Bitcoin rebounds after a sharp drop? New regulations in Japan clear the way for ETF issuance, and capital inflows are expected to "find a bottom".

The Japanese House of Representatives officially passed amendments to the Financial Instruments and Exchange Act and the Payment Services Act on June 11, reclassifying cryptocurrencies such as Bitcoin and Ethereum as financial instruments and subjecting them to the same regulatory framework as stocks and bonds. This legislation marks the first paradigm shift globally to upgrade cryptocurrencies from "payment methods" to "financial products," paving the way for the listing of cryptocurrency ETFs. It also signifies Japan's transition from being a "pioneer" in digital assets to becoming a "leader in institutionalization," with the potential to expand access channels for cryptocurrencies. Legislative Overview: Historic Leap from the Payment Services Act to the Financial Instruments and Exchange Act The amendments were officially submitted to the Diet on April 10 and passed the House of Representatives after two months of deliberation. This legislation represents the most significant structural reform in Japan's financial regulatory system since the establishment of the cryptocurrency exchange registration system in 2017. The key breakthrough is transferring regulatory authority over cryptocurrencies from the Payment Services Act to the Financial Instruments and Exchange Act framework. For nearly a decade, the Japanese Financial Services Agency had primarily regulated cryptocurrencies as "payment tools," focusing on exchange registration, asset custody, and anti-money laundering compliance. With the rapid increase in the use of cryptocurrencies as investment tools and the influx of global institutional capital in recent years, Japanese regulatory authorities concluded that the existing payment-oriented regulatory framework could no longer adequately address the rapidly expanding cryptocurrency market. The amendments fully integrate cryptocurrency provisions into the operator supervision, information disclosure, and insider trading regulations of the Financial Instruments and Exchange Act, representing a large-scale institutional restructuring. The names of registered entities will also change from "cryptocurrency exchange operators" to "cryptocurrency trading operators." If the amendments pass smoothly in the House of Councillors, the entire new system is expected to take effect in the 2027 fiscal year (with some enforcement provisions being implemented 20 days after promulgation). Tax Reduction from 55% to 20%, Ending Long-Term Investment Disadvantages The most anticipated provision in the amendments is the reduction of the cryptocurrency profit tax rate from the current maximum of 55% (including local taxes) to a unified 20% capital gains tax rate. Under the current tax system, cryptocurrency profits are classified as "miscellaneous income" subject to progressive tax rates, with a maximum of 55%, while investment profits from stocks and bonds only require payment of a unified tax rate of around 20%. This systemic discrimination has deterred many retail investors and institutional capital from the Japanese cryptocurrency market, leading Japanese Web3 startups to relocate to more tax-friendly jurisdictions like Dubai and Singapore. This tax reform goes beyond rate reduction. The amendments simultaneously introduce a three-year loss carryforward regime, allowing traders to offset current gains with past losses, and eliminate the provision that taxes unrealized cryptocurrency gains for companies the end of what the industry called the "startup killer tax." The most controversial aspect of this reform is the phased implementation schedule. It is expected that the new 20% unified tax rate mechanism will only take effect for individual investors from January 1, 2028. Starting from the new fiscal year in April 2026, Japanese companies will be exempt from paying taxes on the market value of cryptocurrencies they hold at the end of the year, aiming to prevent Web3 companies from fleeing. Industry leaders expressed strong dissatisfaction with the delayed implementation, believing that this timetable puts Japan at a disadvantage in the global competition for institutional-grade investment frameworks required for products like Bitcoin ETFs to launch. At the same time, the 20% unified tax rate is not a "one-size-fits-all" solution. According to legal experts, the prerequisite for enjoying the lower tax rate is for assets to be classified as "designated cryptocurrencies," listed on licensed exchanges in Japan and traded through them. Profits generated through offshore platforms or decentralized financial protocols will still fall into the old, higher tax brackets. From Hedging Exposure to Direct Allocation: Cryptocurrency ETFs Fully Opening Up The most immediate market impact of the legislation is the opening up of a legal pathway for cryptocurrency ETFs to debut on the Tokyo Stock Exchange. Previously, Japanese stock investors seeking exposure to cryptocurrencies could only do so indirectly by purchasing stocks of listed companies holding significant amounts of tokens like Bitcoin, such as the iconic example of MetaPlanet holding over 40,177 Bitcoins. With the new law in effect, retail and institutional investors will be able to directly buy and sell exchange-traded funds through traditional brokerage accounts, achieving the same level of convenience and liquidity as stock ETFs. The operator of the Tokyo Stock Exchange, Japan Exchange Group, expects the first ETF tracking cryptocurrencies to debut on the exchange as early as next year. SBI Holdings was the first to propose a plan to launch Bitcoin and XRP ETFs on the Tokyo Stock Exchange in May and aims to increase the assets under management to around 5 trillion yen (about $320 billion) within three years of the launch. SBI is also exploring a hybrid "gold-crypto" investment trust product to attract more conservative institutional and retail investors looking to diversify their alternative asset allocations. The Japanese Financial Services Agency had already outlined plans at the beginning of the year to incorporate cryptocurrencies into the list of eligible underlying assets for ETFs, laying the groundwork for the approval of cryptocurrency ETFs around 2028. Koichi Kano, the head of QCP Group in Japan, stated in an interview that the new regulations may have a detrimental impact on so-called "digital asset funds" as they will be forced to compete on a more level playing field with ETF providers. Japanese New Rules Poised to Boost Bitcoin Amid Weak Trend As of the time of writing, Bitcoin was trading at around $62,659, up 1.3% in the past 24 hours, bouncing back after briefly dropping below the $60,000 psychological level to a low of $59,200 