Japan maintains conservative approach to crypto ETFs

Japan is still not ready to approve Bitcoin or any other crypto exchange-traded funds (ETFs), despite global markets like Australia, the U.S. and Hong Kong moving forward with theirs.

The country is known for its ambitions to lead in crypto, yet regulators remain cautious, especially at the Ministry of Finance. Call it the Mt. Gox PTSD but they are now skeptical about crypto in general.

Oki Shiozawa, from Sumitomo Mitsui Trust Asset Management, said it seems almost impossible to convince Japan’s financial authorities to open the door for crypto ETFs anytime soon.

Regulation remains tight. The Financial Services Agency (FSA), which approves financial products, is very conservative.

Tax advantages pushing for change

Crypto ETFs offer massive tax benefits. Japan’s crypto investors face a high tax burden—up to 55% on general crypto investments. These profits are treated as miscellaneous income.

If crypto ETFs were allowed, they’d fall under capital gains tax, which maxes out at around 20%. The shift would encourage more investors to get involved, as ETFs also have tax benefits like carrying forward losses.

One thing holding Japan back is its history of large-scale crypto scandals. Incidents like the collapse of Mt. Gox in 2014, which wiped out hundreds of millions of dollars in Bitcoin, left a mark.

Another scandal involved DMM, further deepening distrust. These events created a cautious atmosphere among regulators and investors alike.

Family offices and corporate venture firms may be ready to move ahead with crypto ETFs, but Japan’s traditional asset managers and financial institutions are likely not going to, at least for a long time.

Some companies prepare for the future

Despite this slow progress, some companies are preparing for the eventual approval of the ETFs in Japan. Franklin Templeton and SBI Holdings announced in July that they were teaming up to create a digital asset joint venture that will include the development of crypto ETFs.

SBI has already partnered with UK-based Man Group and U.S. private equity firm KKR on similar projects. Nomura, a major financial services group in Japan, has also created a subsidiary to focus on crypto.

Japan has a history of embracing crypto early on. It was one of the first countries to regulate exchanges through its Payment Services Act (PSA) in 2016. The law recognized cryptocurrencies as assets and forced exchanges to register with the FSA, for better security and consumer protection.

Additional regulations were introduced in 2018, with the formation of the Japan Virtual and Crypto-assets Exchange Association (JVCEA), a self-regulating body for strengthening oversight.

In 2019, more reforms were passed, further tightening regulations on crypto exchanges. By 2022, new measures were focused on improving asset storage and capital requirements for exchanges.

Crypto is still accepted as a means of payment by many merchants in the country (around 100,000 businesses).

Japan’s crypto market in 2024

Japan’s crypto market has remained resilient despite global fluctuations. Spot trading volumes on exchanges have shown strength.

In fiscal year 2022, spot trading volumes hit roughly 28.5 billion Japanese yen, while leverage trading surged to 97.4 trillion yen before eventually dropping. By the end of 2023, around 3.7 million active crypto accounts were reported in the country.

Crypto profits are taxed at rates ranging from 15% to 55%, depending on income levels. The highest rate applies to earnings over 200,000 yen ($1,377). In contrast, stock profits are taxed at a maximum rate of 20%. This has triggered calls for tax reform within the Japan crypto community.

In September, the FSA proposed a tax reform to lower crypto tax rates starting in fiscal year 2025. This proposal will treat cryptos more like traditional financial assets.

Political support for this change is growing. Yuichiro Tamaki, the leader of the Democratic Party for the People, has pledged to reduce crypto taxes to 20% if elected.