Japan reclassified cryptocurrencies as financial instruments, a structural change that establishes the legal framework for the separate taxation of crypto assets and for future cryptocurrency exchange-traded funds (ETFs).
Legislation passed by Parliament on Wednesday amends the Financial Instruments and Exchange Act and the Payment Services Act (PSA). It changes cryptocurrencies from a framework in which they were primarily treated as a payment tool to one that treats them as an investment alongside other financial instruments. The new rules are expected to come into effect 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. Officials at the Financial Services Agency said Japan will now consider developing a regulatory framework for crypto ETFs.
The legislation increases 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 cryptocurrency issuers and exchanges.
