Crypto to Face Stock-Like Scrutiny
Japan’s House of Representatives has approved a bill that would move the country’s crypto regulation from the Payment Services Act to the Financial Instruments and Exchange Act, fundamentally changing how digital assets like Bitcoin, Ethereum, and XRP are treated. This legislative shift is intended to bring cryptocurrencies under the same regulatory umbrella as traditional financial products such as stocks and bonds, with new rules expected to take effect next year if the Upper House also passes the bill.
The Financial Services Agency (FSA) announced the passage on Thursday, confirming that over 14 million open crypto accounts in Japan will be affected by these changes. Under the new framework, cryptocurrencies will be officially classified as financial instruments, subjecting them to stricter oversight and compliance requirements similar to those faced by securities.
Official records indicate the bill cleared the Committee on Financial Affairs on June 10, 2024.
Insider Trading Ban Targets Exchange Staff
One of the most notable aspects of the reform is an explicit ban on insider trading for crypto assets. The legislation prohibits company insiders or exchange employees from trading based on non-public material information about a project or token—mirroring long-standing rules in equity markets. This measure is designed to address concerns about transparency and market manipulation that have dogged the crypto sector globally.
Projects must now publicly disclose details about their technology, token supply, and business finances.
On paper, these requirements align crypto with established securities law; but in practice, enforcement will likely face challenges unique to blockchain’s global and often pseudonymous nature.
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Lower Flat Tax Rate on Horizon
Currently, Japanese investors pay a progressive tax on crypto profits that can reach up to 55%. However, if the bill becomes law, this rate would drop dramatically: starting in 2028, crypto gains would be taxed at a flat 20%—the same rate applied to capital gains from stock investments. This change could make Japan one of the more attractive major markets for retail and institutional crypto traders seeking tax certainty.
According to coindesk.com, around 70% of Japan’s more than 14 million open crypto accounts are held by individuals earning less than 7 million yen (approximately $43,600) per year. For these smaller investors especially, a lower flat tax rate could significantly reduce their annual tax burden compared to current rules.
Tougher Penalties for Unregistered Operators
The proposed legislation also introduces harsher penalties for those operating unregistered crypto businesses in Japan. The maximum prison sentence will rise from three years to ten years if convicted of selling unregistered digital assets. Fines could increase as well, with offenders facing penalties up to 10 million yen (about $62,800). These changes reflect policymakers’ growing concern over illicit activity and consumer protection in a rapidly expanding market.
In addition to stricter punishment for bad actors, the framework imposes new disclosure mandates on both exchanges and asset issuers. Operators will be required to publish comprehensive information about each asset they list or distribute, while projects that do not obtain an independent audit will see regular investors restricted to a strict investment cap of 2 million yen per offering.
Why it matters: Practical Impact for Investors and Markets
For everyday investors—especially those with modest incomes—the upcoming reforms could bring both opportunities and new hurdles. With spot Bitcoin ETFs potentially launching by 2027 under the new classification system, Japanese traders may soon gain access to regulated investment vehicles previously unavailable in their market. The Japan Exchange Group has already signaled its intention to offer Bitcoin and other crypto ETFs once legal conditions allow.
However, increased scrutiny means tighter limits for some: projects lacking independent audits will face strict caps on how much regular investors can put into them (no more than 2 million yen). While this aims to protect retail participants from risky offerings, it may also limit access to early-stage opportunities often prized in the crypto sector.
The path ahead remains uncertain until Japan’s Upper House votes on final passage. But if enacted as written, these reforms would mark one of the most comprehensive overhauls of digital asset regulation among major economies—reshaping everything from taxes and disclosures to market conduct rules within just a few years.
What to monitor next
The key event to watch is the pending vote in Japan’s House of Councillors on the crypto regulation bill; if the upper house approves the legislation, spot Bitcoin and crypto ETFs could be launched by the Japan Exchange Group as early as 2027, while failure to pass would delay these changes and maintain the current regulatory status quo.