The tax burden on cryptocurrencies is excessively high, hindering market development.
Japan has long been known for its clear and sound regulatory framework for cryptocurrency assets, and the regulations on stablecoins and exchanges are relatively complete. However, innovation is often constrained by the current tax system, especially the miscellaneous income tax that levies up to 55% on profits from cryptocurrency asset trading, deterring many potential investors and leading to insufficient market liquidity.
FSA proposes system integration: Inclusion in the Financial Instruments and Exchange Act
During the meeting on June 25, the Financial Services Agency proposed a potentially significant change: to include cryptocurrency assets under the Financial Instruments and Exchange Act, treating them equally with traditional financial products such as stocks. If this proposal is implemented, profits from cryptocurrency trading will no longer be regarded as miscellaneous income but will be subject to the same 20.3% separate taxation system as stocks, significantly reducing the tax burden, which is undoubtedly a major benefit for investors.
Scholarly perspective: The challenge of balancing innovation and regulation.
Professor Naoyuki Iwashita from Kobe University pointed out that applying traditional financial regulations to cryptocurrency trading is not easy, especially as decentralized and anonymous transactions become more prevalent. Regulatory design needs to be more sophisticated. He particularly emphasized the need to establish effective mechanisms to prevent fraud and protect the rights and interests of investors in token offerings such as ICOs and IEOs.
Professor Yasushi Kawaguchi from Tongji University also believes that while it is reasonable to adjust cryptocurrency assets in reference to existing securities laws, designing insider trading rules for tokens without clear issuers remains a significant challenge. He suggests learning from global regulatory experiences to establish more flexible regulations.
Institutional investors' attitude shift: Inclusion of cryptocurrency assets in asset allocation
According to a joint survey conducted by Numera Holdings and Laser Digital published in June 2024, the acceptance of cryptocurrency assets among Japanese institutional investors has significantly increased. The survey shows that 62% of respondents believe cryptocurrency assets are a viable tool for asset diversification, and more than half expressed clear investment intentions within the next three years.
Among them, most institutions wish to allocate 2% to 5% of their assets to cryptocurrency assets, with as much as 80% planning to hold for at least one year, indicating that they no longer view cryptocurrency investment as short-term speculation but as part of formal asset management strategies.
New Capitalism Action Plan: The government is fully promoting digital assets.
On June 13, the Japanese Cabinet passed a revised version of the New Capitalism Outline and Action Plan, explicitly expressing support for digital transformation and wealth innovation. The document particularly mentions the importance of cryptocurrency assets and NFTs in addressing social issues and enhancing productivity, and emphasizes the need to create a trustworthy and secure investment environment for them. The plan also points out that the current tax system should be reviewed, considering a separate taxation approach similar to stocks for cryptocurrency assets and incorporating them under financial services regulations to establish a complete investor protection framework.
Currently, Japan's monthly trading volume for cryptocurrency is approximately 3 trillion yen (about 20 billion USD). If the new tax system and regulatory framework are implemented, it will undoubtedly attract more capital inflow, further boosting trading volume and market vitality.
Among the most anticipated developments is the introduction of Bitcoin ETF products. If institutions are allowed to participate as in the US and Europe, Bitcoin ETFs will not only enhance liquidity but may also lead to widespread acceptance of cryptocurrency assets among mainstream investors.
Despite the optimistic outlook, experts still warn that regulation should not excessively suppress innovation. Professor Saori Kato from the National Policy Research Institute pointed out that regulatory measures should be precisely designed to ensure consumer protection while avoiding stifling the innovation momentum of blockchain and Web3; otherwise, Japan may lose its competitive edge in the global market.
This article is reproduced with permission from: (Chain News)
Original title: (Will Japan's Cryptocurrency Regulation Meet a Major Turning Point? FSA Proposes Tax Reform and System Integration to Attract Institutional Investors)
Original author: Elponcho
This article titled 'A Major Turning Point in Japan's Cryptocurrency Regulation? The Financial Services Agency Proposes Tax Reform and System Integration to Attract Institutions' was first published in 'Crypto City'.
