Japan's slow crypto approvals stifle innovation, drive activity offshore

Japan’s regulatory environment for cryptocurrency is being criticized for stifling innovation and driving activity offshore, according to Maksym Sakharov, co-founder and CEO of Web3 firm WeFi. Sakharov argues that the nation’s “slow, prescriptive, and risk-averse” approval processes, rather than proposed tax changes, are the primary obstacles to crypto adoption. The two-step regulatory framework—initial review by the Japan Virtual and Crypto Assets Exchange Association (JVCEA) followed by the Financial Services Agency (FSA)—can delay market entry for projects by 6–12 months or longer [1]. This bureaucratic inertia, he claims, forces startups and liquidity providers to prioritize overseas listings, eroding Japan’s competitive edge in the global crypto sector [1].

Sakharov highlighted specific inefficiencies, such as repeated delays in token screening, IEO white paper approvals, and product change notifications. These processes, he noted, prioritize risk mitigation over innovation, creating a system where “the process is designed to avoid downside, not to accelerate innovation” [1]. The proposed 20% flat tax on crypto gains and reclassification of digital assets as financial products, he warned, will not resolve these systemic issues without cultural reforms in regulatory practices [1].

Comparisons to other jurisdictions underscore Japan’s shortcomings. While Singapore and the United Arab Emirates offer clearer regulatory pathways and faster approvals, South Korea’s VAUPA framework focuses on ongoing exchange obligations rather than pre-approval hurdles, enabling quicker listings [1]. Hong Kong’s Ensemble Sandbox, meanwhile, exemplifies agility in fostering innovation, contrasting with Japan’s cautious, process-heavy approach [1]. Sakharov emphasized that Japan’s regulatory culture—prioritizing stability over speed—risks isolating the country from global crypto trends and investment flows [1].

To address these challenges, Sakharov recommended adopting “time-boxed, risk-based approvals,” establishing functional regulatory sandboxes to test staking and governance models, and implementing proportional disclosure requirements. These measures, he argued, would align Japan’s approach with global peers while reducing barriers for innovators [1]. Without such reforms, domestic projects are likely to continue scaling abroad, driven by uncertainty and delays rather than tax considerations [1].

The critique resonates with broader global trends in crypto regulation, where jurisdictions with agile frameworks—such as the EU’s MiCA initiative—have accelerated adoption by balancing oversight with experimentation [1]. Japan’s reliance on manual, time-intensive approvals, however, stands in stark contrast to these models, raising concerns about its ability to retain talent and capital in the evolving digital asset landscape [1].

Source: [1] [title1] [url1] [2] [title2] [url2]

[1] "Japan’s ‘slow’ approval culture stifles crypto adoption: Expert," CoinMarketCap, https://coinmarketcap.com/community/articles/6884cef47bcc423cceef7492/

[2] "Yield Optimizer ETH Price Chart (YOETH), Japan's 'slow' approval culture stifles crypto adoption: Expert," CoinGecko, https://www.coingecko.com/en/coins/yield-optimizer-eth