by Larva Labs, the developer of CryptoPunks, one of the world’s most popular NFT projects. When trading NFTs, a sales commission is charged to the seller upon completion, and a withdrawal fee charged when the NFT is withdrawn by the holder. Sales commissions on Coincheck NFT Marketplace are paid in a cryptocurrency selected by the customer from 29 different types of cryptocurrencies can be traded as of December 31, 2024, an increase from 28 different types of cryptocurrencies as of September 30, 2024. NFTs acquired by customers on the platform are not subject to the custody rules applicable to crypto assets under Japan’s Payment Services Act and are held in hot wallets by us on behalf of the customers. The sales screen for a particular NFT displays the price set by the seller in a selected cryptocurrency and the Japanese yen equivalent based on current market levels, as well as Ethereum equivalent if the seller selects a payment in cryptocurrency other than Ethereum. The sales screen also displays the past sales history, and the average price recorded on the Ethereum blockchain. If we observe trades at price levels substantially different from the recent trading history within Coincheck NFT Marketplace, we may suspend execution pending a hearing by our Legal & Compliance Department.
Our process for approving NFTs for listing on the Coincheck NFT Marketplace is conducted in three stages, with our NFT Business Development Department performing the initial review and the Legal & Compliance Department performing the secondary review prior to the final review by an internal review committee, based on the following criteria:
• whether the NFT is a non-substitutable token recorded on the blockchain, or whether the token standard is ERC-721 or not, as we currently only support ERC-721;
• whether the listing of the NFT on the Coincheck NFT Marketplace is regulated by any applicable laws or regulations, including a determination that the NFT is neither a crypto asset under the PSA or a form of security, or ERTRIS, under the FIEA;
• whether the NFT itself breaches any applicable laws and rights (including whether any work is being used without the permission of the copyright holder);
• whether the operating company of the NFT has any particular issues (including whether it engages with or is considered to be an anti-social force); and
• whether the operating company of the NFT is in compliance with applicable laws and regulations in connection with the NFT.
117
Our internal review committee performs the final review by comprehensively evaluating the NFT from development and business perspectives.
Transfer Services
Our users can also send crypto assets to designated wallets and receive remittances from others directly to their Coincheck wallets.
Sharely
Due to the impact of the COVID-19 pandemic, we began to explore new opportunities that arose from the increased need for virtual meetings to help mitigate the spread of infection. In order to reduce the burden on businesses of holding general meetings while also encouraging retail investors located in remote areas to participate in such meetings, we utilized our expertise in user interface design, as well as our flexible and efficient development system to launch Sharely. Sharely targets Japanese public companies hosting shareholder meetings and provides a platform for virtual attendance at general meetings for shareholders, allowing users not only to attend these meetings, but also to vote and participate in Q&A sessions. In order to focus on improving the performance of our crypto asset business, we transferred our Sharely business to Excite Holdings Co., Ltd. on March 8, 2024, and the impact on our financial results for the fiscal year ending March 31, 2024 was limited.
Group Collaboration
We also seek to grow our customer base through collaboration with Monex Group companies in Japan in order to provide cryptocurrency trading exposure to equity investors, thereby increasing the potential number of cryptocurrency investors. In the past, shareholders of Monex Group as of a specified record date were eligible to receive an incentive of ¥500 value of Bitcoin if they establish a Coincheck account and register for the incentive within a specified period. We also offer a service for customers to convert “Monex Points” received from Monex, Inc. into certain cryptocurrencies at a rate of one point to ¥1 of value at current rates. Brokerage customers of Monex, Inc. are not automatically customers of Coincheck and need to establish an account with us in the normal manner if they wish to transact in crypto assets.
This group collaboration system is illustrated below:
We believe that by maintaining a complementary relationship with Monex, Inc., we will be able to further meet the broad range of user needs and offer more services in the future.
Our Customers
We only offer accounts for crypto asset exchange services to customers resident in Japan. In particular we appeal to a younger demographic, with approximately 51% of verified accounts held by customers under 40 as of December 31, 2024. In addition, we offer Coincheck NFT Marketplace to Coincheck accountholders who submit an additional application.
118
Account Opening Procedures
Only adults resident in Japan are eligible to open accounts to use our cryptocurrency exchanges. We do not open accounts for those under 18 years of age or over 75 years of age. We comply with KYC guidelines developed by the JVCEA in order to ensure compliance with Japanese laws and regulations.
Our KYC process is designed to obtain the necessary information from potential customers while enabling them to complete the process smoothly using their smartphone. The account opening process entails:
• Account registration: a customer initiates the account opening process by entering an email address and password, upon which a link is sent to the customer’s email.
• Acceptance of terms: after confirming eligibility as to age and residence in Japan and acceptance of the account terms, the customer registers a cellphone number and receives an SMS to enter a code to proceed to the identification verification process.
• Identification verification: the customer provides the additional personal information required, selects a form of identification for verification, uploads a picture of the chosen identification and also uploads a photo for verification.
• Two-step verification: once identification verification is completed, the customer is prompted to set up two-step verification to provide greater security when using the established account. We require two-step verification for customers to access their trading accounts.
• Bank account registration: once an account is approved, the customer is able to register the customer’s own bank account in Japan for deposit and withdrawal of funds. In order to register a remittance address, we require authentication by email address and SMS in addition to the use of identification, password and two-step verification at the time of login.
After an account is opened and the customer deposits yen into its account by bank transfer, such amount will be held at a segregated deposit with a trust bank. If the customer places a purchase order for a crypto asset on our Marketplace platform, we will instruct the trust bank to transfer the payment amount to our account. The purchased crypto asset will be credited to the customer’s account and held in a cold wallet to comply with regulatory requirements.
Our KYC procedures described above include screening to confirm that a prospective customer is not a person subject to international sanctions regimes in addition to confirming the prospective customer resides in Japan. Our KYC team also continues to check existing customers against a database of sanctioned persons on an ongoing basis; our policy is to freeze the applicable account and investigate further in the event of a match. When an existing customer requests the transfer of crypto assets externally, we also screen any such request against our blacklist which includes wallet addresses that are subject to OFAC sanctions as well as others that we determined inappropriate based on information from users, law enforcement and Chainalysis and will not make the requested transfer in the event of a match. For a customer request for the remittal of funds in Japanese yen, such a transfer can only be made to the customer’s bank account in Japan registered by the customer in connection with its account with us, and transfers will not be made to third parties.
Customer Acquisition and Marketing
We engage in advertising and promotion with the goal of raising awareness of Coincheck and our services and to grow our customer base. We utilize primarily digital marketing, both broad-based advertisements on platforms, such as Facebook and YouTube, and more targeted advertisements on search platforms as well as affiliated programs. In the two-year period ended March 31, 2022, we also used mass media campaigns such as television advertisements to raise our brand profile. During the fiscal years ended March 31, 2023 and 2024, we suspended such mass media campaigns as a cost saving measure, although from May 2024, we have resumed the airing of television advertisements and as such, anticipate increased advertising costs in the year ending March 31, 2025.
119
Data Collection Practices
We collect and analyze user data in compliance with relevant Japanese laws including the Act on the Protection of Personal Information and other applicable laws and regulations. We initially obtain personal information of our customers in order to complete the KYC procedures described above. Once a customer opens an account, we monitor all access by our customers via either our smartphone application or our website and obtain data relevant to the transactions, including the outstanding balance of assets and transaction history. We utilize commercially available services from companies such as TreasureData, Inc. to analyze user data that we obtain from our smartphone application or website. We utilize services and tools of TreasureData, Inc. to analyze the number of active users, rate of users that deposited cash in their accounts and users that have purchased cryptocurrencies.
Our Features
Our mission is “Making the Exchange of New Value Easier” and as such, we aim to provide easy to use services that are safe and secure, for individuals who are not highly skilled in the areas of finance and technology.
Ease of Use
In order to encourage new users who may not be highly skilled in finance and technology to utilize our cryptocurrency exchanges, we provide user friendly smartphone applications for iOS and Android enabling users to easily buy, sell, and trade crypto assets. Convenience is also an important factor in enabling participation and our users are able to access our cryptocurrency exchanges via any smartphone at any time. For our more advanced users who prefer more robust access to information, advanced trading tools and a more traditional experience, we offer access to our services through the web browser platform, Tradeview.
Opening an account on Coincheck is a simple and straightforward process, which can be completed in as little as one day. Crypto assets can then be traded easily from our smartphone application, and the process to purchase crypto assets is completed in just a few simple steps: first, users deposit yen into their account by bank transfer; second, from the home screen, users select the cryptocurrency they want to purchase and press a “buy” button; finally, users specify the purchase quantity in yen and press “buy” again to complete their purchase.
We also offer several additional useful features for trading, including a widget function that allows users to check price fluctuations in real time, a chat tool that allows users to communicate with other users participating in transactions, and a “buy/sell board” that displays transaction status in real time.
Trading in Small Amounts
We allow users to trade in amounts as small as ¥500 (or an amount equivalent to ¥500), making it easy for users to start trading. In addition, we enable users to send and receive crypto assets at a lower cost than the traditional remittance services offered by banks and other intermediaries for utilizing cash.
