Japan’s FSA to review cryptocurrency regulations, paving way for tax cuts and crypto ETFs

Japanese regulators will review the nation’s cryptocurrency regulations, which could lead to tax cuts for the sector and make way for the launch of crypto exchange-traded funds (ETFs) in the nation.

According to a Bloomberg report, Japan’s Financial Services Agency (FSA) wants to assess whether the current approach of regulating crypto under the Payments Act provides sufficient investor protection, as tokens are mainly used for investment rather than payments.

The report cited an unnamed FSA official who explained that the regulator could reclassify cryptocurrencies as financial instruments under Japan’s investment laws.

However, the official did not disclose an exact timeline of how long this review period would last.

Yuya Hasegawa, a market analyst at Bitbank Inc., commented that reclassifying digital assets under the Financial Instruments and Exchange Act would “strengthen investor safeguards” and lead to “dramatic changes.” 

According to the analyst, these changes could comprise discussions about lowering the tax rate on crypto gains and lifting the current ban on crypto-based ETFs, which prevents domestic funds from foraying into crypto.

Hasegawa added that this review, expected to continue through the winter, might also lower the tax rate on crypto gains from as high as 55% to 20%, bringing it in line with traditional investment instruments like stocks.

Calls for a tax cut on cryptocurrency have been made before. In 2023, the Japan Blockchain Association formally requested the government to lower the tax burden on crypto assets.

The group proposed a flat 20% tax rate and a three-year loss carryover deduction to help promote growth in the sector.

In addition to tax reforms, the FSA and Japan’s Financial System Council are also considering revising the nation’s crypto gaming laws.

According to a September 24 report, the regulators would amend the existing Payment Services Act to make it easier for businesses to handle in-game crypto assets.

Earlier this year, Japan also amended the Act on Strengthening Industrial Competitiveness to allow local investment limited partnerships to invest in cryptocurrencies. 

The move was part of a broader effort to support the blockchain ecosystem and encourage venture capital investment in web3 startups.

The modification is intended to provide regulatory clarity for crypto-focused startups and further boost Japan’s venture capital sector.

Regulations shaped by the past

Japan’s strict regulatory environment for cryptoassets has been shaped by several major failures in the past.

One of the most notable events was the 2014 hack of Mt. Gox, one of the largest Bitcoin exchanges in the world. The Tokyo-based platform shut down suddenly after losing between 650,000 and 950,000 Bitcoins due to a series of hacks—a loss that, at today’s prices, would be worth over $58 billion.

After years of legal wrangling and delays, users were finally reimbursed by a court-appointed trustee in 2024.

More recently, another local platform, DMM Bitcoin, faced its crisis when it was hacked for $305 million worth of crypto assets, forcing the exchange to suspend operations. As part of the fallout from that breach, DMM Bitcoin has been ordered to submit a business improvement plan to the FSA by Oct. 28.

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