On June 11, Japan’s House of Representatives formally passed amendments to the Financial Instruments and Exchange Act and the Payment Services Act, reclassifying crypto assets such as Bitcoin and Ethereum as financial instruments and incorporating them into the same regulatory framework as stocks and bonds. This marks the first regulatory paradigm shift among major global economies to comprehensively upgrade crypto assets from “means of payment” to “financial products,” paving the way for the listing of cryptocurrency ETFs.
The provision most closely watched by investors in the amendment is the substantial reduction of the cryptocurrency gains tax rate from the current maximum of 55% to a uniform 20% capital gains tax rate. The current tax system classifies cryptocurrency gains as “miscellaneous income” subject to progressive tax rates, whereas investment gains from stocks and bonds are subject to a uniform rate of approximately 20%. The amendment also introduces a three-year loss carryforward system, allowing traders to offset current gains with past losses, while simultaneously eliminating the rule taxing companies on unrealized gains from crypto assets. It is expected that the new 20% uniform tax rate mechanism will take full effect for individual investors by January 1, 2028. Starting from the new fiscal year on April 1, 2026, Japanese companies will be the first to be exempt from paying tax on the market value of crypto assets held at year-end.
The most direct market impact following the legislative passage is the creation of a legal channel for cryptocurrency ETFs to list on the Tokyo Stock Exchange. Previously, Japanese equity investors seeking exposure to crypto assets could only do so indirectly by purchasing shares of listed companies that hold large amounts of tokens such as Bitcoin. After the new law takes effect, both retail and institutional investors will be able to directly buy and sell exchange-traded funds through traditional securities firm accounts. Japan Exchange Group, the operator of the Tokyo Stock Exchange, expects that ETFs tracking cryptocurrencies could list on the Tokyo Stock Exchange as early as next year. SBI Holdings has already proposed in May the launch of Bitcoin and XRP ETFs on the Tokyo Stock Exchange, aiming to grow assets under management to approximately 5 trillion yen within three years of launch. The Financial Services Agency of Japan made clear earlier this year its plan to include crypto assets in the list of eligible underlying assets for ETFs.
According to estimates by analysts at CryptoQuant, under an optimistic scenario, Japan’s Bitcoin ETFs could attract nearly $20 billion in inflows in their first year. The launch of Japanese ETFs will serve as the second institutionalized channel for capital inflows after the United States. The new law also raises the maximum penalty for unregistered crypto sellers from three years to ten years, increases the maximum fine to 10 million yen, and extends the prohibition on insider trading to the crypto asset sector for the first time. Industry concentration is expected to increase further.