High Level of Security
We understand the importance of security and stability of transactions conducted on our cryptocurrency exchanges to ensure users can buy, sell, and trade crypto assets safely. The following describes in more detail several of our significant security measures:
Operational and Risk Management Systems
Under the supervision of our board of directors, we have established and continuously review operational and risk management systems to ensure the stability of our platforms, including:
• System risk assessment
• Information security management
• Cyber security risk management
120
• System planning, development, and operation management
• External contractor management
• Contingency plans
Although we comply with regulatory requirements relating to the safeguarding of customer crypto assets that we hold, these assets are not insured or guaranteed by any government or government agency, and we do not maintain any insurance for the recovery of any potential loss of such customer assets. For more information on the regulatory requirements related to customer assets, see “— Regulatory Environment — Regulations on Crypto Asset Exchange Service.”
Cover Counterparty Risk Management Policies
Our Dealing Department constantly monitors information with respect to our cover counterparties by reviewing real-time information about each cover counterparty, as well as the crypto asset community in general, on social media, including but not limited to X (formerly, Twitter), and other available news sources, such as CoinDesk and The Block. We also review public proof of reserve transactions on-chain and use on-chain analysis and research conducted by blockchain analytics platforms, such as Nansen and Defillama, to obtain additional information.
If we were to receive information that leads to credit concerns about a specific cover counterparty with which we transact, we would reduce the amount on deposit with such cover counterparty and transfer assets to another cover counterparty in order to permit uninterrupted execution of cover transactions. Moreover, if we were to receive information that could suggest reputational or legal concerns or put into question the ongoing viability regarding a cover counterparty, we would evaluate such information and concerns and, if we deem it necessary, take measures to transfer assets deposited with such cover counterparty to another cover counterparty and terminate the relationship with such cover counterparty.
If we were to receive information that leads to credit, legal or reputational concerns with cover counterparties for a particular crypto asset, we would first attempt to use our Exchange platform, or other OTC counterparties that are capable of netting settlement, to execute cover transactions. If we determine no such alternatives are feasible for a particular crypto asset, we would then temporarily suspend trading of the crypto asset.
Furthermore, in light of the market trends during the fiscal year ended March 31, 2023, we added a function to our internal system in the form of a Coincheck-initiated immediate withdrawal process on our administrator screen in December 2022. This Coincheck-initiated immediate withdrawal process allows us at our discretion to initiate the withdrawal of the balance of our crypto assets deposited with Binance to further ensure that crypto assets deposited with Binance are safeguarded. Although as of December 31, 2024 Binance has a daily withdrawal limit of $160 million USD (approximately ¥25.5 billion based on exchange rates as of December 31, 2024), the value of our crypto assets held on deposit with Binance as of December 31, 2024 is ¥300 million, far below this withdrawal limit, and under our current internal practices, total assets held on deposit with Binance cannot exceed ¥300 million (approximately $1.88 million based on exchange rates as of December 31, 2024). We are not subject to any other restrictions with respect to this withdrawal process. However, it is possible that Binance could fail to, or be restricted from, fulfilling our withdrawal requests.
There is not a similar immediate withdrawal process in place for other cover counterparties because we believe that the amount of crypto assets deposited with other cover counterparties, and after taking other factors including any pending legal actions against those cover counterparties into consideration, do not warrant such a system at this time.
Competition
We operate in a highly regulated and competitive market in Japan. Markets relating to crypto assets have been growing quickly and, given the nascency of the crypto asset industry and the early-stage adoption of crypto assets in Japan, we expect the competitive landscape to be rapidly evolving. As of December 31, 2024, there were 29 crypto asset exchange service providers registered with the JFSA in Japan. Our competitors include independent providers in Japan, including bitFlyer, GMO Coin, Bitbank and Mercoin, as well as providers affiliated with foreign
121
exchanges, including Huobi Japan. In addition, Binance announced that it has acquired Sakura Exchange BitCoin in November 2022 to enter the Japanese market and launched its initial services on its platform in August 2023, while Coinbase K.K. and Kraken shut down their services in Japan. We compete on factors including:
• the quality of our user interface for both smartphone and PC users;
• the security of our cryptocurrency exchanges and reliability of execution;
• provision of information and brand strength, including our association with Monex Group; and
• innovation to provide additional products and services of interest to our customers.
Employees
As of December 31, 2024, we had 186 full-time employees, (excluding directors, executive officers, audit and supervisory board members, contract employees, temporary employees, and temporary staff), 37.1% of which were engineers, allowing us to innovate rapidly to maintain our competitive edge. We work to identify, attract, and retain employees who are aligned with and will help us progress our mission.
In recognition of our positive work environment that supports flexibility, childbirth and childcare, and promotes work-life balance, in November 2021 we were awarded the “7th White Company Award” sponsored by the Japan Next Generation Enterprise Promotion Organization in the employee benefits category. This award recognizes noteworthy human resource systems and initiatives among companies that have obtained the White Company Certificate. This was our second time winning this award, following our recognition in the “Flexible Working Category” in the first half of 2021. Furthermore, in January 2023, our strong commitment towards improving our employees’ well-being was recognized, and we were awarded the “9th White Company Award” in the diversity and inclusion category.
Facilities
We lease office space for our headquarters in Amsterdam, the Netherlands, and we also lease office space in Tokyo, Japan. We believe that our facilities are adequate and suitable to meet our needs for our business as currently conducted.
Intellectual Property
We strive to acquire intellectual property rights related to the services we operate, and we recognize that the protection of our technology and intellectual property rights is an important aspect of our business. In order to prevent the infringement of not only our own intellectual property rights but also those of third parties, we conduct preliminary investigations throughout our company and with legal counsel. We rely on a combination of patents, trademarks, trade secrets, copyrights, confidentiality procedures, contractual commitments and other legal rights to establish and protect our intellectual property. We generally enter into agreements with our employees and consultants that contain confidentiality provisions to control access to our proprietary information.
Legal Proceedings
We are involved in litigation and other legal proceedings from time to time in connection with the ordinary course of our business. We also remain party to a lawsuit related to the cybersecurity incident we experienced in 2018. We do not believe this lawsuit or any other current litigation or other legal proceedings that we are a party to, if determined adversely to us, could potentially, individually or in the aggregate, have a material adverse impact on our business, financial condition or results of operations.
Regulatory Environment
Based on the manner in which we operate our business, as described here and elsewhere in this prospectus, including our account opening procedures, we do not believe that we are operating as an unregistered exchange, broker-dealer or clearing agency in the United States.
122
Overview of Regulatory Framework in Japan
Japan has emerged as one of the largest cryptocurrency markets globally and was the first country to establish a regulatory framework for cryptocurrencies. In addition to enabling the registration of cryptocurrency exchange service providers wishing to provide cryptocurrency exchange services to residents in Japan, this framework seeks to protect customers and to prevent cryptocurrency-related money laundering and terrorism financing.
However, Japanese law does not have a unified legal framework for digital assets. The legal status of any given digital asset under Japanese law is determined in accordance with their functions and uses. In other words, whether a given digital asset constitutes a “security token” (i.e., ERTRs or ERTRISs under the FIEA) or a “crypto asset” will be objectively determined based on the functions and uses of the digital asset in question and the legal requirements it meets. More specifically, according to the Payment Services Act (the “PSA”) and public comments issued by the JFSA, the definition of crypto assets excludes ERTRs and ERTRISs. Therefore, to determine the legal status of any given digital asset, we will first examine whether it satisfies the legal requirements for the applicability of ERTRs or ERTRISs under the FIEA. If these legal requirements are not satisfied, we will then assess whether such digital asset satisfies the requirements for a crypto asset under the PSA.
In practice, when a crypto asset exchange service provider (“CAESP”) decides to newly handle a particular digital asset, it will go through the following three-step process:
(i) The CAESP itself will examine the digital asset in question to confirm that it does not fall within the category of ERTRs or ERTRISs and is therefore a crypto asset.
(ii) The results of the CAESP’s examination will be reported to the JVCEA, a self-regulatory organization. The JVCEA will then review the report to determine the correctness of the analysis therein.
(iii) If the JVCEA determines that the analysis of the report is correct, it will provide its approval thereof, whereupon the CAESP will submit a notification of change to the JFSA by way of informing the JFSA that the relevant digital asset will be added to the crypto assets the CAESP is handling.
As mentioned above, the legal status of a digital asset will be determined based on its functions and uses. Accordingly, should there be any subsequent change to the functions or uses of the relevant digital asset, its legal status may change. However, there are no provisions in the PSA, other related laws and regulations, or the JVCEA’s self-regulatory rules that stipulate who has the authority to make decisions regarding changes in the legal status of digital assets handled by CAESPs, or the procedures for such changes. In addition, as of the date of this registration statement, there is no published case in which the handling of any digital asset by CAESPs was discontinued due to a change in the legal status of such digital asset. We believe that if either the JVCEA or the JFSA has concerns about the legal status under the PSA of a particular crypto asset handled by one or more CAESPs in Japan, there is a possibility that the JVCEA or the JFSA would consult with the affected CAESPs in order to determine the appropriate action to take. In the event a crypto asset were to no longer be supported, we believe the JVCEA’s procedures regarding discontinuation described below would apply.
