Japan Crypto Market Report

BeginnerMay 27, 2024
As the world’s third largest economy, Japan is open to cryptocurrencies, but faces challenges with tax policies and approval processes. The crypto market is centered on NFTs and games, and is dominated by male investors, most of whom are over 30 years old. The Japanese government actively promotes Web3 technology, but the market poses obstacles to new entrants. The article also introduces Japan’s major cryptocurrency exchanges and Web3 projects, as well as regulatory policies and crypto venture capital.
Japan Crypto Market Report

Introduction

In the cryptocurrency market, Japan is often perceived as closed-off and independent, with its presence sometimes overlooked compared to other markets in the Asian region like Singapore, Hong Kong, and South Korea.

However, as the world’s third-largest economy and an early adopter of cryptocurrency with established regulatory frameworks, Japan possesses unique advantages and market characteristics. With the government’s embrace of cryptocurrency and efforts to promote industry development, new changes and opportunities are gradually emerging.

1. Macroeconomic Indicators and Current Situation

Japan boasts a robust and sophisticated financial system, laying a solid foundation for the development of blockchain and Web3 technologies in the country. When discussing the cryptocurrency market in Japan, regulation becomes a key focus.

The country maintains strict regulatory measures to uphold investor stability, market security, and overall integrity. While these regulations aim to protect the industry, the compliance complexity and high tax burden associated with cryptocurrency-related profits may pose barriers to entry and expansion for smaller cryptocurrency enterprises. Additionally, the perception of reduced market activity may arise due to prolonged token listing approval procedures.

1.1 Geographic Location and Population Size

Japan, an island nation in East Asia located in the northwest Pacific Ocean, consists of a chain of islands comprising approximately 14,125 islands, with the five main islands being Hokkaido, Honshu (“Mainland”), Shikoku, Kyushu, and Okinawa. Japan is closest to the Siberian region of Russia, while South Korea and China lie to the south. Tokyo serves as the capital and largest city, followed by Yokohama, Osaka, Nagoya, Sapporo, Fukuoka, Kobe, and Kyoto.

According to United Nations data, Japan has a population of nearly 125 million, with approximately 122 million being Japanese nationals (estimated for 2022), accounting for 98.1% of the total population, while the remainder consists of minority foreign residents, including indigenous Ainu people, Ryukyuans, Koreans, Chinese, Filipinos, Brazilians of predominantly Japanese descent, and Peruvians of predominantly Japanese descent.

Japan has the world’s fastest-aging population, with the proportion of elderly people being the highest among all countries, accounting for one-third of its total population, accompanied by an increase in life expectancy and a decline in birth rates. Japan’s total fertility rate is 1.4, below the replacement rate of 2.1, ranking among the lowest in the world; the median age is 48.4 years, the highest globally. The Japanese government projects that by 2060, there will be one elderly person for every working-age individual. Immigration and incentives for childbirth are sometimes suggested as solutions to support the aging population of the country.

1.2 Economic Structure and Characteristics

Japan is the fourth largest economy in the world, second only to the United States, China and Germany (Germany will surpass Japan to become the third largest economy in 2023). Its economic composition is mainly based on the service industry, manufacturing and import and export business. Japan’s economic characteristics reflect its high degree of industrialization, strong dependence on foreign countries, and unique economic structure and business organization:

  • The service sector accounts for approximately 70% of Japan’s gross domestic product (GDP), known for wholesale and retail trade, real estate services, and professional, scientific, and technical activities.
  • Highly industrialized, leading in the global electronics and technology fields, with agriculture not occupying a major position.
  • Primarily engaged in processing trade, importing raw materials and fuels, and exporting products to explore international markets, ranking as the world’s fifth-largest exporter and fourth-largest importer.
  • Industries are primarily concentrated in the narrow coastal strips along the Pacific Ocean and Seto Inland Sea, facilitating the import of raw materials and export of products.
  • Producers, suppliers, and distributors are closely integrated, forming strong business alliances with close teamwork.
  • The system of promotion based on seniority and lifetime employment is a distinctive feature, making it difficult for foreign or new enterprises to enter the Japanese market.

Additionally, demographic changes have a significant impact on its economy, with Japan facing issues such as a declining proportion of the labor force, aging population, and declining birth rates, leading to decreased housing demand, suppressed capital accumulation, reduced investment returns, and subsequently affecting economic activities and innovation.

