Earlier this year in Hong Kong’s Bitcoin Asia, there was a growing sense of frustration with Digital Asset Treasury (DAT) companies and their slow performance against the asset they fill their coffers with.
“Just buy an ETF,” is how Matt Cole, CEO of Strive Asset Management, put it during a panel at the conference.
But in Japan this is not the case. In fact, Tokyo-listed DATs consistently outperform bitcoin due to the local tax treatment of stocks versus cryptocurrencies.
Those premiums are not random. They are an expression of Japan’s tax incentives, which punish direct crypto profits but reward capital gains with lower rates and loss offsets.
Crypto earnings in Japan are treated as miscellaneous income, pooled with salaries and other earnings, and taxed at progressive rates that can reach 55% for the highest earnings.
These gains cannot be offset by losses from other sources and cannot be carried forward. Stock earnings are in a completely different category. They are taxed separately at around 20%, carryover losses are allowed, and much simpler reporting requirements. The difference creates a clear financial incentive: Holding bitcoins directly carries the risk of paying high taxes, while holding shares linked to bitcoins keeps any gains within the lower-taxed capital pool.
Investors who want to gain exposure to Bitcoin without the 55% tax bill have no choice but to push up stocks of companies that hold BTC. American companies operate in a tax-neutral environment, so their shares rarely trade much above their BTC holdings.
At the same time, the Tokyo Stock Exchange and the Japan Stock Exchange Group are increasingly uncomfortable with the volatility their own tax regime helped fuel, CoinDesk previously reported, as they have begun warning companies about covert listing tactics, tightening audits and signaling that the DAT model can expose retail investors to risks they don’t fully understand.
Similar talks are taking place elsewhere in Asia, with regulators in Hong Kong, India and Australia said to be concerned about the structure and discouraging listed companies from going ahead with the strategy.
Back in Japan, DATs could soon be losing their shine as the country’s tax authority mulls a change in the tax treatment of cryptocurrencies.
If this happens, without the tax advantage, Tokyo-listed DATs will quickly lose their luster. “Just buy an ETF” may end up being the advice that also works in Japan.