According to Article 10, Paragraph 1 of the JVCEA “Regulations Concerning Handling of Crypto Assets,” when a CAESP discontinues the handling of digital assets it is handling, the CAESP must notify its users at least 30 days prior to the date of discontinuation through its website or other means of communication that are easily accessible to users, together with a public notice of discontinuation based on Article 63-20, Paragraph 3 of the PSA. In addition, according to Article 10, Paragraph 2 of the same regulation, when making such public notice, the CAESP must provide the following information to users:
(i) The name of the digital assets to be discontinued (“Discontinued Digital Assets”);
(ii) The date of discontinuation;
(iii) The reason for discontinuation;
(iv) The existence or non-existence of other CAESPs handling the Discontinued Digital Assets as of the date of notification and the name of such CAESPs;
(v) The policy on the return of the Discontinued Digital Assets; and
(vi) Information necessary to return the Discontinued Digital Assets to users.
123
Therefore, if a CAESP is no longer able to continue handling a digital asset handled by the CAESP due to a change in its legal status, the handling of such digital asset must be discontinued in compliance with the procedures stipulated in the above JVCEA self-regulatory rules.
Additionally, tokens (such as NFTs) that have no economic function as a means of payment because of their unique characteristics, are not currently regulated under Japanese financial regulations.
Coincheck currently only handles cryptocurrencies, which fall under the category of crypto assets, and NFTs, which do not fall under the category of either crypto assets or ERTRISs. Therefore, Coincheck is only registered as a CAESP and not as a Type I FIBO. An outline of the regulations for CAESPs is as follows.
Regulations on Crypto Asset Exchange Service
Under the PSA, those who provide CAES are required to be registered with the JFSA. A person who conducts CAES without registration will be subject to criminal proceedings and punishment.
The term “crypto asset” is defined in the PSA as:
• proprietary value that may be used to pay an unspecified person the price of any goods, etc. purchased or borrowed or any services provided and that may be sold to or purchased from an unspecified person (limited to that recorded on electronic devices or other objects by electronic means and excluding Japanese and other foreign currencies, currency denominated assets and electronic payment instruments (excluding currency denominated assets); the same applies in the following item) and that may be transferred using an electronic data processing system; or
• proprietary value that may be exchanged reciprocally for proprietary value specified in the preceding item with an unspecified person and that may be transferred using an electronic data processing system.
Under Japanese law, “crypto assets” do not constitute a “security” as such term is defined in the FIEA.
The term CAES is defined in the PSA to mean any of the following acts carried out as a business:
(a) sale or purchase of crypto assets, or the exchange of a crypto asset for another crypto asset;
(b) intermediating, brokering or acting as an agent in respect of the activities listed in item (a);
(c) management of customers’ money in connection with the activities listed in items (a) and (b); or
(d) management of customers’ crypto assets for the benefit of another person.
Under the PSA, CAESPs are required to:
(a) take the measures necessary to ensure the safe management of available information;
(b) provide sufficient information to customers;
(c) take the measures necessary for the protection of customers and the proper provision of services;
(d) segregate the property of customers from their own property and subject the segregation to regular audits by a certified public accountant or audit firm; and
(e) establish internal management systems to enable the provision of fair and appropriate responses to customer complaints, and implement measures for the resolution of disputes through alternative dispute resolution proceedings.
With respect to item (b), a CAESP is required to explain certain matters (such as the fact that the crypto assets do not constitute Japanese yen or any other foreign currency) to users in advance before conducting crypto asset trading for users.
124
Also, a CAESP is required to provide certain information to users in advance before providing CAES to users. Such information includes:
(i) its trade name and address;
(ii) its registration number;
(iii) the content of transactions;
(iv) an outline of every crypto asset it handles; and
(v) its fees and other charges.
Additionally, when a CAESP receives cash or crypto assets from its users, it must provide the users with the following information without delay:
(i) its trading name and registration number;
(ii) the amount of cash or crypto assets received; and
(iii) the date of receipt of such cash or crypto assets.
Furthermore, when a CAESP conducts crypto asset transactions with users on an ongoing basis, it must provide users, at least once every quarter, with records of its transactions with users, and the balances of the user’s cash and crypto assets that are managed by the service provider.
With respect to item (d) above, a CAESP that manages users’ fiat currency and crypto assets must segregate such property from its own property. For purposes of fiat currency management, such currency must be held in trust with a trust bank or trust company for protection against the CAESP’s bankruptcy. In the area of crypto asset management, stringent rules, as set forth below, have been put in place to protect users from leakages of crypto assets and from the bankruptcy of a CAESP:
• a CAESP must manage users’ crypto assets deposited by users (“Deposited Crypto Assets”) and its own crypto assets in separate wallets;
• a CAESP must manage at least 95% of the Japanese yen equivalent amount of the total Deposited Crypto Assets in wallets that are not connected to the Internet (so-called “cold wallets”);
• a CAESP that manages less than 5% of the Japanese yen equivalent amount of the total Deposited Crypto Assets in a wallet other than a cold wallet (so-called “hot wallets”) must manage the same type and amount of its own crypto assets (“Redemption Guarantee Crypto Assets”) in a cold wallet to protect users against the risk of leakages of crypto assets from the hot wallets; and
• users will have preference rights to repayment over the Deposited Crypto Assets and Redemption Guarantee Crypto Assets (Article 63-19-2 of the PSA). Such priority security interest is specifically stipulated in the PSA, because it is not clear whether bankruptcy segregation would be effective for Deposited Crypto Assets and Redemption Guarantee Crypto Assets in the event of the failure of such CAESP. Therefore, Article 63-19-2 of the PSA allows users the right to receive repayment of Deposited Crypto Assets and Redemption Guarantee Crypto Assets in advance of other creditors in preparation for the risk of failure of CAESPs.
If an individual affiliated with a CAESP fails to properly segregate users’ fiat currency or crypto assets, he/she will face punishment including imprisonment for not more than two years, a fine of not more than three million yen, or both, and the CAESP itself will also be subject to a fine of not more than three hundred million yen. In addition, if an individual affiliated with a CAESP, which is a legal entity, fails to hold Redemption Guarantee Crypto Assets in violation of the PSA or violates its obligation to segregate Redemption Guarantee Crypto Assets, he/she will face punishment including imprisonment for not more than two years, a fine of not more than three million yen, or both, and the CAESP itself will also be subject to a fine of not more than three hundred million yen.
125
Self-Regulatory Organization and Self-Regulatory Rules on Crypto Asset Exchange Service Providers
For purposes of securing proper implementation of CAES and protection of users of CAESPs, the JVCEA has been appointed as an approved self-regulatory organization under the PSA. The JVCEA establishes its own rules (the “SRO Rules”) and members of the JVCEA are required to comply with the SRO Rules in addition to the PSA and other applicable regulations.
The primary activities of the JVCEA are as follows:
• establishing self-regulatory rules;
• inspecting CAESPs and other members for compliance with the SRO Rules and applicable laws and regulations;
• providing guidance, recommendations and rulings to its members;
• providing business consulting services to its members;
• handling complaints from users of its member services;
• providing information to its members; and
• conducting statistical surveys.
In particular, the SRO Rules regulate the policies and activities of its members in the following areas:
• management and internal control;
• management of system risks and cyber security;
• anti-money laundering and counter-terrorism financing;
• handling of new crypto assets;
• management of advertisement or solicitation by crypto assets-related businesses; and
• management of unfair transactions using Crypto Asset-Related Information (as defined below).
Under the PSA, the JVCEA, which is a certified fund settlement operators association, is under the guidance and supervision of the JFSA (Articles 95 and 96 of the PSA). In addition, the governance of the JVCEA requires that self-regulatory rules be established with the involvement of numerous parties, including the board of directors, committees, and secretariat (Articles 39, 44, and 54 of the JVCEA Articles of Incorporation). Therefore, even the representative director of the JVCEA cannot establish self-regulatory rules that include the screening process and guidelines for crypto assets in a manner that favors individual companies.
In addition, according to Article 93 of the PSA, executives and employees of the JVCEA or those who have held these positions in the past, are obliged to keep the confidentiality of secrets obtained in connection with their duties, to prevent leaks, and to refrain from the use of information for any other purpose. Furthermore, in the event of a violation of these obligations, an individual would be subject to imprisonment for not more than one year or a fine of not more than ¥500,000 (Article 111 of the PSA).
Therefore, it is prohibited for Satoshi Hasuo, as a director of the JVCEA (who is also Coincheck’s Chairman, Representative Director and Executive Officer), to use information obtained in connection with his duties at the JVCEA for any purpose other than the association’s business, and to act against the interests of other member CAESPs. The JVCEA secretariat, which is established under the JVCEA Articles of Incorporation, handles most of the JVCEA’s business as a self-regulatory organization. The JVCEA secretariat does not disclose information regarding the operations of individual member CAESPs or information regarding examinations related to the handling of individual crypto assets, except when necessary or unavoidable, in order to avoid any conflict of interest due to such dual positions. Therefore, the possibility of information being shared with Satoshi Hasuo, as a director of the JVCEA, that could cause a conflict of interest is limited. In addition, the board of directors of the JVCEA has the authority to perform its duties, including making decisions on the execution of the JVCEA’s business. In this regard, directors of the JVCEA who have a special interest in a certain resolution may not participate in such resolution
126
(Article 42, Paragraph 1 of the JVCEA Articles of Incorporation). For instance, if Satoshi Hasuo attempts to make a decision at a board meeting of the JVCEA that is favorable to the Company, the existence of his special interest will be examined at the relevant board meeting, and he may not be allowed to participate in the board’s resolution. Any conflict of interests among Satoshi Hasuo, the JVCEA and the Company is meant to be identified and addressed by this arrangement.
