Japan is gearing up to launch cryptocurrency asset index exchange-traded funds (ETFs) by 2028, navigating the intricate web of securities legislation and tax laws. The move promises to simplify access to crypto assets for investors, eliminating the hurdles posed by current requirements like opening separate exchange accounts and managing distinct digital wallets. The proposal hinges on regulatory approvals, potentially unlocking a seamless avenue for both retail and institutional investors to delve into the crypto realm through existing securities accounts.
Why Are Crypto ETFs Gaining Attention?
The debut of Bitcoin ETFs in the U.S. at the dawn of 2024 has set a precedent, sparking expectations for Japan to follow suit. With the U.S. managing approximately $130 billion in crypto ETF assets—drawing interest from diverse sectors, including pension funds and academia—Japan’s financial sector is taking note. Convano Consulting’s Director, Motoyuki Azuma, remarks on the cautious stance of Japanese investors regarding crypto investments.
“Many Japanese investors question the reliability of holding Bitcoin in our portfolio. However, ETFs add formality and trust to crypto investments, making explanations easier,” he noted.
Despite the skepticism, a 2024 survey by Laser Digital Holdings indicates that over half of Japanese institutional investors intend to venture into crypto assets within the next three years. Azuma observes the challenges of short-term crypto strategies due to current market volatility.
“Strategies based on Bitcoin’s Net Asset Value are becoming harder, but long-term alternative asset planning with crypto ETFs will be easier,” he reported.
What Regulatory Changes Are Needed?
Key to the rollout of crypto ETFs in Japan is the Tokyo Stock Exchange’s approval, coupled with amendments to the Investment Fund Act to recognize crypto as “specified assets.” Heightened scrutiny over security measures follows a significant 2024 security breach, elevating the urgency to enhance protection standards as authorities aim to officially categorize crypto assets as financial instruments by 2026.
Taxation remains another pivot. Currently, crypto earnings fall under “miscellaneous income” facing tax rates up to 55%. A planned 2026 tax reform suggests a shift towards a unified 20% tax rate akin to equities, likely boosting interest from diverse investor demographics. Financial institutions are already eyeing opportunities in the evolving landscape, exemplified by companies like Nomura Asset Management and SBI Holdings preparing ETF products tied to Bitcoin and XRP.
Key insights include:
- Amending the Investment Fund Act to classify crypto as “specified assets” is crucial.
- Estimated $306 million Bitcoin loss in 2024 prompted rigorous regulatory focus.
- Nomura Holdings highlights the risks of prematurely launching crypto ETFs.
SBI VC Trade’s President Tomohiko Kondo sees crypto assets as transcending simple trade, offering diversified investment avenues. Still, Nomura’s Senior General Manager Hajime Ikeda cautions against hasty ETF launches without clear operational protocols, underscoring the balance between innovation and security.
