Japan Crypto Sector Loses Startups to 4-Year Approval Delays, Talent Exodus Grows

Japan’s cryptocurrency sector is witnessing a quiet but significant exodus of startups and talent, driven by systemic inefficiencies in its regulatory approval process rather than taxation policies. Maksym Sakharov, co-founder and CEO of decentralized onchain bank WeFi, attributes the departure to Japan’s sluggish and inflexible regulatory framework, which delays token listings and product launches for months or years. “The 55% progressive tax on crypto may be painful, but it’s no longer the main reason innovation is leaving the country,” Sakharov stated, emphasizing that regulatory delays are the critical factor [1].

The approval process for token listings in Japan involves two stages: initial review by the Japan Virtual and Crypto Assets Exchange Association (JVCEA) and final approval from the Financial Services Agency (FSA). This system often takes six months to a year, with some projects facing delays of up to four years before a token is listed. Such prolonged timelines force startups to divert resources, increase costs, and, in many cases, seek alternative markets. Japanese teams are increasingly choosing to list abroad, where regulatory environments are perceived as faster and more adaptable [1].

The issue has intensified as global competitors adopt more agile frameworks. Countries like the United Arab Emirates and Singapore offer quicker approval channels, while South Korea prioritizes real-time compliance over exhaustive initial reviews. These jurisdictions provide clearer pathways for innovation, enabling crypto firms to launch products without prolonged bureaucratic hurdles. Sakharov highlighted that Japan’s risk-averse approach stifles progress, contrasting with the “proportional disclosure requirements and time-limited claims-based approval windows” he advocates as solutions [1].

The exodus threatens to erode Japan’s standing as a fintech innovator. Over the past year, several mid-sized platforms have paused operations or pivoted to fiat-focused services to avoid regulatory entanglements. For example, a Tokyo-based exchange reportedly abandoned plans for a new digital asset product after six months of delays, opting instead to partner with a firm in the British Virgin Islands. Such cases underscore a broader systemic failure to align with the dynamic nature of the crypto industry [1].

Industry analysts argue that Japan’s fragmented oversight system—spanning multiple ministries and agencies—compounds the problem. While early enthusiasm for crypto attracted pioneers, the lack of modernization has since alienated them. One Tokyo-based strategist noted that Japan’s rigid adherence to legacy frameworks has transformed the regulatory environment into a “bottleneck, not a shield” [1]. This sentiment is echoed by a recent fintech think tank survey, which found that 42% of crypto companies in Japan are actively evaluating or have initiated relocation strategies, citing regulatory uncertainty as a primary driver [1].

Despite acknowledging the need for reform, the Japanese government has yet to implement comprehensive changes. Proposed measures remain stalled by interministerial disputes and political inertia, fueling skepticism among market participants. Critics argue that without streamlining approvals and aligning oversight with global standards, Japan risks ceding its fintech ambitions to rivals in Asia and beyond. The country’s reputation as a hub for blockchain innovation is now at stake, with startups and developers increasingly viewing Japan as an inhospitable environment for growth [1].

The crisis highlights a broader challenge: balancing regulatory caution with the speed and scale demanded by the crypto industry. While tax reforms may address surface-level concerns, they fail to resolve the underlying structural issues. Without urgent action to modernize its approval system, Japan’s exodus will likely accelerate, diminishing its influence in the next phase of financial technology.

Sources:

[1] [title: Japan’s Crypto Exodus: It’s Not the Taxes—It’s the Broken Approval System] [url: https://coinmarketcap.com/community/articles/6885ef3931d9044a2342238c/]