Under the PSA, a CAESP that proposes to handle a new crypto asset is required to notify the JFSA in advance. Additionally, the JVCEA requires all member CAESPs wishing to deal in a new crypto asset to first conduct an internal assessment of the new crypto asset and to submit an assessment report to the JVCEA for its review. As no new crypto asset can be handled if the JVCEA raises any objection (including the setting or modification of incidental conditions for handling of crypto assets, hereinafter referred to as the “JVCEA Pre-Assessment”), a member is effectively required to obtain the JVCEA’s approval before it can begin handling a new crypto asset.
Under the SRO Rules, member CAESPs must consider the characteristics of the crypto assets to be handled and carefully assess the appropriateness of handling such crypto assets if any of the following applies:
(a) the crypto assets are being used or will likely be used in a manner that violates applicable laws and regulations or public order and morals;
(b) the crypto assets are being used or will likely be used for criminal purposes; or
(c) the crypto assets are used or will likely be used for money laundering or terrorist financing.
Additionally, the SRO Rules prohibit member CAESPs from handling crypto assets to which any of the following applies, based on assessment of the characteristics of the crypto assets to be handled and the system of the relevant member CAESPs themselves:
(a) crypto assets in respect of which the transfer, updating, or maintenance of ownership records involves serious impediments or raises serious concerns;
(b) crypto assets for which the member CAESP is unable or unwilling to arrange for the conduct of an appropriate audit by a chartered accountant or an audit firm;
(c) crypto assets that cannot or will not be safely managed or disbursed by the relevant member CAESPs in a systematic or other manner; or
(d) in addition to the above, crypto assets that make it impossible or impractical for the relevant member CAESPs to properly and reliably comply with their obligations under the PSA.
As of March 27, 2025, there are 103 types of crypto assets being handled by CAESPs.
In addition, as of December 26, 2022, the JVCEA SRO Rules were amended to establish (i) the Green List System which exempts certain member CAESPs (Green List Eligible Members) from the JVCEA Pre-Assessment for crypto assets designated by the JVCEA, and (ii) the Crypto Asset Self Check System (CASC System) which exempts certain member CAESPs (CASC Eligible Members) from the JVCEA Pre-Assessment except in specific cases. Under the Green List System, crypto assets that meet all of the following four criteria are designated by the JVCEA as “crypto assets widely handled in Japan” on its webpage and the JVCEA Pre-Assessment is not required for such crypto assets when a Green List Eligible Member handles them:
(a) Crypto assets that have been handled by three or more member CAESPs;
(b) Crypto assets that have been handled by one member CAESP for at least six months;
(c) Crypto assets for which the JVCEA has not set ancillary conditions for handling; and
(d) Crypto assets that have not been deemed inappropriate for the Green List System by the JVCEA for any other reason.
127
Taking into account the above, we note that the Green List System does not require the JVCEA Pre-Assessment only for “crypto assets widely handled in Japan,” while the JVCEA Pre-Assessment is still required for other crypto assets in the same manner as before (except for the CASC System). As of March 11, 2025, 30 tokens are designated by the JVCEA as “crypto assets widely handled in Japan” on its webpage.
Additionally, the JVCEA Pre-Assessment is required only with respect to crypto assets being handled for the first time in Japan. However, for other crypto assets, the JVCEA Pre-Assessment is not required for a Green List Eligible Member or a CAESP Eligible Member.
We are currently authorized by the JVCEA as a Green List Eligible Member and a CASC Eligible Member. We are still required to provide advance notice to the JFSA of our intention to support trading in a particular crypto asset. These steps are in addition to the other risk assessments and business judgments made by us.
Regulations on Anti-Money Laundering and Counter-Terrorism Financing on Crypto Asset Exchange Service Providers
To prevent crypto asset-related money laundering and terrorism financing, the Act on Prevention of Transfer of Criminal Proceeds (the “APTCP”) requires exchange providers to implement KYC and other preventative measures. The APTCP applies to registered CAESPs, and generally requires them to:
(a) verify and record the identity of customers when conducting certain transactions (that is, to implement the KYC process);
(b) record transactions with customers;
(c) report suspicious transactions to the JFSA; and
(d) take measures to keep information regarding customer verification up to date, provide education and training for employees, and develop other systems necessary for the proper conduct of the processes described in items (a) to (c).
Under the APTCP, CAESPs must conduct the KYC process when undertaking any of the following:
(a) executing a master agreement with a customer for providing that customer with regular CAES, management and similar services in respect of his or her money or crypto assets;
(b) transferring crypto assets into funds or exchanging them for other kinds of assets (or transactions similar thereto), where the receipt and payment of crypto assets exceeding ¥100,000 in value is involved; or
(c) where the exchange provider manages a customer’s crypto assets, transferring the crypto assets at the customer’s request if their value exceeds ¥100,000.
Travel Rules under Japanese Law
Under the new travel rules introduced in accordance with the Revised Act on Prevention of Transfer of Criminal Proceeds (the “Revised APTCP”) which came into effect on June 1, 2023, CAESPs are required to notify other CAESPs located in Japan and the prescribed jurisdictions (collectively, the “VASPs”) of certain information (including information of the sender and recipient in connection with the transfer of crypto assets) (the “Transfer Information”) when sending crypto assets to another VASP according to Article 10-5 of the Revised APTCP.
The prescribed jurisdictions, designated by the JFSA, currently are the United States, Albania, Israel, Canada, the Cayman Islands, Gibraltar, Singapore, Switzerland, Serbia, the Republic of Korea, Germany, the Bahamas, the Bermuda Islands, the Philippines, Venezuela, Hong Kong SAR, Malaysia, Mauritius, Liechtenstein, Luxembourg, the United Arab Emirates, India, Indonesia, the United Kingdom, Estonia, Nigeria, Bahrain and Portugal.
The list of VASPs in the prescribed jurisdictions (the “Subject VASPs”) is researched and published by the JVCEA, and is subject to update approximately once every six months, and we are required to monitor the list and update its system in accordance with such periodic updates. Additionally, a new jurisdiction may also be added to the prescribed jurisdictions by the JFSA from time to time.
128
Travel Rules Solutions
In order to send the Transfer Information to the Subject VASPs, an information transfer system (the “Transfer System”) must be utilized. Although various types of Transfer Systems are currently available to the VASPs in the market, none of them are compatible with other types of Transfer Systems. Accordingly, Transfer Information can only be exchanged between VASPs using the same Transfer System and, as a result, CAESPs can only transfer crypto assets to a Subject VASP that has adopted the same Transfer System.
Moreover, notifications of the Transfer Information are only available for transfers of crypto assets that are supported by the Transfer System. As a result, the crypto assets that can be transferred under the travel rules are limited to such crypto assets.
We have adopted a system called “Travel Rule Universal Solution Technology” (“TRUST”), which has been adopted by us as well as other CAESPs in Japan. Among the crypto assets handled by us, as of March 27, 2025, TRUST only supported BTC, ETH, BAT, ENJ, SAND, FNCT, CHZ, LINK, DAI, MKR, AXS, APE, IMX, WBTC and SHIB.
Impact on Business
As stated above, under the new travel rule, we are currently restricted from sending crypto assets to CAESPs in Japan, except for those that have adopted the TRUST system. In addition, some of the crypto assets we handle are currently not supported by TRUST. Although we have not observed any adverse impact to our businesses (including OTC trading services and exchange services) since the Revised APTCP came into effect, customers may stop using our services due to the inconvenience, which in turn may have an adverse impact on our business in the future.
Regulations on Initial Coin Offerings
There are various types of tokens issued by way of initial coin offerings (“ICOs”), and Japanese regulations applicable to ICOs vary according to the respective schemes. If a token falls within the definition of crypto asset, crypto asset regulations under the PSA will apply. In Japan, (i) if tokens issued via ICOs are already handled by Japanese or foreign exchanges, such tokens would constitute crypto assets under the PSA based on the rationale that exchange markets for such tokens must already be in existence, and (ii) (in cases where tokens are not yet handled by Japanese or foreign exchanges) if the token issuer does not impose substantial restrictions on the exchange of such tokens with Japanese or foreign fiat currencies or crypto assets, such tokens would likely also constitute crypto assets under the PSA.
In addition, the JVCEA has published SRO Rules and guidelines regarding ICOs for crypto asset-type tokens, entitled “Rules for Selling New Crypto Assets” (the “ICO Rules”). Under the ICO Rules, there are two types of ICOs, which can be described as follows: (i) a CAESP issues new tokens and sells such tokens by itself; or (ii) a token issuer delegates CAESPs to sell the newly issued tokens (IEOs). Under the ICO Rules, the following requirements have to be met for both types of ICO:
• a system for the review of a targeted business that raises funds via ICO/IEO must be established;
• information in respect of the token, the proposed use of proceeds raised from the ICO/IEO, and the like, must be disclosed;
• management of funds (both fiat and crypto assets) raised from the ICO/IEO must be segregated;
• there must be proper account processing and financial disclosure of funds raised from the ICO/IEO;
• there must be assurance of the safety of the newly issued tokens, and the relevant blockchain, smart contract, wallet tool, and the like; and
• there must be proper valuation of the newly issued tokens.
