Japan’s parliament is preparing to pass legislation that will significantly reshape the landscape for cryptocurrency holders. The bill has already cleared the lower house. For retail investors, the key change is a reduction in the tax rate on crypto gains from a maximum of 55% to a flat 20%, matching the rate applied to stocks and bonds.
The legislation classifies digital assets as financial instruments. Once it passes the upper house, it will take effect next year, while the tax provisions are scheduled to come into force in 2028.
Tax Rates
The reduction of the tax rate to 20% is something the industry has been waiting for for years.
“The law has eliminated inconsistencies in the way cryptocurrencies are classified. The rules are now the same across the board,” said Koichi Kano, Head of Japan at Singapore-based market maker QCP Group.
A former head of foreign exchange operations at Citigroup, Kano was appointed as QCP’s first representative in Japan earlier this year as the firm prepared for the new regulatory framework.
ETFs and Competition for Investors
For Bitcoin and other tokens, the legislation opens the door to exchange-traded funds. The operator of the Tokyo Stock Exchange expects the first crypto ETFs to launch as early as next year.
Until now, Japanese investors have gained exposure to crypto primarily through publicly listed companies with large token holdings, such as Metaplanet, which holds more than 40,000 BTC.
“The arrival of ETFs will create direct competition for such companies,” Kano said.
The new legislation does not affect stablecoins, which will remain regulated under the framework for payment services.
Reshaping the Exchange Market
Japan currently has 27 registered crypto exchange operators, including Binance Japan, Coincheck, and BitFlyer.
“The larger players will be able to meet the new disclosure and audit requirements, but the burden may prove too heavy for smaller firms. As a result, around half of Japan’s crypto exchanges could be forced out of the market,” warned Shohei Matsumoto, Executive Director of Tokyo-based consulting firm Pacific Meta.
Criminal Liability Under the New Law
The legislation also introduces tougher penalties. Insider trading involving cryptocurrencies will carry fines and prison sentences comparable to those imposed for securities market violations.
The maximum prison term for unlicensed sellers will increase from three years to ten years.
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