Cryptocurrencies are experiencing a frothiness reminiscent of the dot-com bubble, with bitcoin exhibiting more volatility in the last month than did U.S. equities on Black Monday in 1987, Black Tuesday in 1929 and the Great Recession of 2008. This volatility comes as virtual currencies assume a new prominence in business and finance, raising important questions about their role, viability and regulation. Japan can play an important role in answering these questions as it is the largest trading market for bitcoin.

Cryptocurrencies are digital currencies that use cryptography to create assets, account for them and secure their exchange. Typically, the currency — bitcoin is the most popular, but there are over 1,370 — is both a currency and a payment network. No single authority is in charge of the currency or the network. Instead, it is a peer-to-peer network that distributes a transaction ledger among its participants. This ledger is called the blockchain, and transactions occur when all the computers in the network "agree" that an event has taken place. Since these currencies are distributed and there is no single guarantor of value, their worth floats in relation to conventional currencies, like the yen, the dollar or the euro. The "owner" of a digital currency has a code that allows him or her to redeem the currency.

One analysis has concluded that in 2017, 2.9 million to 5.8 million unique users had a cryptocurrency wallet, most of them using bitcoin. In December, total market capitalization of cryptocurrencies is estimated to exceed $600 billion with daily trade volumes surpassing $50 billion. Major financial institutions like JPMorgan and Goldman Sachs are reportedly setting up or considering establishing cryptocurrency trading desks.