Furthermore, any tokens supported for trading on CAESPs through an IEO are subject to substantially the same screening process by such CAESPs and the JVCEA as applied to other crypto assets handled by the CAESPs to confirm that they do not fall within the category of ERTRs or ERTRISs.
129
Regulations governing Crypto Asset Derivatives Transactions
The FIEA regulates derivative transactions that use crypto assets as underlying assets (“Crypto Asset Derivatives Transactions”) for the purpose of protecting users and ensuring that such transactions are conducted appropriately. As Crypto Assets are included in the definition of “Financial Instruments” under the FIEA, the conduct of Over-the-Counter Derivatives Transactions relating to Crypto Assets (“OTC Crypto Asset Derivatives Transactions”) or related intermediary (baikai) or brokerage (toritsugi) activities constitute Type I financial instruments business. Accordingly, business operators engaging in OTC Crypto Asset Derivatives Transactions are required to undergo registration as Type I FIBOs.
Any entity that intends to be a Type I FIBO is required to meet certain asset requirements, including having:
(i) a stated capital of at least ¥50 million;
(ii) net assets of at least ¥50 million; and
(iii) a capital-to-risk ratio of at least 120%.
Coincheck does not currently offer OTC Crypto Asset Derivatives Transactions.
Prohibitions Against Unfair Acts in Respect of Spot Trading of Crypto Assets or Crypto Asset Derivative Transactions
The FIEA contains the following prohibitions against unfair acts (the conduct of which is punishable by penalties) in respect of spot trading of crypto assets and Crypto Asset Derivative Transactions, regardless of the violating party:
• prohibition against wrongful acts;
• prohibition against dissemination of rumors, usage of fraudulent means, assault or intimidation; and
• prohibition against market manipulation (including, but not limited to, conducting a false purchase and sale of crypto assets (i.e., wash trading of crypto assets)).
In addition, unfair transactions involving these crypto assets and Crypto Asset Derivative Transactions are also regulated by the JVCEA SRO Rules entitled “Regulations Concerning Prevention of Unfair Transactions in Crypto Asset Exchange Business” and “Regulations Concerning Prevention of Unfair Transactions in Crypto Asset Related Derivative Transaction Business.” Specifically, the JVCEA SRO Rules require CAESPs to establish the following systems and measures to prevent unfair transactions by CAESPs:
• establishment of an “trade monitoring department” independent from an order management department;
• establishment of internal rules to prevent unfair transactions (including, but not limited to, prohibition of front running); and
• conducting transaction monitoring for unfair transactions based on the relevant internal rules.
These prohibitions and JVCEA SRO Rules are intended to enhance the protection of users and to prevent unjust enrichment.
Although insider trading of crypto assets and Crypto Asset Derivative Transactions is currently not regulated under the FIEA, insider trading of crypto assets is regulated under the Regulations Concerning the Establishment of a Management System for Crypto Asset-Related Information Pertaining to the Crypto Asset Exchange Business of the JVCEA SRO Rules, and insider trading of Crypto Asset Derivative Transactions is regulated under the Regulations Concerning the Establishment of a Management System for Crypto Asset-Related Information Pertaining to the Crypto Asset-Related Derivatives Transaction Business of the JVCEA SRO Rules. Specifically, the JVCEA SRO Rules define “Crypto Asset-Related Information” as a concept equivalent to insider information of crypto assets and Crypto Asset Derivative Transactions. The term “Crypto Asset Related Information” refers to the information regarding the crypto assets handled or to be handled by CAESPs or to the undisclosed information
130
about such CAESPs, that is considered to influence decisions of their users to purchase or sell crypto assets with fiat currencies or to exchange them with other crypto assets. The JVCEA SRO Rules require CAESPs to establish the following systems and measures to prevent insider trading by CAESPs using Crypto Asset-Related Information:
• establishment of an “information management department” independent from a sales department and an order management department, which oversees and manages the Crypto Asset-Related Information acquired by CAESPs;
• establishment of internal rules to prevent inappropriate use of Crypto Assets-Related Information;
• reporting of any acquisition of Crypto Asset-Related Information by officers or employees of CAESPs to the information management department;
• proper management of Crypto Asset-Related Information;
• prohibition of communication of Crypto Asset-Related Information by officers or employees of CAESPs to third parties for their own or third parties’ benefit;
• prohibition of solicitation of transactions by officers and employees of CAESPs providing Crypto Asset-Related Information; and
• prohibition of proprietary trading by officers and employees of CAESPs using Crypto Asset-Related Information.
To stay in compliance with the JVCEA SRO Rules, we have established internal rules with regard to information management as well as crypto asset trading restrictions, including Rules Concerning the Examination of Transactions to Prevent Unfair Trading and a Procedures Manual for Trade Screening, and monitor trading activities by our employees.
Non-Fungible Tokens
Under the current financial regulations in Japan, NFTs are not generally regulated and are not deemed crypto assets under the PSA. Therefore, NFTs are not subject to the custody rules applicable to crypto assets. In addition, NFTs would not constitute securities or ERTRISs, under the FIEA if their holders do not share in profits or receive dividends in respect of the NFTs. Our process for approving the listing of NFTs on Coincheck NFT Marketplace includes confirming that the NFTs are neither crypto assets under the PSA nor ERTRISs under the FIEA, but our determination is not binding on regulatory authorities or courts in Japan (see also “Risk Factors — Risks Relating to Our Business and Industry — We also operate Coincheck NFT Marketplace, which may expose us to legal, regulatory, and other risks that could adversely affect our business, operating results, and financial condition.”).
131
Board Structure
We are a Dutch public limited liability company (naamloze vennootschap) and our business and affairs are managed under the direction of our Board with a one-tier board structure consisting of one or more executive directors and one or more non-executive directors, with the majority being non-executive directors. Directors of the Board were nominated by Monex and the Sponsor at the closing of the Business Combination pursuant to the terms of the Business Combination Agreement. Subject to the terms of the Nomination and Voting Agreement filed as an exhibit to the registration statement on Form F-1 of which this prospectus is a part, until the third anniversary of the Closing Date, the Company is required to use its reasonable best efforts to cause the Board to include a specified number of Directors nominated by the Sponsor. See “Description of Securities — Nomination and appointment.” There are no family relationships among any of our directors.
Management and Board of Directors
The following table sets forth the names, ages and positions of our executive officers, executive directors and non-executive directors as of the date of this prospectus.
Name |
Age |
Position |
||
Oki Matsumoto |
61 |
Executive director with the title Executive Chairperson |
||
Gary A. Simanson |
64 |
Executive director with the title Chief Executive Officer |
||
Yo Nakagawa |
59 |
Executive director |
||
Takashi Oyagi |
56 |
Non-executive director with the title Lead Non-Executive Director |
||
Allerd Derk Stikker |
63 |
Non-executive director |
||
David Burg |
55 |
Non-executive director |
||
Toshihiko Katsuya |
59 |
Non-executive director |
||
Yuri Suzuki |
56 |
Non-executive director |
||
Jessica Sinyin Tan |
47 |
Non-executive director |
||
Jason Sandberg |
46 |
Chief Financial Officer (executive officer) |
||
Satoshi Hasuo |
55 |
Chief Operating Officer (executive officer) |
Oki Matsumoto is an executive director with the title Executive Chairperson of Coincheck Parent and is the founder of Monex, and Chairman of the Board and the Representative Executive Officer of Monex Group, Inc., and currently serves as an outside director of Mastercard, Incorporated (since 2016), and a board member emeritus of Human Rights Watch. He is also an Executive director of Coincheck, Inc. and 3iQ Digital Holdings Inc. and Chairman of the Board of Directors of TradeStation Group, Inc., each a subsidiary of Monex. Mr. Matsumoto served as an outside director of the Tokyo Stock Exchange from 2008 to 2013 and as a former member, Financial Counsel to the Prime Minister of Japan. He began his career at Salomon Brothers, then joined Goldman, Sachs & Co. (1990-1998), where he held several leadership positions, including General Partner (1994-1998) before he founded Monex, Inc., a Japanese online brokerage firm, in 1999. Mr. Matsumoto has a bachelor’s degree in Law from the University of Tokyo.
