The “regulated” cryptocurrency market of Japan

The “regulated” cryptocurrency market of Japan

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The biggest argument around crypto regulations has always been about the effect that strict regulations could have toward the core-nature of cryptocurrency and blockchain.

However, Japan´s cryptocurrency regulations is an intriguing case study because it has gone through the two biggest exchange hacks in history — Mt.Gox and Coincheck.

So, today, when we look at the crypto ecosystem in Japan, it makes us question how strict should cryptocurrency regulations be or not be?

This Asian crypto hub has perpetually been forward-thinking seeking ways to innovate in every angle of the tech industry, and it wouldn’t be different with cryptos, the nation has stepped into the cryptocurrency industry to become a leading authority.

“Japan was the tech capital of the world for decades, and even if it may seem that a lot of the focus has shifted to its neighbors, a lot of technology still originates from Japan and innovation continues.” — David Otto, International Media Coordinator at the Japan Blockchain Conference

Taxation Proposals

Back in December 2018 Japanese lawmakers presented 4 different proposalstowards the taxation regime to encourage cryptocurrency adoption which are as follows:

  1. A separate tax rate of 20% for crypto gains; instead of the staggering 55% currently enforced;
  2. To make it possible to carry forward losses to make it fairer on crypto trading; this would make cryptos more in line with how stocks are treated.
  3. To remove the taxes on trading between cryptocurrencies; which means crypto holders would only pay taxes when converting cryptos into fiat currency.
  4. To remove tax when making small payments in crypto; instead of paying taxes twice as in the sales tax plus the crypto tax — to make cryptos more attractive for daily uses.

New Regulatory Framework Proposals

Lately across the globe, there have been several different countries like Switzerland, India and Canada giving a shot at regulations; Japan is obviously riding this wave as well, by the end of 2018, the Financial Services Agency of Japan (FSA) published a proposal or a report per se, containing measures that have yet to be addressed, a regulatory framework for cryptos and ICO´s such as self-regulation, hacking incidents, deemed dealers, margin trading and privacy coins.

“We will regulate crypto-assets for anti-money laundering and countering the financing of terrorism in line with FATF standards and we will consider other responses as needed.” — via the report.

According to, the report addressed the hackings mentioned above, and the FSA will require exchanges to strengthen the security, the management and maintenance of customer property, which includes private keys. The agency also stated that in case of a hack exchanges must have net assets “equal to or more than the amount equivalent to the currency and repayment funds”.

The FSA recognizes the importance of co-operating and developing systems with authorized self-regulatory organizations according to their rules in this rapidly growing tech reform.

For this reason, we urge members to join the certified [self-regulatory] association […]

The report also explains that the FSA finds it appropriate to cancel or refuse registrations of operators that neither “join the accredited association and conform to the self-regulation nor establish their own internal systems to comply with the self-regulatory rules”.

The document also addresses deemed dealers, which are organizations that are allowed to operate as crypto exchanges while they wait for their applications to be evaluated and fully approved.

The main issue is that most of these dealers advertise aggressively and have been growing fast while many of their customers are unaware that such exchanges are not registered-dealers.

So one of the measures taken by the financial services is that deemed dealers cannot expand their business nor list additional coins until registered. And they must post a warning on their websites about their registration status.

Coinchek´s hack could have led to this since it happens to be a deemed dealer, such as Lastroots and Everybody´s Bitcoin.

Amongst the actions taken by the agency, there are some restrictions directed towards private coins, transitioning derivatives, and margin trading, and according to CCN, FSA has pressured exchanges to delist privacy coins like ZCash and Monero.

ICOs will be subjected to security regulation. According to their composition, tokens will be constrained to regulation by the Financial Instruments and Exchange Act or the Fund Settlement Act.

The report also states that the FSA finds it appropriate for third-parties to set a framework and examine token issuers companies and financial conditions.

And to conclude this report it introduced measures towards custody businesses, which proposed maintaining internal control, introducing a registration system, separating the administration of exchanges and customers cryptocurrencies, publishing response policies in case of hacking incidents and retailing funds.

Latest regulation to be implemented in 2020

And the latest news, according to lawmakers in Japan passed a regulation to tighten up the rules for all crypto exchanges that provide margin trading services.

“Japanese financial authorities will expand on already pioneering rules for cryptocurrency trading to bring further order to one of the world´s biggest virtual currency marketplaces.” — Nikkei Local News Portal

In this new regulation, Japan´s cabinet approved an amendment that will not allow crypto exchanges to provide leverages of 2–4 times on the initial cap and it will be in effect starting April of 2020.

All exchanges that apply will be required to re-register with the regulatory authorities; these rules are meant to protect customers and prevent money laundering.

Nikkei also stated that the 18-month period, until the new rules are fully operating, is to give time for the FSA to dig deep into finding unregistered crypto exchanges.

Final Thought: Japan is full throttle on regulating its crypto market!

Now keep in mind that most of these are just proposals, crypto holders in Japan want to see bills passed just like the latest regulation, and they want to see such reinforced since there have been other proposals in the past which were merely unenforced suggestions.

If these proposals become bills, it will change the cryptosystem in Japan drastically; it will have the power to become the number one crypto hub in Asia, that´s if it´s not already!

We have yet to receive news on how Japan´s crypto community and market is behaving after the proposals, what has changed? Have the proposals been reinforced? I have searched the FSA´s website and could not find any relevant information.

Let us know in the comments what do you think about the proposals, and if you happen to be a trader in Japan please let us know if you have perceived any difference since then.

Japan we wanna know!

I am sure we are yet to see the best of Japan in the cryptocurrency and blockchain industry, and we are so ready for it!

The Winco Team


Disclaimer: Our team works hard to bring you the best content in the cryptocurrency market, but it is only our point of view and not legal advice, and may be divergent from other opinions, so please do not make any decisions without concluding studies of your own to understand the profit possibilities and uncertainties involved at your own risk.

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