Bitcoin News Today: Japan Reclassifies Crypto as Securities to Protect Retail Investors

Japan’s Financial Services Agency (FSA) has proposed a regulatory overhaul to bring cryptocurrencies under the Financial Instruments and Exchange Act (FIEA), moving them from the Payment Services Act. This shift aims to address gaps in investor protection, strengthen transparency, and align crypto oversight with traditional financial markets. The FSA highlights recurring issues in the sector, including unclear white papers, inaccurate disclosures, unregistered operations, and investment scams. By applying the FIEA’s mechanisms, regulators aim to close these loopholes and enforce standardized disclosure and enforcement practices across the crypto market [1].

Under the current Payment Services Act, crypto exchanges focus primarily on settlement and custody, with no obligation to disclose information about the underlying assets. The FSA’s proposal would reclassify cryptocurrencies as securities, thereby imposing more rigorous requirements on issuers of fundraising tokens, such as those used in initial coin offerings (ICOs). Exchange-level obligations would also apply to decentralized assets like Bitcoin and Ether, requiring platforms to provide reliable information and highlight associated risks [3]. The FIEA framework could also empower courts to issue emergency injunctions against unregistered operators and impose penalties of up to ¥500 million for corporations and prison sentences for individuals involved in misconduct [3].

The FSA’s report underscores the growing importance of crypto in Japan’s financial landscape. Domestic exchanges now manage over 12 million accounts, with user deposits exceeding ¥5 trillion ($33.7 billion), nearly one account for every 10 people in the country. Despite this growth, the majority of accounts—over 80%—hold less than $675, highlighting the dominance of small-scale retail investors. Surveys show that 7.3% of Japanese investors hold crypto, a higher proportion than those investing in foreign exchange or corporate bonds [1]. About 70% of these investors are middle-income earners, and 86% trade with the expectation of long-term price appreciation [1].

Finance Minister Katsunobu Kato has expressed support for crypto as a diversified investment option, acknowledging its potential despite high volatility. He emphasized the importance of creating a proper investment environment to foster trust and stability [1]. The FSA’s shift is also seen as a response to rising concerns about fraudulent activities, with over 300 monthly complaints related to crypto scams. These include misleading online seminars, social media promotions, and unregistered investment platforms that freeze withdrawals or demand additional fees [3].

Japan’s regulatory move mirrors global efforts to bring crypto under traditional financial oversight. Countries such as Bahrain, Pakistan, and Hong Kong have introduced frameworks to license stablecoin issuers and regulate digital asset activity. In the U.S., regulators are expanding authority following the approval of spot Bitcoin ETFs, while the European Union has launched its Markets in Crypto-Assets (MiCA) regulation. Japan’s approach, if enacted, would align it with these global trends and introduce stricter enforcement tools, including market manipulation and insider trading penalties [3].

The FSA expects to submit a bill by 2026 to amend the FIEA and implement the proposed regulatory framework. The shift could lead to short-term volatility in the Japanese crypto market, particularly in BTC/JPY and ETH/JPY pairs, as exchanges adapt to stricter compliance requirements. While the near-term impact may pose challenges for operators, the long-term goal is to enhance investor confidence and market legitimacy [2]. Japan is also preparing to launch its first yen-backed stablecoin, with JPYC set to introduce the product later this year [3].

Source: [1] Japan regulator proposes crypto rule overhaul in line ... (https://cointelegraph.com/news/japan-crypto-regulation-overhaul-securities-law) [2] Japan's FSA is proposing tighter crypto regulations ... (https://www.vtmarkets.com/live-updates/japans-fsa-is-proposing-tighter-crypto-regulations-potentially-enhancing-investor-confidence-and-sector-legitimacy) [3] Japan Moves Crypto Under Securities Law (https://cryptonews.com/news/japan-moves-crypto-under-securities-law-massive-crackdown-imminent)