The closure of Mt. Gox and the investigation of its founder have turned into a national scandal involving the Japanese government after it was revealed that the defunct exchange was bankrupt six months prior to its collapse.

The recent upturn could be due to the Japanese media mistakenly reporting that the “Ex-Founder of Bitcoin was arrested” or the magnitude of the investigations.  

Meanwhile, Japan’s Finance Minister Taro Aso announced that the Japanese government will most likely set up regulations on digital currencies due to recent scandal.

According to Japan Times, Aso has proposed a licensing system for bitcoin and digital currency exchange markets. He said at a news conference:

“We have to carry out studies on how the government should regulate the use of virtual currencies.”

Analysts predict that the Japanese proposal on a systematic licensing regulation will be extremely similar to New York’s BitLicense, and will require exchanges to report their transactions, funds, assets and perhaps even customer data.

Thus, there are fears that such a system will negatively impact current Japanese bitcoin businesses forcing them to either shut down their services or leave the country as was the case in New York with, among others.

Recent investigation led by the Japanese Police has concluded that Mt. Gox ran out of funds and bitcoins six months before the official filing of bankruptcy.

The closure of Mt. Gox in February 2014 led to the loss of millions of dollars. While the investigation on Karpeles’ alleged manipulation of bitcoin accounts still remains unsettled, the Tyoko Police reported this week that the company ran out of money in August 2013, and had paid “top priority” bitcoin accounts for around six months before filing its bankruptcy.

As investigations continue, the Japanese Police and law enforcement agencies will look into fund manipulations and corporate bank accounts of Mt. Gox, which held around 1.1 billion yen (~US$8.8 million). The Tyoko Police currently suspects that some of the funds were sent to a personal bank account or an affiliate of Mt. Gox.