Gary A. Simanson is an executive director of Coincheck Parent and serves as its Chief Executive Officer. Mr. Simanson was President and Chief Executive Officer and a director of Thunder Bridge Capital Partners IV, Inc. (NASDAQ: THCP) from January 2021 until the consummation of its business combination with Coincheck Parent in December 2024. From June 2020 until December 2023, he was Chief Executive Officer and a director of Thunder Bridge Capital Partners III, Inc. (NASDAQ: TBCP). He was Chief Executive Officer and a director of Thunder Bridge Acquisition II, Ltd. (NASDAQ: THBR) from February 2019 until June 2021, when it consummated its initial business combination with indie Semiconductor, Inc. (NASDAQ: INDI). From 2018 to 2019 he was Chief Executive Officer and a director of Thunder Bridge Acquisition, Ltd. (NASDAQ: TBRG), which in July 2019 consummated its initial business combination with Repay Holdings Corp. (NASDAQ: RPAY), an omnichannel payments technology provider. Mr. Simanson is founder of Thunder Bridge Capital, LLC, a private investment vehicle, and has served as its Chief Executive Officer since 2017. He has been Managing Director of First Capital Group, L.L.C., an investment banking advisory firm specializing in the financial services industry, bank mergers and acquisitions, strategic planning, capital raising and enterprise risk management, since 1997. He was Founder, Vice Chairman and Chief Strategic Officer of Community Bankers Trust Corporation, a $1.2 billion in assets bank holding company
132
for Essex Bank (NASDAQ NMS “ESXB”) and previously served as its President, Chief Executive and Chief Financial Officer, and as a Director since its inception in 2005 to 2011, overseeing its public offering in 2006 as a special purpose acquisition company, Community Bankers Acquisition Corp, its bank acquisitions and shareholder reformulation in 2008, and its acquisitions of failed banks from the FDIC in 2008 and 2009. Mr. Simanson has served in various other roles as an executive officer, board member and adviser in regulated industries including commercial banking, investment banking and financial services. He began his career as an attorney specializing in the securities, bank regulatory and bank merger and acquisition areas at Milbank, Tweed, Hadley & McCloy, LLP, and also served as in-house counsel for a publicly-traded bank holding company. Mr. Simanson is licensed (inactive) to practice law in the states of New York, Colorado and Tennessee. Mr. Simanson received his B.A. degree, majoring in Economics, from George Washington University. He earned his M.B.A., majoring in Finance, from George Washington University and holds a J.D. from Vanderbilt University.
Yo Nakagawa is an executive director of Coincheck Parent and a Senior Executive Director of Monex Group, Inc., Expert Director of Coincheck, Inc. He is a Director of Monex International Limited (Hong Kong) (2013-now), as a Director at Mimura Strategic Partners (2005-2011) and as the Chief Operating Officer at Fujimaki Japan (2003-2004). Mr. Nakagawa began his career at JP Morgan in 1988. He has a bachelor’s degree in Economics from Keio University.
Takashi Oyagi is a non-executive director with the title Lead Non-Executive Director of Coincheck Parent and is a founding member of Monex, Executive Officer and Chief Financial Officer of Monex Group, Inc. (and also serves on Monex’s board of directors) and is a Director and the Chief Strategic Officer of TradeStation Group, Inc. as well as the Chairman of the board of directors of 3iQ Digital Holdings Inc. Mr. Oyagi served as a Director in the Global Markets Division of Deutsche Bank Securities, Inc., in New York (2004-2007), and in the Asian Special Situation Group at Goldman Sachs (Japan) Ltd. (1998-1999). He began his career in finance in 1991 at Bank of Japan. Mr. Oyagi has a bachelor’s degree in Law from the University of Tokyo and an MBA degree from the University of Chicago.
Allerd Derk Stikker is a non-executive director of Coincheck Parent and is an advisor of BXR Group and is a director of a number of portfolio companies of BXR Group. Mr. Stikker joined BXR Group in 2008, initially as Chief Financial Officer of its real estate division. From 2011 to 2014 Mr. Stikker served as Chief Operating Officer and from 2014 until 2018 Chief Executive Officer of BXR Group. He started his career as a banking consultant in the United States and became the Chief Financial Officer of IMC, a Dutch financial institution, after returning to Europe. A Dutch citizen, Mr. Stikker holds an MBA and a B.A. in Business Administration from the George Washington University.
David Burg is a non-executive director of Coincheck Parent and is Global Group Head, Cyber and Digital Trust at Kroll, LLC after joining in March 2024. At Kroll, LLC, he is primarily responsible for leading a team of professionals with P&L responsibility and also overseas overhauls of group strategy to enable entrance into new markets and segments. Mr. Burg previously worked at Ernst & Young LLP from April 2018 to February 2024 as Principal and Americas Cyber Leader. From 1998 to 2018 Mr. Burg served in a variety of positions at PricewaterhouseCoopers LLP (PwC) in the United States, including Principal and Global Cyber Security Leader and Principal and U.S. and Global Advisory Cyber Leader among other positions. Mr. Burg started his career as Project Specialist to Assistance Director of Financial Systems at the University of Pennsylvania Health System from 1993 to 1998. Mr. Burg holds an MBA from William and Mary — Raymond A. Mason School of Business and a B.S. from the University of Pennsylvania.
Toshihiko Katsuya is a non-executive director of Coincheck Parent and served as President & CEO at Aruhi Corporation (currently SBI Aruhi Corporation), a leading Japanese mortgage bank listed on the Tokyo Stock Exchange from April 2022 until June 2024 after he joined Aruhi in 2021. He worked for Monex Beans Holdings, Inc. (currently Monex Group, Inc.) for 15 years from 2006 to 2020 in various positions including President of Monex FX, Inc. in 2010, President of Monex Securities in 2015, COO of Monex Group, Inc. in 2017, President of Coincheck, Inc. from 2018 to 2020, and CFO of Monex Group, Inc. in 2019. Previously, he worked for The Mitsubishi Bank, Ltd. (currently MUFG Bank, Ltd.) for 17 years from 1989 to 2006, where he held various positions, including senior manager of Corporate Planning Division and VP of Investment Banking Division for the Americas. He assumed the positions of Director of Financial Futures Association of Japan in 2017 and Director of Japan Virtual and Crypto Assets Exchange Association in 2019. Mr. Katsuya holds an MBA from the University of California at Berkeley and a B.A. in Law from the University of Tokyo.
133
Yuri Suzuki is a non-executive director of Coincheck Parent and is a senior partner at the Tokyo office of the Japanese law firm, Atsumi & Sakai. Ms. Suzuki is an audit & supervisory board member at both Yayoi Co., Ltd. and CAMPFIRE, Inc and was an outside director at Coincheck, Inc. She also serves as an audit & supervisory board member at FinCity.Tokyo, the Organization of Global Financial City Tokyo. Ms. Suzuki served as a visiting attorney at Kirkland & Ellis LLP from September 2005 to July 2006 and as a director of the Japan Institute of Life Insurance from 2015 to 2023. She was admitted to the bar in Japan in 2001 and to the New York State Bar in 2006. She is a member of the Japan Federation of Bar Associations and the Daini Tokyo Bar Association. Ms. Suzuki has an LLM in Corporation Law from New York University School of Law and a bachelor’s degree in law from Waseda University.
Jessica Sinyin Tan is a non-executive director of Coincheck Parent and currently serves on the strategy and consumer protection committee of PingAn Bank. She was with PingAn Group for 11 years and was PingAn Group co-CEO and Executive Director between 2018-2023, leading its insurance, digital banking, healthcare, and technology businesses; she also served on the related party transactions and consumer protection committee of PingAn Group between 2020 and 2024. Before that, Ms. Tan was a global Partner at McKinsey & Company, working in its U.S. and Asia offices for 13 years. She is currently on several government advisory committees, including the World Bank Private Sector Investment Lab (for sustainable investments), the Monetary Authority of Singapore (MAS), as well as three Singapore non-profit boards (Singapore pensions, healthcare, and elderly care). Ms. Tan graduated from the Massachusetts Institute of Technology (MIT) with a Master’s degree in Electrical Engineering & Computer Science, as well as two Bachelor’s degrees in Electrical Engineering and Economics.
Jason Sandberg is Chief Financial Officer of Coincheck Parent and has served as a Managing Director at Thunder Bridge Capital, LLC since 2021. At Thunder Bridge Capital, LLC, he is primarily responsible for the evaluation and analysis of equity investment opportunities for the Thunder Bridge platform as well as providing transaction support from a regulatory, compliance and due diligence perspective for merger candidates. Mr. Sandberg previously worked as a Partner with Grant Thornton, LLP from 2013 through 2021. He served as an Audit Partner and was the Atlantic Coast Financial Services Practice leader. He also spent time as a Partner in the Firm’s National Professional Standards Group, focused on risk management for the firm’s high-profile public and private clients. He is a Certified Public Accountant and holds an MBA from Temple University and a Bachelor’s of Science in Accounting from the University of Delaware.
Satoshi Hasuo is Chief Operating Officer of Coincheck Parent and Chairman, Representative Director and Executive Director of Coincheck, Inc., a leading crypto exchange in Japan. He started his career at The Long-Term Credit Bank of Japan in 1993. After working at UBS Securities Japan Co., Ltd. and Mitsubishi Securities Co., Ltd., he joined Monex Group, Inc. (formerly Monex Beans Holdings, Inc.) in May 2005 where he was appointed as Chief Financial Officer in October 2017. In November 2019, he joined Coincheck, Inc., and was appointed as Representative Director & President. In June 2024, he was named Chairman, Representative Director & Executive Officer (current position), and Executive Officer to Monex Group, Inc. (current position).