marking the first breach of this level since October 2024. The price has fallen by roughly 50% from its all-time high of over $126,000 in October 2025, signaling a deep bear market correction phase. Bitcoin has faced multiple pressures in its recent price trend. The key resistance lies around the $64,000 region, a high liquidity clearing area where a large number of leveraged long positions are concentrated. If the price rebounds to this level, it could trigger intense speculation between bulls and bears. The critical support is in the $60,000 to $60,500 range, and a significant breach could open up further downside potential, with the next significant support around $50,000 to $51,200. On June 11, escalating tensions between the U.S. and Iran added short-term unpredictability to Bitcoin's trajectory. The U.S. Central Command began "defensive" strikes on several key facilities within Iran on June 10, leading the Iranian Revolutionary Guard to temporarily close the Strait of Hormuz, escalating the situation. This development, along with expectations of a rate hike, has been a key medium-term constraint for Bitcoin. The Federal Reserve's rate hike expectations have been increasing, with traders fully pricing in a rate hike sometime this year. Bitcoin, as a non-interest-bearing asset, faces a potential shift of funds into interest-bearing assets like U.S. treasury bonds as interest rates rise, emphasizing its significant negative correlation with the U.S. dollar, as the U.S. dollar index briefly surpassed the 100 level. ETF funds have seen continuous outflows for 13 consecutive trading days, with a total withdrawal of about $4.4 billion, primarily driven by hedge funds' unwinding of basis trades. Hedge funds reduced their ETF holdings by about 31,400 BTC, a 39% decrease, while broker-related holdings were cut by 53%. Investment advisors holding 150,300 BTC only reduced their positions by 5.9%, indicating no panic selling yet. However, ETFs' assets under management (AUM) have dropped from about $104.3 billion to around $80.4 billion, as the market is currently undergoing a deep deleveraging cycle. Reshaping the Medium to Long-Term Landscape: "Main Market for Bitcoin ETFs" Amidst multiple macro pressures facing Bitcoin, the passage of the Japanese legislation, while unlikely to cause a one-time price surge in the short term, lays a solid institutional foundation for long-term attention. Japan is one of the few major economies globally to comprehensively regulate cryptocurrencies under its securities laws, and this alignment with regulation is expected to bring about three structural changes in the coming years: increased depth in compliant cryptocurrency markets; pension funds and insurance funds, or "old money," gradually entering the market through ETFs, and cryptocurrencies shifting from "exceptional risk assets" to "configurable financial assets" in the traditional financial system, serving as a demonstration effect. Tax Reform Effect: From 55% to 20%, Likely to Drive Expectations of Capital "Repatriation" The most substantial impact of the amendments is the reduction of the cryptocurrency profit tax rate from the highest 55% (progressive tax on miscellaneous income) to a unified 20% capital gains tax rate, the introduction of a three-year loss carryforward regime, and the abolition of taxing companies on unrealized cryptocurrency gains. This means that the tax burden for cryptocurrency trading on licensed exchanges in Japan will drop from the highest global range to the lowest tier among developed countries. The impact of this tax reform on prices will not be immediate but rather driven by long-term institutional factors. Japanese individual cryptocurrency investors have long faced structural discrimination under the "windfall tax," forcing many trades to offshore platforms or exiting the market altogether. Analyst Willy Woo pointed out that the Japanese crypto market once held about 40% of the global cryptocurrency trading volume, but due to high tax rates, it has shrunk to less than 5%. The tax reform could trigger a significant influx of funds back into the market. Japanese household financial assets amount to about 235 trillion yen (approximately $1.47 trillion), with investment fund management assets totaling around 30 trillion yen (about $190 billion). Even a small percentage of this allocation conversion could billions of yen in incremental demand. ETF Effect: Institutional Channels Fully Opening, Potential for Inflows in the Trillion Yen Range With the legislation passed, the legal obstacles for Japanese cryptocurrency ETFs have been largely removed. According to the Japanese government's plan, the new tax system will officially take effect in January 2028. By then, cryptocurrency ETFs are expected to debut on domestic exchanges in Japan. SBI Holdings was the first to propose Bitcoin and XRP ETFs and aims to manage assets of around 5 trillion yen within three years of the launch. Analysts at the CryptoQuant platform have conducted a layered calculation on the potential inflow of funds into Japanese Bitcoin ETFs, providing a quantitative reference framework for the market: In comparison, the U.S. Bitcoin spot ETF saw net inflows of about $35 billion in the first year after its launch. If Japan attracts nearly $20 billion in the first year in an optimistic scenario, considering that the global ETF market is not a zero-sum game but welcomes incremental capital, the entry of Japanese ETFs will become the second institutional door for capital inflows after the United States. Integration Effect: Compliance Thresholds Raised, Industry Concentration Enhances Price Discovery Transparency The new law increases the maximum penalty for unregistered cryptocurrency sellers from three years to ten years in prison, raises the upper limit on fines to 10 million yen, and extends insider trading prohibitions to the cryptocurrency domain comprehensively for the first time. These rules will lead to a sharp increase in compliance costs for small exchanges, with Shohei Matsumoto, Executive Director of The PacificMeta, bluntly stating, "I wouldn't be surprised if half of Japan's exchanges disappear." From a market structure perspective, SBI Holdings is accelerating mergers and acquisitions having previously acquired the client accounts of Bitpoint Japan and DMM Bitcoin, and currently negotiating with the third-largest exchange, Bitbank, with the goal of capturing a market share exceeding 30%. The acceleration of industry consolidation implies that the future Japanese cryptocurrency market will be less dominated by fragmented exchanges catering to retail traders and more by licensed, trusted major platforms operating collectively, fundamentally improving market depth and liquidity to provide more transparent price discovery foundations.