Japan's slow crypto regulatory process pushes startups overseas: Expert

Japan’s regulatory landscape for cryptocurrency is hampering innovation and pushing startups overseas, according to Maksym Sakharov, co-founder and CEO of Web3 firm WeFi. The primary issue, he argues, is not the proposed 20% flat tax on crypto gains—which he calls “painful but visible”—but rather the country’s “slow, prescriptive, and risk-averse” approval culture [1]. This bottleneck, Sakharov explains, stems from a two-step regulatory process requiring self-regulatory review by the Japan Virtual and Crypto Assets Exchange Association (JVCEA) followed by oversight from the Financial Services Agency (FSA). Delays in token screenings, IEO white paper vetting, and product change notifications often stretch go-to-market timelines to 6–12 months, forcing many teams to list internationally first [1].

The process, he notes, is structured to mitigate risks rather than accelerate innovation. For example, repeated revisions to documentation and rigid pre-approval requirements create uncertainty for developers. “The process is designed to avoid downside, not to accelerate innovation,” Sakharov said, highlighting how regulatory inertia burns startup capital and erodes Japan’s competitive edge [1].

Comparisons with other jurisdictions underscore Japan’s lag. While Singapore and the UAE offer clearer regulatory pathways and faster approvals, South Korea’s framework focuses on ongoing exchange obligations rather than external pre-approvals, enabling quicker listings [1]. Sakharov emphasizes that Japan’s proposed tax changes and reclassification of crypto as a financial product will not address the core problem unless regulatory culture shifts. “Culture eats tax cuts for breakfast,” he remarked, urging regulators to adopt time-boxed approvals, functional sandboxes for staking and governance experiments, and proportional disclosure rules [1].

Without reforms, Japan risks losing its foothold in a global crypto race. The country’s cautious approach—rooted in post-2018 Coincheck hack priorities—has created a fragmented environment where startups and liquidity providers operate elsewhere. This trend mirrors broader fintech challenges, as nations like Hong Kong and the UAE introduce agile frameworks to attract tokenized securities and blockchain talent [1].

The economic implications are significant. Delayed approvals deter venture capital and reduce Japan’s ability to retain homegrown crypto projects, which may scale abroad to avoid bureaucratic hurdles. International investors, seeking jurisdictions with clear legal frameworks, may also redirect capital away from Japan, limiting foreign direct investment in the sector [1].

Sakharov’s critique aligns with a growing call for regulatory modernization. A sandbox model, as seen in the UK and Singapore, could enable controlled innovation while maintaining oversight. By streamlining approvals for high-potential projects, Japan might balance stability with agility. However, the absence of such measures risks ceding influence to jurisdictions prioritizing speed and adaptability [1].

The issue reflects a global struggle between regulatory caution and technological evolution. While Japan’s focus on stability is understandable, its current framework risks creating a vacuum filled by more agile competitors. For the country to remain a leader in digital finance, it must recalibrate its approach to avoid stifling a sector critical to its economic future [1].

Source: [1] [title1: Japan’s ‘slow’ approval culture stifles crypto adoption: Expert] [url1: https://coinmarketcap.com/community/articles/6884cef47bcc423cceef7492/]