1.3 GDP Ranking Overtaken by Germany

According to Kyodo News on February 15, 2023, Japan’s nominal gross domestic product (GDP) for 2023 was $4.2106 trillion, lower than Germany’s $4.4561 trillion, falling to the world’s fourth position. Japan’s loss of the status of “world’s third-largest economic power” was not incidental but a consequence of its long-term lack of stable growth momentum in the economy. In October 2023, the International Monetary Fund (IMF) had previously predicted that Germany would surpass Japan in nominal GDP in 2023. Therefore, when the official results were announced, there was not much public outcry or backlash, and Japanese society seemed to accept this result calmly.

Japan’s long-term lack of stable growth momentum in the economy is a deep-seated reason for its nominal GDP being overtaken by Germany in 2023, and finding long-term growth drivers for Japan’s economic development may have become an urgent task for the Japanese government. If the economy continues to stagnate in the next three to five years, this will become a real problem for Japanese society.

1.4 Inflation Rate Data

In March 2024, Japan’s annual inflation rate decreased from a three-month high of 2.8% in February to 2.7%, consistent with market expectations. Prices for transportation (2.9% vs. 3.0% in February), clothing (2.0% vs. 2.6%), furniture and household goods (3.2% vs. 5.1%), healthcare (1.5% vs. 1.8%), communication (0.2% vs. 1.4%), and culture and entertainment (7.2% vs. 7.3%) slowed down. Meanwhile, the inflation rates for food (4.8%), housing (0.6%), education (1.3%), and others (1.1%) remained stable. At the same time, the price declines for fuel and lighting were the smallest over the past year (-1.7% vs. -3.0%), with declines in electricity (-1.0% and -2.5%) and natural gas (-7.1% vs. -9.4%) slowing down.

The Bank of Japan ended its negative interest rate policy last month, breaking away from a super-loose monetary policy that had lasted for a decade. The market is now looking for clues as to when the Bank of Japan will raise interest rates again. The Bank of Japan has emphasized that achieving the 2% inflation target steadily and sustainably, along with robust wage growth, is crucial for policy normalization.

At the same time, the Bank of Japan will focus on whether service prices will rise along with wage growth. This year, Japanese corporate wage increases are the largest in 33 years, but real wages have continued to decline over the past two years after inflation adjustments. A Japanese Ministry of Internal Affairs official pointed out on Friday that the impact of recent wage increases has not yet been reflected in service prices.

1.5 Japan’s Fiat

The yen (Japanese: 円, Romanized as en, English: Yen), with its banknotes called Japanese banknotes, is Japan’s legal tender, often used as a reserve currency after the US dollar and the euro. The yen was established on May 1, 1871, and the circulating banknotes include denominations of 1,000, 2,000, 5,000, and 10,000 yen, while coins come in denominations of 1, 5, 10, 50, 100, and 500 yen.

What’s unique is that the issuer of yen banknotes is the Bank of Japan (“Bank of Japan — Japanese banknotes”), while the issuer of yen coins is the Japanese government (“Japan”). Additionally, yen coins do not have unlimited legal tender capability, so in principle, the maximum legal usage limit for coins of the same denomination in a single transaction is 20 pieces (i.e., the maximum payment capability of coins is theoretically calculated as 1 yen × 20 pieces + 5 yen × 20 pieces + 10 yen × 20 pieces + 50 yen × 20 pieces + 100 yen × 20 pieces + 500 yen × 20 pieces = 13,320 yen), and merchants have the right to refuse excess amounts according to the law.

Despite the active interest rate hikes by the Federal Reserve and other central banks in 2022 and 2023 to curb inflation, the Bank of Japan has kept interest rates at zero and continued to massively print legal tender. In 2023, Japan’s core inflation rate rose by 3.1%, marking the largest increase since 1982.

Inflation erodes the purchasing power of legal tender and prompts investors to allocate funds to alternative assets with attractive value stores such as Bitcoin and gold. Unless the Bank of Japan accelerates the exit from its ultra-loose monetary policy outlined in its plan, the dollar will continue to appreciate against the yen, making it more attractive relative to other assets.

2. Current Situation and Characteristics of the Cryptocurrency Market

Japan has been actively nurturing the web3 industry, with the government issuing a web3 white paper, reforming taxation, attracting investment, and announcing a five-year policy for startup development, aiming to increase the number of Japanese startups to 100,000 within five years and invest approximately 100 trillion yen to create 100 unicorn companies.

2.1 Government Strongly Supports Blockchain Development

The Web3 project team of Japan’s ruling party released a white paper on April 6, 2023, considering Web3 as a national strategy. Consequently, the Japanese government has invested substantial resources in promoting research and application of blockchain technology. For example, the Japanese Cabinet Office has established multiple special funds to support innovation in blockchain technology and research on practical applications. Additionally, the Japanese government is actively promoting international cooperation and exchanges with other countries in setting blockchain technology standards and constructing regulatory frameworks.