Foreign Private Issuer Status
The majority of our outstanding voting securities are directly and indirectly owned of record by non-U.S. residents. In addition, U.S. residents do not comprise a majority of our executive officers or directors, and most of our assets are located, and our business is principally administered, outside of the United States. As a result, we report under the Exchange Act as a non-U.S. company with foreign private issuer status. Under Rule 405 of the Securities Act, the determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter and, accordingly, the next determination will be made with respect to us on September 30, 2025. For so long as we qualify as a foreign private issuer, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including:
• the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act;
134
• the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and imposing liability for insiders who profit from trades made within a short period of time;
• the rules under the Exchange Act requiring the filing with the SEC of an annual report on Form 10-K (although we will file annual reports on a corresponding form for foreign private issuers), quarterly reports on Form 10-Q containing unaudited financial and other specified information (although we will file semi-annual reports on a current reporting form for foreign private issuers), or current reports on Form 8-K, upon the occurrence of specified significant events; and
• Regulation Fair Disclosure or Regulation FD, which regulates selective disclosure of material non-public information by issuers.
Accordingly, there may be less publicly available information concerning our business than there would be if we were a U.S. public company. Additionally, certain accommodations in the Nasdaq corporate governance standards allow foreign private issuers, such as us, to follow “home country” corporate governance practices in lieu of the otherwise applicable corporate governance standards. As described in more detail under “Description of Securities — Share Capital — Issuance of shares,” to the extent we rely on such requirements under Dutch law with respect to issuance of shares, our practice varies from the requirements of the corporate governance standards of Nasdaq, which generally requires an issuer to obtain shareholder approval for the issuance of securities in connection with such events. While we do not currently intend to rely on any other home country accommodations, for so long as we qualify as a foreign private issuer, we may take advantage of them.
Controlled Company Exception
Monex continues to hold more than a majority of the voting power of our Ordinary Shares eligible to vote in the election of our directors. As a result, we are a “controlled company” within the meaning of the Nasdaq corporate governance standards (the “corporate governance standards”). Under the corporate governance standards, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company.”
As a “controlled company,” we may elect not to comply with certain corporate governance standards, including the requirements (1) that a majority of our Board consist of independent directors, (2) that our Board have a compensation committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities and (3) that our Board have a nominating and corporate governance committee that is comprised entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities. Although we are not relying on the exemptions from these corporate governance requirements, if we do rely on such exemptions in the future, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq. In the event that we cease to be a “controlled company” and our Ordinary Shares continue to be listed on Nasdaq, we will be required to comply with the corporate governance standards within the applicable transition periods or rely on an alternate exemption including those available to a foreign private issuer.
Board Committees
Our Board has established the following standing committees: an audit committee, a compensation committee, a nominating and corporate governance committee and a risk committee. The composition and responsibilities of each committee are described below. Our Board may also establish from time to time any other committees that it deems necessary or desirable. Members serve on these committees until their resignation or until otherwise determined by the Board.
135
Audit Committee
Our audit committee consists of Allerd Derk Stikker, Toshihiko Katsuya and Yuri Suzuki, with Allerd Derk Stikker serving as chair and as the audit committee financial expert. Our audit committee is responsible for, among other things:
• selecting and preparing the nomination of our independent auditors, and determining the audit and non-audit services to be performed by our independent auditors;
• assisting the Board in evaluating the qualifications, performance and independence of and the relation with our independent auditors;
• assisting the Board in monitoring the quality and integrity of our financial statements and our accounting and financial reporting, including any published interim reports, related press releases and other related corporate communications;
• assisting the Board in monitoring our compliance with legal and regulatory requirements;
• assisting the Board with its compliance with recommendations and observations of our internal and independent auditors;
• reviewing the adequacy and effectiveness of our internal control over financial reporting processes;
• assisting the Board in monitoring the performance of our internal audit function;
• monitoring the performance of our internal audit function;
• reviewing with management and our independent auditors our annual and quarterly financial statements;
• assisting the Board with the Company’s financing;
• assisting the Board with the application by the Company of information and communication technology, including risks relating to cybersecurity;
• assisting the Board with the Company’s policy on tax planning adopted by management;
• assisting the Board with the Company’s policy on reservations and dividends; and
• establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.
Jessica Sinyin Tan, Allerd Derk Stikker, Toshihiko Katsuya, Yuri Suzuki, David Burg and Takashi Oyagi qualify as independent directors under the Nasdaq listing standards and the independence standards of Rule 10A-3 of the Exchange Act.
Compensation Committee
Our compensation committee consists of Takashi Oyagi, Allerd Derk Stikker and Jessica Sinyin Tan, with Takashi Oyagi serving as chair. The compensation committee is responsible for, among other things:
• submitting clear and understandable proposals to the Board concerning the remuneration policy to be pursued with regard to the Board;
• reviewing and proposing corporate goals and objectives relevant to the compensation of our CEO, evaluating our CEO’s performance in light of those goals and objectives, and, either as a committee or together with the other non-executive directors, proposing our CEO’s compensation level based on such evaluation, within the limits of the Company’s remuneration policy;
• proposing to the Board any amendments to the remuneration policy to be pursued by the Company as the compensation committee deems necessary or appropriate;
136
• reviewing and recommendations to the Board with respect to, the compensation of our other executive officers, including annual base salary, bonus and equity-based incentives and other benefits;
• reviewing and recommending the compensation of the Board, within the limits of the Company’s remuneration policy;
• submitting a proposal, in accordance with the remuneration policy, concerning the compensation of individual executive directors, which proposal will in any event (a) cover the compensation structure, the amount of the fixed and variable remuneration components, the performance criteria used, the scenario analyses that are carried out and the pay ratios within the Company and its affiliated enterprise and (b) take into account the executive directors’ view on the proposal, including with regard to the amount and structure of their own compensation (having considered the items referred to above in the second bullet point under the heading “Compensation Committee”);
• preparing the remuneration report in accordance with Section 3.4.1 of the DCGC;
• reviewing compensation disclosure included in our annual report on Form 20-F and other filings with the SEC; and
• reviewing and making recommendations with respect to our equity compensation plans.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee consists of Toshihiko Katsuya, Takashi Oyagi and Jessica Sinyin Tan, with Toshihiko Katsuya serving as chair. The nominating and corporate governance committee is responsible for, among other things:
• drawing up the selection criteria and appointment procedures for directors of the Company;
• assisting the Board in identifying prospective director nominees and making proposals to the non-executive directors for the nomination and re-nomination of directors, as applicable, to be appointed by the general meeting of the Board, taking into account the profile of non-executive directors;
• overseeing the evaluation of the Board and management;
• the periodic assessment of the size and composition of the Board and as appropriate, making proposals for a composition profile of the Board;
• the periodic assessment of the performance of individual directors and reporting on this to the Board;
• drawing up a plan for the succession of directors;
• supervision of the policy on the selection and appointment criteria for senior management;
• reviewing developments in corporate governance practices and developing and recommending a set of corporate governance guidelines; and
• recommending members for each committee of the Board.
Risk Committee
Our risk committee consists of David Burg, Toshihiko Katsuya and Yuri Suzuki, with David Burg serving as chair. The risk committee is responsible for, among other things:
• reviewing and making recommendations to the Board, and/or audit committee, as applicable, with respect to the enterprise risk management framework of the Company, including, but not limited to: (a) the risk governance structure; (b) the risk competencies of the Company; (c) the Company’s risk tolerance; (d) the risk management strategy and associated risk management initiatives and how both support the business strategy and business model of the Company; (e) the risk management elements of the Company’s strategy;
• reviewing and making recommendations to the Board with respect to the Company’s risk exposure;
137
• reviewing and making recommendations to the Board with respect to the Company’s compliance with risk policies covering all known material risks of the Company and related control requirements; and
• reviewing and making recommendations to the Board with respect to the application by the Company of information and communication technology, including risks relating to cybersecurity.
Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serve, or have served during the last completed fiscal year, as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our Board or our compensation committee. We are party to certain transactions with our parent company as described in “Certain Relationships and Related Person Transactions.”
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to our all directors, officers (including our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions) and employees of our corporate group, and to anyone to whom we have made the code applicable by contract or otherwise. Our Code of Business Conduct and Ethics is posted to our website and is a “code of ethics,” as defined in Item 406(b) of Regulation S-K. We will make any legally required disclosures regarding amendments to, or waivers of, provisions of our Code of Business Conduct and Ethics on our website.
Compensation of Directors and Officers
In the year ended March 31, 2024, Coincheck, Inc. recorded an aggregate of ¥258 million in cash compensation and benefits in kind, which includes performance-based bonuses, to its directors and officers as a group. Coincheck, Inc. paid aggregate cash compensation of ¥34 million to its independent directors in the year ended March 31, 2024.
We do not provide any retirement plan or similar benefits to our executive directors and officers or independent directors.
Share Incentive Plans
Coincheck, Inc. historically granted stock options as equity-settled share-based compensation. Share-based compensation awards were granted to Coincheck, Inc.’s directors, employees and non-employees, including officers and independent contractors, based on the terms resolved at Coincheck, Inc.’s shareholders’ meeting or Board of Directors’ meeting. In principle, the subject directors, employees and non-employees continued to be either a director, an audit and supervisory board member, an employee of Coincheck, Inc., or one who has a continuous contractual relationship with Coincheck, Inc. when exercising share acquisition rights. However, such share acquisition rights were subject to certain restrictions, including the right of refusal by Coincheck, Inc. through resolution of Board of Directors.
