Since the birth of Japan's first cryptocurrency exchange in 2012, the growth has been very significant. Around 2014, Japan's trading volume accounted for about half of the global share. However, due to serious hacking incidents, tightened regulations, and lack of social trust, the vitality of Japan's cryptocurrency market is not as strong as before. Nevertheless, as the industry has developed relatively maturely, Japan has also become a pioneer in cryptocurrency regulation.
Japan began to establish a cryptocurrency regulatory framework in 2017, and it has been eight years so far. During this period, how has Japan found a balance between regulation and innovation? Takeshi Chino, the general manager of Binance Japan, the world's largest exchange, was interviewed to deeply explore the current status, challenges, and future of the Japanese market.
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ToggleWorld's Earliest Regulation! Is it a Blessing or a Curse for Japan's Cryptocurrency Industry?
Regulatory Clarity Brings Stable Development
In 2017, Japan introduced cryptocurrency regulation under the Payment Services Act (PSA), requiring exchanges to register with the Financial Services Agency (FSA). Takeshi Chino stated that Japan is one of the first major economies to establish a clear regulatory framework. This clarity has reduced market uncertainty and improved the predictability of business operations. At the same time, Japan has also struck a good balance between innovation and user protection. For example, FTX Japan's customers were able to quickly recover their assets due to asset segregation rules, far exceeding the handling efficiency in other countries. The stablecoin bill is also a significant example, which has brought clarity and transparency to the Japanese market, providing a sound and predictable regulatory framework.
Tax System Brings Industry Restrictions
However, Tsuyoshi Chino stated that Japan's high tax rate policy poses a barrier to the Web3 industry. Cryptocurrency income exceeding 200,000 yen is classified as "miscellaneous income" with a maximum tax rate of 55%, far higher than the 20% on stock dividends. This system deters foreign Web3 companies and is a major challenge in driving large-scale adoption of the industry.
Japan's Advantage: Government and Industry Collaboration in Driving Web3 Strategy
The Government Promotes Friendly Policies
Unlike other countries, the Japanese government is relatively positive and active in the development of the blockchain industry. In addition to jointly formulating a regulatory framework with industry players, industry players have also developed self-regulatory organizations (SROs) at an early stage to create a safer and more friendly industry environment.
Since 2022, the Japanese government has actively advocated blockchain and Web3 technology. The LDP Web3 Policy Taskforce has released a white paper emphasizing the use of NFTs and blockchain technology to develop the digital economy. Tsuyoshi Chino mentioned that Japan has made important legislative progress in recent years, including:
- Exemption from end-of-year market value taxation of crypto assets: Companies can choose to be taxed on the book value of self-issued or restricted transfer crypto assets.
- Revision of the LPS Act: Allowing limited partnership investment vehicles to invest in qualified crypto assets (this is a legal amendment, which has not yet been implemented).
These policy proposals are expected to create more flexible development space for the future of Japan's cryptocurrency industry.
Self-Regulatory Organizations Simplify Token Listing Process
On the other hand, regarding the previously cumbersome exchange listing approval process, Tsuyoshi Chino said that under external pressure, self-regulatory organizations have improved the token listing process, providing a simplified application for tokens already listed on other exchanges. This has increased the number of tradable tokens in the Japanese market, enhancing market vitality.
In the past, the trading pairs on Japanese exchanges were limited due to the complex listing review and strict restrictions. After the self-regulatory organization's improvements, the number of available listings has increased significantly. For example, Binance Japan now offers 59 tokens, the most among Japanese exchanges.
Japan's Characteristics: Participation of Large Enterprises Drives the Blockchain Ecosystem
Corporate Participation Brings Unique New Opportunities
Unlike other countries, Japan's blockchain industry is not primarily centered around startups, but rather focuses on how to help existing Japanese companies develop, so blockchain applications in Japan are more concentrated on the operational needs of large enterprises.
Tsuyoshi Chino pointed out that while the lack of liquidity in the Japanese market is one challenge, large companies in industries such as entertainment, telecommunications, and automotive have also shown a high degree of interest in the crypto industry. For example, the collaboration between the Japanese power company TEPCO and PlayMining GameFi demonstrates the potential for cross-industry cooperation.
Tsuyoshi Chino mentioned that in April 2024, the number of cryptocurrency trading accounts in Japan exceeded 10 million for the first time, an increase of about 50% year-on-year. Although this is still lower than the 36 million securities company accounts, it is an important milestone that has instilled strong confidence in Japan's crypto industry.
Japan's Industry Self-Regulatory Organizations Play a Crucial Role
Self-Regulatory Organizations Have a Key Regulatory Function
In addition to direct supervision by the Financial Services Agency, Japanese exchanges must also comply with the supervision and regulations of self-regulatory organizations authorized by the Financial Services Agency. Tsuyoshi Chino believes that self-regulatory organizations help improve operational quality and promote industry innovation. However, challenges should not be overlooked:
- The administrative approval process is longer compared to unregulated markets.
- The independence of self-regulatory organizations must be ensured.
- Recruiting and training talent for self-regulatory organizations is not easy.
He believes that self-regulatory organizations should maintain fairness and strengthen their professional capabilities by introducing external experts.
