Japan: The promised land of cryptocurrencies?

With over 5 million crypto users, or 4% of its population, Japan has one of the highest adoption rates in the world. Moreover, the country of Satoshi Nakamoto has recognized cryptocurrencies as a means of payment since 2016. Several large chain stores as well as online sales stores accept cryptocurrencies as a means of payment. Likewise, several exchanges – BitFlyer, Coincheck, Bitbank, etc. – operate in the country. Recently, the country launched the first bitcoin fund for institutional investors, an initiative that boosted the price of the parent cryptocurrency. In this article, we offer you a trip into the Japanese crypto universe. Find out how Japan became one of the superpowers of the global crypto scene.

Japan offers bitcoin fund to institutional investors

On September 19, 2023, Japan, a world leader in cryptocurrency, triggered a further increase in the price of bitcoin with a surprise announcement.

Laser Digital, the crypto subsidiary of financial services giant Nomura, has indeed launched a fund offering exposure to bitcoin to institutional investors. This is the “Bitcoin Adoption Fund”.

Laser Digital indicated that the Bitcoin Adoption Fund was the first offering of its series of crypto investment products. It plans to ensure the protection of the assets of clients who subscribe to the Bitcoin Adoption Fund thanks to the Komainu solution. The company specifies that several firms use this solution. These include Ledger, Coin Shares and even Nomura, the parent company of Laser Digital.

The announcement had a very significant effect on the price of bitcoin which experienced a significant increase. The price of the cryptocurrency immediately rose above the $27,000 mark. It is around $26,680 at the time of writing this article.

Japan: one of the best crypto regulations in the world

The obvious success of cryptocurrencies in Japan is due to the proactive approach taken by the country on the issue of regulation. Indeed, the crypto regulations of the country which is preparing to create a metaverse economic zone are distinguished by an attractive clarity.

The country has established the FSA, the financial services agency responsible for creating a safe and stable environment for investors in Japan. Unlike US regulators, the FSA has proposed a law on financial instruments and exchanges that clearly defines what a security is.

Thus, in Japan, crypto-assets are distinct from securities. The tokens currently listed on crypto exchanges are crypto-assets and not securities.

On the other hand, if the underlying asset of the tokenized assets is a security or real estate, it is subject to securities regulations. Meanwhile, in the USA, the confusion between security and token continues to fuel the war between the SEC and crypto exchanges.

The FSA also subjected the country’s crypto exchanges to requirements specific to banking institutions. For example, Japanese crypto exchanges must separate users’ crypto funds from the exchange’s funds. They must also keep the majority of their assets in cold wallets and hold capital 3 to 4 times higher than the risk value. Exchanges must also set aside three months of sales and general administration costs.

Furthermore, listing a token on a Japanese exchange is a rather serious process. Exchanges must first obtain approval from the Japan Virtual Currency Exchange Association (JVCEA).

The latter will then have to make a proposal to the FSA which will carry out checks before giving its OK. In a market sometimes subject to turbulence, Japan’s rigor in regulating crypto activity is a very positive element.

This is also why, when Americans were devastated by the FTX debacle, FTX Japan allowed its users to completely withdraw their funds.

These violent hacks which have marked the history of Japan

If Satoshi Nakamoto’s country was one of the first to adopt crypto, it has also had its share of negative experiences with cryptocurrencies. We remember the story of Mt. Gox, the largest bitcoin exchange in the world between 2013 and 2014.

The company handled more than 70% of global bitcoin transactions. Unfortunately, in February 2014, hackers shook the Mt.Gox exchange by stealing nearly 850,000 bitcoins. At the time, this was equivalent to almost 6% of the global bitcoin supply. Even part of the exchange’s equity had been stolen.

The incident stunned investors and subsequently caused the value of bitcoin to drop by nearly 36%. Four years later, at the beginning of 2018, the Japanese exchange Coincheck was the victim of one of the biggest hacks in the history of cryptocurrencies.

The country that was seen as the crypto capital of Asia has practically risked the total extinction of its crypto market. Curiously, rather than closing exchanges, the country preferred to strengthen its crypto regulation.

A revised taxation policy to make Japan the global crypto hub

It is important to clarify that when it comes to cryptocurrency, regulatory clarity is not the only factor for adoption. Taxation of crypto activities significantly influences the business environment. On this issue, Japan has not often been a good example.

Indeed, crypto investors in the country faced a potential tax burden of up to 50% on their capital gains. Certain taxes, such as the taxation of unrealized capital gains, have also been subject to controversy.

However, since August 2023, issuers of cryptocurrencies in the country have benefited from a 30% tax exemption on unrealized gains on tokens. This was in response to a petition initiated by the Japan Blockchain Association (JBA), a lobbying group in favor of the blockchain industry.

The JBA also called for the removal of tax on profits generated from personal crypto transactions. It is possible that the Japanese government will grant this request too.

In the meantime, we remember that Japan is a heavyweight in the history of cryptocurrencies and blockchain. There is a good chance that the country which has already launched the pilot phase of its digital yen will definitively position itself as the global crypto hub.