As of April 15, 2022, all stock options have either been executed or cancelled, and as such, there are no remaining stock options or other share-based compensation issued and outstanding as of the date of this prospectus.
Compensatory Arrangements in Connection with Closing
Remuneration Policy, Director Engagement Agreements and Indemnification Agreements
In connection with Closing, our Remuneration Policy for the Board of Directors (the “Remuneration Policy”) became effective, which policy applies to our executive and non-executive directors and governs the remuneration and benefits that may be awarded to them. The Remuneration Policy is filed as an exhibit to the registration statement of which this prospectus forms a part.
Additionally, in connection with Closing, we entered into engagement agreements with executive directors and non-executive directors, along with indemnification agreements, the forms of which are attached as exhibits to the registration statement on Form F-1 of which this prospectus is a part.
138
Compensation of Executive Officers
Coincheck Parent, including through its subsidiaries, has entered into, and may in the future enter into, compensatory arrangements with its executive officers in consideration for the services provided to Coincheck Parent and its subsidiaries, which may provide for cash and equity components, and other customary benefits.
Omnibus Incentive Plan
In connection with Closing, the Coincheck Group 2024 Omnibus Incentive Plan became effective (the “Omnibus Incentive Plan”). The purpose of the Omnibus Incentive Plan is to provide a means through which to attract and retain key personnel and to provide a means whereby our directors, officers, employees, consultants and advisors can acquire and maintain an equity interest in us, or be paid incentive compensation, including incentive compensation measured by reference to the value of our Ordinary Shares, thereby strengthening their commitment to our enduring success and aligning their interests with those of our shareholders, and other stakeholders.
The Omnibus Incentive Plan is filed as an exhibit to the registration statement on Form F-1 of which this prospectus is a part.
139
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial ownership of Ordinary Shares as of the date hereof by:
• each person known by us to be the beneficial owner of more than 5% of Ordinary Shares;
• each of our directors and executive officers; and
• all our directors and executive officers as a group.
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if that person possesses sole or shared voting or investment power over that security. A person is also deemed to be a beneficial owner of securities that person has a right to acquire within 60 days including, without limitation, through the exercise of any option, warrant or other right or the conversion of any other security. Such securities, however, are deemed to be outstanding only for the purpose of computing the percentage beneficial ownership of that person but are not deemed to be outstanding for the purpose of computing the percentage beneficial ownership of any other person. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities.
As of April 7, 2025, there are 130,814,526 Ordinary Shares issued and outstanding and 2,365,278 Ordinary Shares held in treasury.
Unless otherwise indicated, we believe that all persons named in the table below have sole voting and investment power with respect to all Ordinary Shares beneficially owned by them.
Ordinary |
% of Total |
||||
Directors and Executive Officers |
|
||||
Oki Matsumoto(1) |
— |
— |
|
||
Gary A. Simanson(2) |
4,195,973 |
3.2 |
% |
||
Yo Nakagawa |
— |
— |
|
||
Takashi Oyagi |
— |
— |
|
||
Allerd Derk Stikker |
— |
— |
|
||
David Burg |
— |
— |
|
||
Toshihiko Katsuya |
— |
— |
|
||
Yuri Suzuki |
— |
— |
|
||
Jessica Sinyin Tan |
— |
— |
|
||
Jason Sandberg |
— |
— |
|
||
Satoshi Hasuo |
— |
— |
|
||
All executive officers and directors as a group (eleven individuals) |
4,195,973 |
3.2 |
% |
||
Principal Shareholders |
|
||||
Monex Group, Inc.(3) |
109,097,910 |
83.4 |
% |
||
Koichiro Wada(4) |
9,700,464 |
7.4 |
% |
____________
(1) As of December 31, 2024, Mr. Matsumoto held a total of 23,190,700 shares, or approximately 9.03%, of Monex, 1,110,500 shares directly and 22,080,200 shares indirectly through Matsumoto Co., Ltd. Notwithstanding his ownership in Monex Group, Inc., a publicly traded company on the Tokyo Stock Exchange, and his role as Chairman of the Board and the Representative Executive Officer of Monex, Mr. Matsumoto disclaims the beneficial ownership of Ordinary Shares held by Monex as he does not exercise voting and investment discretion with respect to such shares.
(2) Does not include 129,611 Ordinary Shares issuable upon the exercise of Private Warrants held by TBCP IV, LLC, which Private Warrants are not presently exercisable within 60 days of the date hereof. Mr. Simanson may be deemed to beneficially own Ordinary Shares held by TBCP IV, LLC, which are reported in the table above, by virtue of his control over TBCP IV, LLC, as its managing member. Mr. Simanson disclaims beneficial ownership of Ordinary Shares held by TBCP IV, LLC other than to the extent of his pecuniary interest in such shares. The business address Mr. Simanson is 9912 Georgetown Pike, Suite D203, Great Falls, VA 22066.
(3) The beneficially owned shares are held by Monex Group, Inc., a publicly traded company on the Tokyo Stock Exchange. The business address of Monex Group, Inc. is ARK Mori Building 25F 1-12-32 Akasaka, Minato-ku, Tokyo 107-6025, Japan.
(4) The business address of Mr. Wada is c/o Coincheck, Inc., Shibuya Sakura Stage Shibuya Side 27F, 1-4 Sakuragaokacho, Shibuya-ku, Tokyo, 150-6227 Japan.
140
The Selling Securityholders may offer and sell, from time to time, any or all of the shares or warrants being offered for resale by this prospectus, consisting of:
• up to 127,895,040 Ordinary Shares;
• up to 129,611 Private Warrants; and
• up to 129,611 Ordinary Shares that are issuable upon the exercise of Private Warrants;
The Selling Securityholders may from time to time offer and sell any or all of the securities set forth below pursuant to this prospectus. When we refer to the “Selling Securityholders” in this prospectus, we mean the persons listed in the tables below, and the pledgees, donees, transferees, assignees, successors and others who later come to hold any of the Selling Securityholders’ interest in our securities after the date of this prospectus other than through a public sale.
The following table is prepared based on information provided to us by the Selling Securityholders. The following table sets forth, as of the date of this prospectus, the names of the Selling Securityholders, and the aggregate number of Ordinary Shares and Warrants that the Selling Securityholders may offer pursuant to this prospectus. The table does not include the issuance by us of up to 4,730,537 Ordinary Shares upon the exercise of outstanding Public Warrants, which is covered by this prospectus, but reflects up to 129,611 Ordinary Shares issuable upon the exercise of Private Warrants.
We have determined beneficial ownership in accordance with the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. The percentage of our Ordinary Shares beneficially owned is computed on the basis of 130,814,526 Ordinary Shares issued and outstanding as of April 7, 2025.
Because each Selling Securityholder may dispose of all, none or some portion of their securities, no estimate can be given as to the number of securities that will be beneficially owned by a Selling Securityholder upon termination of this offering. For purposes of the tables below, however, we have assumed that after termination of this offering none of the securities covered by this prospectus will be beneficially owned by the Selling Securityholders and further assumed that the Selling Securityholders will not acquire beneficial ownership of any additional securities during the offering. In addition, the Selling Securityholders may have sold, transferred or otherwise disposed of, or may sell, transfer or otherwise dispose of, at any time and from time to time, our securities in transactions exempt from the registration requirements of the Securities Act after the date on which the information in the tables is presented.
Selling Securityholder information for each additional Selling Securityholder, if any, will be set forth by prospectus supplement to the extent required prior to the time of any offer or sale of such Selling Securityholder’s securities pursuant to this prospectus. Any prospectus supplement may add, update, substitute, or change the information contained in this prospectus, including the identity of each Selling Securityholder and the number of Ordinary Shares registered on its behalf.
141
Please see the section titled “Plan of Distribution” for further information regarding the Selling Securityholders’ method of distributing these securities.
Securities beneficially owned prior |
Securities to be sold in |
Securities beneficially owned |
||||||||||||||||||||
Name of Selling |
Ordinary |
% |
Warrants(1) |
%(2) |
Ordinary |
Warrants |
Ordinary |
% |
Warrants |
% |
||||||||||||
Monex Group, Inc.(3) |
109,097,910 |
83.4 |
% |
— |
— |
|
109,097,910 |
— |
— |
— |
— |
— |
||||||||||
Koichiro Wada(4) |
9,700,464 |
7.4 |
% |
— |
— |
|
9,700,464 |
— |
— |
— |
— |
— |
||||||||||
Yusuke Otsuka(5) |
3,789,243 |
2.9 |
% |
— |
— |
|
3,789,243 |
— |
— |
— |
— |
— |
||||||||||
TBCP IV, LLC(6) |
4,195,973 |
3.2 |
% |
129,611 |
0.1 |
% |
4,195,973 |
129,611 |
— |
— |
— |
— |
||||||||||
Soichiro Tokuriki(7) |
315,696 |
* |
|
— |
— |
|
315,696 |
— |
— |
— |
— |
— |
||||||||||
Shinya Tsuchida(8) |
311,974 |
* |
|
— |
— |
|
311,974 |
— |
— |
— |
— |
— |
||||||||||
Mikihiro Ono(9) |
36,953 |
* |
|
— |
— |
|
36,953 |
— |
— |
— |
— |
— |
||||||||||
ANRI IV Investment Limited Partnership(10) |
222,898 |
* |
|
— |
— |