Line Defies Cryptocurrency Bears to Open Exchange in Singapore

(Bloomberg) -- Line Corp., Japan's biggest messaging service, is opening a cryptocurrency exchange next month even amid Bitcoin selloff that's fueled pessimism over the future of virtual currencies.

The exchange, called Bitbox, will offer trading between more than 30 virtual tokens including bitcoin, ethereum, bitcoin cash and litecoin, but not fiat currencies, the Japanese company said at an annual strategy briefing in Tokyo on Thursday. The website will be available in 15 languages to users worldwide, except for those in Japan and the U.S. Bitbox will charge a 0.1 percent trading fee.

Chief Executive Officer Takeshi Idezawa laid out a vision of a token-based economy that places blockchain technology at the center of the messengers's efforts to tie together its various commerce, entertainment and media offerings. The move into cryptocurrencies comes at a time when the industry faces increasing regulatory scrutiny and security concerns that pushed the price of bitcoin about 60 percent lower this year. Line is expanding into financial services to reduce reliance on advertising revenue and offer a way to gain subscribers in countries dominated by Facebook Inc.'s Messenger and WhatsApp.

“There isn't a system in place right now that can monetarily reward users' contributions to a service,” Idezawa said. “Linking service growth to compensation for contributors in a token economy could unlock a great deal of new value.”

Line is considering creating its own token that can be used to pay users for contributions to its various services and third-party providers may also have access to the platform. Idezawa said development is already under way, but didn't give a specific timeline.

Line is also working on a stand-alone mobile app for the exchange, which will be separate from its messaging service, according to a person familiar with the matter, who asked not to be identified because the details are private. Blockchain security firm BitGo Inc. is partnering with Line on security for the exchange, the person said.

The company, which established Line Financial Corp. in January, has also applied for a license to open a cryptocurrency exchange in Japan. The messenger has been offering Line Pay smartphone wallet service since 2014 and has attracted more than 40 million registered users worldwide. Line is investing 30 billion yen ($272 million) in fintech and AI operations this fiscal year and plans to expand its services to include lending and insurance.

Line last quarter began reporting results for the new strategic segment, which includes Line Pay, AI speaker Clova and e-commerce products. The businesses recorded 6 billion yen in sales in the three months to March 31, or about 12 percent of the company's total. They posted a 7.1 billion yen loss.

JPMorgan Chase & Co. raised its rating on the company to buy on June 21, citing in part the prospects of the fintech business. The shares of Line have climbed about 9 percent since.

“The potential of these services depends largely on usage trends for Line Pay,” JPMorgan analyst Haruka Mori wrote in a report. “We expect the fintech business to substantially expand its earnings contribution” in fiscal 2022.

--With assistance from Eric Lam.

To contact the reporter on this story: Pavel Alpeyev in Tokyo at palpeyev@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson, Edwin Chan

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