Japan’s applications in the blockchain field cover various aspects, including real estate registration, identity authentication, interbank clearing, Bitcoin insurance, supply chain finance, etc. Here are some specific cases:

  • Real Estate Registration: The Japanese government plans to integrate national real estate data, approximately 230 million parcels and 50 million buildings, into a single blockchain ledger to enhance data visualization, accuracy, and security. The project is currently in the testing phase and is expected to be completed within the next five years.
  • Identity Authentication: The Financial Services Agency of Japan (FSA) has developed a blockchain platform that enables customers to share personal information among multiple banks and financial institutions and open accounts using a shared ID. Additionally, SoftBank Group collaborated with TBCASoft to launch a blockchain-based identity identification and verification project, utilizing zero-knowledge proofs and distributed ledger technology to protect personal identity information from theft.
  • Interbank Clearing: Fujitsu, in collaboration with Mizuho Financial Group, Sumitomo Mitsui Financial Group, and Mitsubishi UFJ Financial Group, developed a peer-to-peer remittance service using blockchain, improving the efficiency and security of remittances.
  • Bitcoin Insurance: Due to frequent hacking attacks on Bitcoin exchanges, resulting in customer asset losses, Japan’s Mitsui Sumitomo Insurance Company launched a Bitcoin insurance product in partnership with bitFlyer, providing compensation services for Bitcoin assets and covering losses caused by internal accidents and employee misconduct.
  • Supply Chain Finance: Mizuho Bank and Japan IBM jointly developed a blockchain trade finance platform, enabling fast and secure digital transaction documents and exchange of supply chain transaction data, while enhancing transparency and credibility among transaction parties.

2.2 Web2 Giants Enter the Crypto Industry

Investments in the Japanese cryptocurrency industry are often led by existing Web2 giants such as securities firms, telecom companies, and distributors, rather than venture capitalists (VCs) specializing in Web3 investments. Local venture capital institutions dedicated to Web3 investment in Japan are also scarce. Among them, the Japanese Web2 giant SBI Group has entered the cryptocurrency industry through joint ventures and subsidiaries:

  • SBI Digital Asset Holdings: Securities tokenization services
  • SBI VC Trade: Cryptocurrency trading service
  • SBINFT: NFT business

Other companies establishing and developing subsidiaries and joint ventures specifically for the cryptocurrency industry include:

  • NTT DoCoMo (Japan’s largest telecommunications company): NTT Digital
  • Sony (a leader in the electronics and entertainment industry): Sony Network Communications Inc.
  • SoftBank and LINE: Z Venture Capital

2.3 GameFi and NFT Have High Popularity and Potential

Due to policy restrictions, Japan cannot directly invest in tokens or issue tokens, limiting the development of domestic DeFi in Japan. Therefore, in Japan, NFTs and blockchain games are widely regarded as the main participants in its cryptocurrency market.

Japan has a globally influential gaming industry, being one of the countries with the highest per capita profit in the global gaming market. Its gaming industry has a long and rich history, providing a solid foundation for the development of blockchain games. Japanese gamers are also known for their willingness to pay for high-quality games, making Japan’s blockchain gaming market have enormous profit potential.

Japan not only has a rich and long-standing history in video games but also has the most IPs (intellectual properties) in the world, including anime, manga, and video games, which have surpassed national borders and become globally renowned. Consequently, Japan’s NFT community also possesses unique aesthetics and preferences different from other regions worldwide. Moreover, Japan’s hotspots sometimes differ from the rest of the world, resulting in a certain degree of mismatch delay. Previously, there was a wave of various NFTs in Japan after the NFT frenzy in China and the United States subsided.

2.4 Market is Easy to Defend and Hard to Attack, with Strong Local Sentiments

The Japanese market is relatively independent and closed-off, with language barriers (Japanese psychological barriers to English) and cautious tendencies of Japanese Key Opinion Leaders (KOLs), making it challenging for cryptocurrency projects to promote themselves in Japan. Overall, it belongs to the type of market that is easy to defend but hard to attack. The localization sentiment of Japanese cryptocurrency users is very apparent. However, due to malicious harvesting behavior of some local projects, people’s sentiments towards local projects are becoming complex. Although still inclined to support domestic projects, there is a noticeable lack of confidence.

Compared to local projects, Japanese users are not very enthusiastic about foreign projects. Overseas projects need to adapt their products and services to local regulations, translate information into Japanese, and collaborate with local KOLs and media, as well as organize local events. By interacting with localized audiences, projects can gain more visibility and users.

