Japan's Lower House has passed a bill to regulate cryptocurrencies as financial instruments, a move set to enable crypto ETFs and attract institutional investment. The legislation, effective in 2027, will slash the capital gains tax from a high of 55% to 20% by 2028 and impose stricter rules, including an insider trading ban and harsher penalties for unregistered operators.
Crypto reclassification as securities
- ▪The legislation moves crypto regulation from the Payment Services Act to the Financial Instruments and Exchange Act
- ▪The new regulations are expected to take effect in 2027 after the bill passes the Upper House
- ▪Stablecoins are excluded from the new framework and will continue to be regulated as payment services
- ▪Japan's Lower House of Representatives passed a bill to reclassify cryptocurrencies as 'financial instruments,' similar to stocks and bonds
Capital gains tax reduction
- ▪The new 20% tax rate, which aligns with taxes on stocks and bonds, is expected to take effect in 2028
- ▪The capital gains tax on crypto assets will be reduced from a maximum of 55% to a 20% flat rate
Crypto ETF authorization
- ▪The reclassification enables the creation and listing of crypto exchange-traded funds (ETFs)
- ▪The operator of the Tokyo Stock Exchange, Japan Exchange Group, has expressed interest in listing crypto ETFs once the law is effective
Insider trading penalties
- ▪Fines for operating without registration will increase to as much as 10 million yen ($62,800)
- ▪The maximum prison sentence for operating an unregistered crypto business will increase from three years to 10 years
- ▪The law introduces an insider trading ban for crypto, mirroring rules for the stock market
Exchange consolidation pressure
- ▪Stricter compliance may force about 50% of Japan's 27 registered crypto exchanges to shut down, according to consultant Shohei Matsumoto
- ▪The new rules might also affect businesses like Metaplanet, which holds Bitcoin as a substitute for direct holdings by stock investors
Institutional product launches
- ▪The Financial Services Agency stated the framework aims to improve user protection while promoting innovation for domestic and foreign investors
- ▪Major financial firms, including Nomura Holdings and SBI Holdings, plan to create crypto-related exchange-traded products
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