Japan’s Financial Regulator Plans to Classify Crypto Assets As Financial Products

Japan’s Financial Regulator Plans to Classify Crypto Assets As Financial Products

Japan’s top financial watchdog, the Financial Services Agency (FSA), is moving closer to defining cryptocurrencies as ‘financial products,’ according to a new report from Nikkei.

The move, if enacted, would place crypto assets in line with stocks and bonds under the Financial Instruments and Exchange Act (FIEA).

Cryptocurrencies are currently defined as ‘crypto assets’ under the Payment Services Act and are treated as ‘financial instruments’ akin to payment methods.

However, this legal status may soon change as the FSA has already included the reclassification in its fiscal year 2025 tax reform proposals. The regulator is looking to increase crypto assets’ legitimacy and encourage more investment through the proposed change.

Great For Crypto?

Under the prospective ‘financial products’ status, cryptocurrencies would fall under existing capital market rules, including prohibitions against insider trading.

Token issuers would also face stricter disclosure requirements as part of the proposed changes. Increased regulatory scrutiny and reporting could result in higher operational costs for exchanges and issuers, though details of the proposed policy have yet to be published.

On the bright side, the reform could pave the way for exchange-traded products tied to cryptocurrencies, such as Bitcoin and Ether ETFs. Currently, these investment products are not available in Japan due to the crypto asset’s current treatment.

More importantly, the FSA’s amendment could reduce the tax burden for investors.

In Japan, profits from cryptocurrency activities like trading and mining are deemed ‘miscellaneous income’ under the National Tax Authority (NTA).

Payments received in cryptocurrency are taxed based on their market value at the time of receipt. Cryptocurrency earnings exceeding ¥200,000 annually must be reported as taxable income.

Japan’s income tax rates span from 5% to 45%, determined by the taxpayer’s income level. On top of that, a 10% inhabitant tax is applied, meaning high earners can face an effective tax rate of up to 55%.

Reclassifying cryptocurrencies as ‘financial products’ would slash the capital gains tax on crypto to 20%, similar to stocks.

The FSA is reportedly working with experts to finalize the reform plan by mid-2025. The regulator is expected to officially file the proposed amendment in 2026.

Jurisdictions Reconsider Crypto Rules

According to River’s report, 47 countries have facilitated Bitcoin’s integration into financial systems since 2020. The number is projected to grow as Bitcoin is strongly endorsed by the Trump administration.

Many countries have shown signs of easing restrictions on Bitcoin and other cryptocurrencies. Global authorities are also mulling allowing cryptocurrencies to be used for payment and investment, as well as considering them as an alternative asset to their Treasury portfolio.

Bilal bin Saqib, Pakistan’s government’s top crypto advisor, said this month that the country was planning to legalize cryptocurrencies as part of its plan to attract more global investments. Saqib added that the national crypto push was inspired by Trump’s pro-crypto stance.

Last year, some countries, including Ukraine and Morocco, reportedly planned to legalize cryptocurrencies.

Around the same time, many countries have already taken steps to integrate Bitcoin into their financial systems. Russia, one of the world’s economic powerhouses, has enacted a law that legalizes cryptocurrency mining in the country.

The Russian government has also enabled the use of cryptocurrency for cross-border transactions. Plus, the Bank of Russia has proposed a new regulatory framework that lets a limited group of investors invest in cryptocurrencies under a three-year experimental legal regime.

As Bitcoin’s acceptance has increased across nations, speculation circulates that China, also a leading economy, is expected to lift its ban on cryptocurrencies.

Market analysts have noted that while Chinese restrictions on crypto are still in effect, underground activities remain in operation. The government is also suspected of discussing a national Bitcoin reserve behind closed doors.

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