Bitcoin News Today: Japan Aligns Crypto with Traditional Securities to Boost Investor Trust

Japan's Financial Services Agency (FSA) is set to reclassify cryptocurrencies as financial products under the Financial Instruments and Exchange Act, marking a significant shift in the country's regulatory approach to digital assets. The overhaul, first reported by Asahi Shimbun, will subject 105 cryptocurrencies-including Bitcoin (BTC) and Ether (ETH)-to mandatory disclosures and insider trading rules, aligning them with traditional securities. The FSA aims to submit the proposed legislation to Japan's parliament in 2026, with implementation expected to follow.

The reclassification will require exchanges to provide detailed information about each token's issuer, underlying blockchain technology, and volatility profiles as reported by Cointelegraph. This move is designed to enhance transparency and investor protections, addressing concerns about the opaque nature of some crypto assets.

Exchanges will also face stricter oversight of third-party custodians and trading service providers, a response to the 2024 DMM Bitcoin hack.

A key component of the FSA's plan is a tax overhaul. Japan currently taxes crypto gains as "miscellaneous income," subjecting high-earning traders to rates as high as 55%-one of the steepest in the world according to reports. Under the new framework, profits from the 105 approved cryptocurrencies will be taxed at a flat 20% rate, mirroring the treatment of stock trading. This adjustment is expected to boost participation, while aligning Japan with global practices.

The proposed rules also introduce insider trading prohibitions for the crypto market. Individuals or entities with access to non-public information-such as upcoming listings, delistings, or issuer financial distress-will be barred from trading affected tokens according to Cointelegraph. This measure, akin to regulations in equity markets, aims to curb manipulative practices and restore market integrity. The FSA's push for these rules reflects broader efforts to integrate crypto into Japan's financial system, including discussions to allow banks to hold Bitcoin for investment purposes.

Market participants are cautiously optimistic about the reforms. While compliance costs for exchanges may rise, the long-term benefits could outweigh challenges. The Japan Virtual Currency Exchange Association (JVCEA) has already established a "green list" of 30 tokens meeting transparency and stability criteria, a framework likely to expand.

The FSA's agenda also includes strengthening custody regulations. Following the DMM Bitcoin hack, which resulted in a $312 million loss, the agency plans to require exchanges to use only systems developed by registered custodians. This measure seeks to close regulatory gaps and enhance accountability in the crypto infrastructure.

Japan's regulatory push comes as global markets grapple with balancing innovation and oversight. The FSA's 20% tax rate is competitive with rates in the U.S. and EU, while its approach to bank involvement in crypto positions the country as a potential leader in institutional adoption. The reforms, however, face scrutiny from exchanges and firms like Metaplanet, which have seen sharp declines in value amid broader market corrections according to Bloomberg.