Regulatory Warmth Meets Market Chill, Japan's Cryptocurrency Boom Faces Test

Recently, the global cryptocurrency market has experienced a deep correction, with Bitcoin once dropping below the psychological barrier of $100,000. This cold wave may bring a severe stress test to the Japanese cryptocurrency market, which was just expecting relaxation in regulations. Previously, whether it was the new products and services launched by exchanges or the landing of leveraged trading, industry practitioners were taking advantage of investors' increasing interest in digital assets and competing for market dividends against the trend. This craze vividly highlights the sharp increase in Japanese investors' preference for high-risk investments in a high inflation and low-interest rate environment. Currently, the inflation rate in Japan continues to outpace wage growth, a trend that has overshadowed the cautious attitude towards cryptocurrency investments in the market, following serious security vulnerabilities in exchanges in 2014 and 2018. By the end of July, the size of cryptocurrency assets held by Japanese investors exceeded 5 trillion yen (approximately $33.16 billion), a significant increase of 25% from a month ago, capturing the frenzy before and after the market peak; at the same time, the price of Bitcoin (the core holding of investors) denominated in yen rose by only 15%. By the end of September, this asset size had slightly dropped to 4.9 trillion yen, reflecting the impact of a cooling market. Industry practitioners are actively preparing for the market's accelerated growth. Regulatory adjustment proposals currently being discussed are expected to attract more retail investors by lowering cryptocurrency income tax rates, relaxing margin trading restrictions, and asset securitization measures. However, the recent global market correction poses a sharp question: will the attractiveness of tax incentives diminish significantly when investors incur losses? "There is still considerable room for growth in the market." Satoshi Hasuo, representative director and executive director of cryptocurrency exchange Coincheck (CNCK.US), pointed out, "The number of people with securities accounts is about three times that of cryptocurrency accounts, and there is still considerable room for growth in the market." He further stated, "The next key step is to think about how to convert this potential user base into cryptocurrency investors." CJ Fong, General Manager of GSR Asia-Pacific, a cryptocurrency market maker, revealed that the company's communication with local Japanese exchanges and Financial Institutions, Inc. had significantly increased this year, with the core goal of providing higher liquidity support for various digital assets. However, in the liquidity squeeze caused by the global market downturn, this goal is facing a practical test. These industry dynamics indicate that, against the backdrop of US President Donald Trump's push for the global cryptocurrency industry, Japan is reconsolidating its position as a "major cryptocurrency market" through the active actions of industry practitioners. Noriyuki Hirosue, CEO of cryptocurrency exchange Bitbank, analyzed, "The supportive stance of the Trump administration towards cryptocurrencies has prompted the Japanese government and regulatory agencies to shift towards a more friendly industry policy to avoid falling behind in global competition." According to a report from cryptocurrency data platform Chainalysis, Japan ranks 19th globally in cryptocurrency adoption rate this year, entering the top 20. New products landing intensively, new participants accelerating entry Established exchanges have already started product and service layouts in advance to prepare for potential regulatory adjustments - future cryptocurrency returns may be subject to taxation based on securities return standards, and cryptocurrency investments are expected to be opened through channels like Exchange-Traded Funds (ETFs) and tax-exempt investment tools. Currently, the Japan Financial Services Agency (FSA) is refining rule adjustment proposals, which will be submitted to the parliament for deliberation. If the proposal is approved, it is expected to take effect formally in 2026 or 2027. Using the example of a similar reform of Japan's forex trading tax system in 2012, Hirosue from Bitbank said that this could replicate a surge in trading activity brought about by regulatory adjustments, increasing market size by a significant amount. In August this year, Coincheck announced a collaboration with the cryptocurrency assets department of the e-commerce platform Mercari to provide a richer selection of cryptocurrency assets to Mercari's casual user base. Mercari introduced simple cryptocurrency trading features to its platform for buyers and sellers in March 2023, and by July 2025, its cryptocurrency account numbers had surpassed 3.4 million, accounting for more than a quarter of the total cryptocurrency accounts in Japan (13.2 million). Industry practitioners believe that this growth effectively promotes cryptocurrency trading to a more diverse audience. Tomohiko Kondo, representative director and president of cryptocurrency exchange subsidiary SBI VC Trade under the SBI Group, revealed that given the leverage trading multiple could increase from the current 2x to 5-10x, the company is advancing the "upgrade of leverage trading services." In the current climate of heightened volatility caused by global market downturns, higher leverage undoubtedly poses a more dangerous double-edged sword, potentially amplifying investors' losses several times. In addition, the company also plans to launch lending services based on the stablecoin USDC and explore the possibility of issuing cryptocurrency ETF products. An October report revealed that Japanese financial regulatory authorities are considering allowing institutions under banking groups to engage in cryptocurrency trading services, aiming to expand market access and stimulate industry competition. Retail investors chasing high returns, while being cautious of risks Behind the cryptocurrency trading frenzy in Japan is a pursuit of high returns by retail investors and a demand for diversification of low-return assets such as government bonds and bank loans. Umi Soyama, a 27-year-old employee of an advertising agency in Tokyo, has two years of experience in cryptocurrency investments. She stated, "Over 90% of my assets are allocated in the cryptocurrency field. For me, it only makes sense to diversify my investment portfolio after accumulating a certain amount of funds." "Now, I am willing to take on some risk for returns, and once my asset size meets the standard, I will gradually diversify into stocks, bonds, gold, and other asset classes." However, this aggressive strategy faces significant risks in this market correction. Some investors are also being driven by President Trump's supportive stance towards cryptocurrencies. SBI VC Trade revealed that in the month when Trump was elected President of the United States, the company saw a 5-fold increase in new account openings compared to usual. However, the drastic fluctuations in cryptocurrency prices pose significant risks for new investors. Motonobu Matsuo, Senior Executive Director at the Japan Securities Dealers Association, cautioned, "Cryptocurrency prices are volatile, investors must recognize the nature of this volatility; even if choosing to invest, it should be positioned as an alternative asset, not a core allocation." It is worth noting that current cryptocurrency asset prices are approaching historical highs, and some investors have started reducing their holdings. Kou Okamoto, Chief Financial Officer of a financial company in Tokyo, has been investing in cryptocurrency with a small amount since 2019, mainly holding Bitcoin but planning to reduce holdings of "altcoins" (non-Bitcoin cryptocurrencies). "Other investment categories are difficult to achieve returns of 100x or 200x, and further regulatory relaxation will enhance the attractiveness of cryptocurrencies. However, altcoins are essentially no different from gambling, with slightly higher odds." He stated, "I am planning to reallocate these funds to medium-risk, medium-return investment categories." The recent correction in the cryptocurrency market precisely confirms that his caution is not unwarranted.