Japan reclassified cryptocurrencies as financial instruments, a structural change that establishes the legal framework for separate taxation of crypto assets and for future crypto exchange-traded funds (ETFs).
The legislation, approved by Parliament on Wednesday, amends the Financial Instruments and Exchange Act and the Payment Services Act (PSA). It shifts crypto from a framework where it was primarily treated as a payment tool to one that treats it as an investment along with other financial instruments. The new rules are expected to enter into force in 2027.
The new framework also removes a key legal hurdle for future spot bitcoin exchange-traded funds (ETFs), although lawmakers did not approve any ETF products. Financial Services Agency officials said Japan will now consider developing a regulatory framework for crypto ETFs.
The legislation raises the maximum prison sentence for unregistered crypto operators from three years to 10 years and increases the maximum fine from 3 million yen ($18,500) to 10 million yen. It also introduces stricter rules on insider trading and expands disclosure requirements for crypto issuers and exchanges.
