Financial System Council: Examination of the System Surrounding Crypto Assets
The 55th General Meeting of the Financial System Council and the 43rd Joint Meeting of the Financial System Subcommittee, jointly held on Wednesday, June 25, reviewed the current status of and the regulatory framework for crypto assets in Japan.
The regulatory approach aims to balance user protection with innovation promotion, recognizing cryptocurrency's potential role in Japan's digital economy development. The framework acknowledges that while cryptocurrencies have high volatility, they can serve as alternative investments for sophisticated investors with appropriate risk assessment capabilities.
The discussion document emphasizes that healthy Web3 development could contribute to solving Japan's social challenges and improving productivity, while blockchain-based cryptocurrency trading expansion could advance the digital economy. However, this must be balanced against the need for robust consumer protection and market integrity measures.
This comprehensive regulatory review represents Japan's effort to create a modern, balanced framework for cryptocurrency regulation that protects consumers while fostering innovation in the digital asset space.
Current Market Status and Growth
Japan's cryptocurrency market has experienced dramatic expansion. As of January 2025, the number of cryptocurrency user accounts reached 12.14 million (up from 2.81 million in January 2019), with total user deposits reaching approximately 5 trillion yen. This represents a more than four-fold increase in accounts over six years, demonstrating the rapid mainstream adoption of digital assets.
Global cryptocurrency fund flows have also expanded significantly, with substantial capital inflows into crypto assets in recent years. The data shows fluctuating but generally positive trends, with ETF-related flows becoming increasingly prominent alongside traditional crypto fund investments.
Individual and Institutional Adoption
Research indicates that 7.3% of experienced investors hold cryptocurrencies, rising to 10.2% among users of online financial institutions. While cryptocurrency ownership rates remain lower than traditional financial products like stocks, they exceed ownership rates for yen-denominated corporate bonds, yen-denominated savings insurance, and foreign exchange margin trading (FX).
Japanese institutional investors are showing growing interest, with 62% of respondents viewing cryptocurrencies as diversification opportunities. Additionally, 54% expressed investment intentions for cryptocurrencies over the next three years, with preferred allocation ratios of 2-5% and investment horizons of one year or longer for nearly 80% of respondents.
International Institutional Trends
The discussion document highlights significant developments in overseas institutional adoption, particularly in the United States. Bitcoin ETF holders among institutional investors have expanded by 20% since March, exceeding 1,200 companies. This includes pension funds, hedge funds, and wealth management firms like Goldman Sachs, which manages Bitcoin ETFs for wealthy clients.
Public pension systems, including Wisconsin's state investment board and Michigan's retirement system, have allocated funds to Bitcoin ETFs, viewing them as inflation-resistant assets similar to gold. This trend is driven by expectations of Trump administration policies potentially increasing inflation pressures.
Regulatory Challenges and Consumer Protection
The Financial Services Agency's consultation office continues receiving significant numbers of cryptocurrency-related complaints and inquiries, averaging over 300 cases monthly. Cryptocurrency-related consultations represent approximately 11.3% of all financial service inquiries, making it a substantial portion of regulatory concerns. Common issues include:
- Fraudulent investment schemes promoted through social media and investment seminars
- ICO-related problems where promised cryptocurrency listings never materialized
- Withdrawal difficulties from cryptocurrency investments
- Misleading promises of guaranteed returns or high dividends
Price Volatility and Market Dynamics
The discussion document shows significant price volatility in major cryptocurrencies over the past five years. Bitcoin and Ethereum have experienced substantial fluctuations, though the overall trend has been upward, particularly in recent periods. This volatility is compared against traditional assets like the Nikkei stock index, S&P 500, and gold futures.
Regulatory Framework Discussion
The Financial Services Agency published a discussion paper in April 2025, examining cryptocurrency regulatory frameworks. The paper identifies four key areas requiring attention:
- Information Disclosure and Provision: Need for clearer, more accurate information from cryptocurrency issuers
- User Protection and Unlicensed Operator Response: Addressing fraudulent schemes and unregistered operators
- Investment Management Misconduct: Regulating inappropriate investment advisory services
- Price Formation and Trading Fairness: Ensuring market integrity and preventing manipulation
Proposed Regulatory Approach
The discussion document suggests categorizing cryptocurrencies into two types:
Type 1 (Fundraising/Business Activity): Cryptocurrencies issued for fundraising purposes where proceeds fund specific projects or community activities. These would require information disclosure obligations from issuers, particularly when marketed to general public.
Type 2 (Non-fundraising): Cryptocurrencies like Bitcoin, Ethereum, and meme coins that don't fall into the fundraising category. For these, exchanges would be responsible for providing necessary information to users.
Regulatory Considerations
The proposed framework would leverage existing financial instruments and exchange law mechanisms while recognizing cryptocurrency's unique characteristics. Key considerations include:
- Implementing more effective and strict regulatory frameworks to deter unlicensed operators
- Regulating investment advisory services related to cryptocurrencies
- Maintaining appropriate trading management and system development requirements
- Strengthening market surveillance capabilities
Government Policy Integration
The discussion document also references the "New Capitalism Grand Design and Implementation Plan 2025," which positions cryptocurrency and Web3 business development as solutions to social problems and productivity improvements. The government plans to:
- Position cryptocurrencies as financial products for national asset formation
- Establish investor protection systems
- Consider tax reforms including potential separate taxation introduction
- Implement reporting obligations to tax authorities
Norbert Gehrke