Understanding the Self-Regulatory Organization JVCEA
In view of the high-profile incidents that have occurred in the past with Japanese virtual asset exchanges, the industry, under the authorization of the Japanese regulatory authorities, established the Japan Virtual and Crypto Assets Exchange Association (JVCEA) as a self-regulatory organization to rebuild public confidence and strengthen investor protection. The organization is based on the existing framework of the Japan Securities Dealers Association and has been adjusted to suit the unique characteristics of virtual assets, forming self-regulatory rules appropriate for the current industry.
As an important hub for the industry, JVCEA has multiple responsibilities. In addition to serving as a liaison between the virtual asset industry and the regulatory authorities, the association also represents members to propose industry opinions and policy recommendations, and supervises and regulates members in areas such as insider trading, anti-money laundering plans, wallet management, and network security, based on the regulations approved by the regulatory authorities.
However, among the association's members are various exchange operators with different interests. To ensure fairness and independence, JVCEA has implemented multiple safeguard mechanisms in its operations. Tsuyoshi Chino explained that while the formulation and implementation of regulations are decided through member consultations and the board of directors, the enforcement of regulations is entrusted to an independent secretariat. The secretary-general is a member of the board of directors, responsible for providing information support for the meetings. Additionally, the board of directors includes non-exchange or external members, who typically have expertise in areas such as cybersecurity, consumer protection, legal compliance, and anti-money laundering, ensuring that the organization's decision-making has both professionalism and objectivity.
Tsuyoshi Chino Predicts 2025: Integration of Traditional Finance and Crypto Economy
Looking ahead to the new year, Tsuyoshi Chino predicts that the integration of non-financial platforms and Web3 will become a new trend in 2025, such as the integration of communication applications (e.g., LINE, TG) or GameFi, making it easier for consumers to access related technologies. More companies will also follow this trend, creating real-life use cases, including the public sector benefiting from this trend.
Binance Japan's 2025 Vision: Become a Top 3 Player, Continue to Innovate
As a representative player in the international exchange's foray into the Japanese market, Tsuyoshi Chino revealed that Binance Japan's future focus areas include:
- Become one of the top three Japanese yen trading platforms in Japan
- Offer over 100 tradable tokens and support local projects
- Obtained a stablecoin business license and provide related trading services for users
Takeshi Chino emphasized: "I believe Japan is now at a critical juncture where it can become a global hub for driving the safe adoption of cryptocurrencies. The entire country is gradually embracing the new potential of Web3." Binance is also actively collaborating with Japanese companies, local governments, and universities/institutions through a comprehensive blockchain ecosystem in Japan, jointly promoting the popularization of Web3 and bringing the next billion users into the Web3 world.
Looking ahead, Binance Japan plans to lead the cryptocurrency industry into the next stage of development based on innovation and market-oriented principles. ABMedia believes that Binance Japan has the following advantages:
- Security: Binance Japan has surpassed many native Japanese exchanges in terms of software and hardware conditions. For example, the Japanese exchange DMM was attacked by North Korean hackers last year due to cooperation with an external wallet management provider, resulting in the loss of a large sum of money. However, Binance Japan has developed, managed, and operated its own wallet system from the beginning, without outsourcing to external parties, including related suppliers, thereby reducing the risk.
- Services: Binance also provides compliant Binance Pay, Launchpool services, and Earn financial services in the Japanese market. This not only expands the diversity of products, but also promotes more application scenarios, driving industry competitiveness and future innovation development. Furthermore, in some local markets, there have often been price differences with the international market due to insufficient liquidity. International-level operators have the ability to provide the local market with excellent liquidity, allowing users to enjoy market depth in various transactions. Takeshi Chino stated: "Our users can access global liquidity resources through our platform, which is a significant competitive advantage compared to other exchanges in Japan."
- Visibility: Japan can conduct compliant IEOs (Initial Exchange Offerings), and based on the Binance brand effect, this will benefit Japanese startups in gaining better international visibility and fostering the development of the local industry ecosystem.
How is the compliant development in Taiwan different?
If the driving force behind the regulatory framework in Japan is "exchange hacking," then the main focus in Taiwan is "combating fraud and money laundering" in addition to the impact of the "FTX exchange collapse" on domestic users. In response to the social demand for strengthening the regulation of cryptocurrencies, Taiwan has also adopted a phased and gradual approach to regulation, and plans to publish a draft cryptocurrency-specific law in 2025 to implement more comprehensive regulation of the industry. At the same time, the industry association that will be officially approved by the Ministry of the Interior in 2024 will play an increasingly important role as a self-regulatory organization, with the responsibility to prudently constrain compliant operators and provide a safer environment for users.
On the other hand, the Taiwanese government has also adopted a gradually open attitude towards industry development, such as opening up banking trials for custody services and allowing qualified professional investors to invest in overseas cryptocurrency ETFs, which are major breakthroughs. However, the current cryptocurrency market is still dominated by a large number of retail investors. How to balance the implementation of regulation and allow native cryptocurrency companies to continue providing high-quality products, services, and liquidity to the market is also a challenge the government needs to consider.
The regulation of cryptocurrencies in Taiwan is still in the early stages of development. Fortunately, after years of discussion and experimentation in various countries, there are relevant laws and regulations that can be referenced and learned from. How to take the strengths of others and make up for one's own shortcomings, and develop a method that can best balance compliance and innovation, is what the industry is eagerly awaiting.
Risk Warning
Cryptocurrency investment is highly risky, and its price may fluctuate dramatically. You may lose your entire principal. Please carefully evaluate the risks.