It’s worth noting that Japanese users have a mindset that actively considers the interests of project parties or merchants. For example, when merchants price their products very low, users will think about whether the merchants can recover their costs. They consider the situation from the perspective of the merchants. If cryptocurrency projects are actively doing things, Japanese users will show a more tolerant and understanding attitude than users in some other markets, which helps to create a positive community atmosphere.

3. Characteristics of Cryptocurrency Users

According to the estimates by the TripleA agency, over 5 million people, which accounts for 4.0% of Japan’s total population, currently own cryptocurrencies. This figure has been verified by data from licensed exchanges. Additionally, a report from KuCoin in May 2023 revealed that approximately 3.8 million cryptocurrency investors in Japan had owned or invested in digital assets in the previous six months, representing about 5% of Japan’s adult population. While BTC and ETH remain the favorite crypto assets among Japanese investors, there is significant interest in diversifying into multiple sectors such as NFTs, metaverse, stablecoins, public chains, DeFi, and meme coins.

Male investors outnumber females significantly

Profile and Investment Experience of Cryptocurrency Investors in Japan

Based on an understanding of various regional markets, there is a higher interest among males in cryptocurrency investments. However, this phenomenon is most pronounced in the Japanese market, where 80% of investors are male, with only 20% being female investors.

Unlike several other markets, the majority of cryptocurrency investors in Japan are aged 30 and above, accounting for 77%. On the other hand, the younger generation aged 18 to 30 represents only 23% of cryptocurrency investors in Japan.

Furthermore, cryptocurrency adoption in Japan is relatively mature. Among surveyed investors, 27% have been investing in cryptocurrencies for over 3 years, 33% for 1–2 years, and only 9% of respondents are newcomers to crypto assets.

Cryptocurrency investment is also common among households with lower incomes, with 44% of investors coming from families with annual incomes of up to 5 million Japanese yen. However, only 21% of cryptocurrency investors in Japan have annual incomes exceeding 10 million Japanese yen.

Younger individuals trust in the innovative potential of cryptocurrencies

Other significant reasons for Japanese investors turning to cryptocurrencies include long-term wealth accumulation (40%) and diversification of investment risks and portfolios (38%). While 28% of investors participate in cryptocurrencies because they find it interesting, 26% believe it can lead to overnight wealth accumulation. Only 21% of Japanese cryptocurrency investors consider crypto assets as a hedge against inflation.

Among them, 44% of investors believe that investing in cryptocurrencies can grasp the future. The largest group in this category is investors aged 18 to 30, who invest in cryptocurrencies because they believe in their cutting-edge technology and financial innovation potential.

Overall trading frequency is low, especially among investors aged 40 and above

There is a strong correlation between trading frequency and age. Young investors aged 18–30 are the most active, trading weekly. Users aged 40–60 trade an average of once a month, while those aged 31–39 do not have a distinct pattern, with some trading once a week, multiple times a week, or multiple times a month.

Investors aged 40 and above prefer BTC and ETH

Similar to other regional markets, BTC and ETH have the highest proportion in the investment portfolios of Japanese users, covering all age groups. Investors aged 40 to 60 are particularly interested in these cryptocurrencies, with 80% of investors expressing interest in Bitcoin and 43% in Ethereum.

Other popular categories favored by Japanese investors include NFTs (27%), Metaverse (24%), stablecoins (16%), and public chain projects (15%);

Additionally, GameFi (11%), DeFi (8%), and Meme coins (8%) are gradually becoming investment choices for Japanese users;

Social media is the primary channel for people to learn about cryptocurrencies

Most Japanese investors learn about cryptocurrencies through social media and Key Opinion Leaders (KOLs), with this trend being most pronounced among younger demographics. 41% of investors aged 18–30 rely on influencers to learn about cryptocurrency investment.

The social media platforms trusted and used by people include: YouTube (32%), Twitter (23%), Line (15%), Instagram (13%), and TikTok (9%). Data shows that technical social channels such as Discord, Telegram, and Reddit are not trusted by Japanese users, who perceive these channels to carry greater risks.

4. Current Status of CEXs in Japan

According to local regulatory requirements, cryptocurrency exchanges need to obtain licenses from the Japan Financial Services Agency (JFSA). Most licensed cryptocurrency exchanges are registered in Tokyo or Osaka.

Binance Japan known for its diverse range of tokens

Binance Japan, launched in August 2023, is the rebranded entity following Binance’s acquisition of the local licensed CEX, Sakura Exchange BitCoin, in November 2022. This move marks Binance’s return to the Japanese market, after the country’s financial regulatory authorities warned against its unlicensed operations in 2021. Binance Japan is known for its wide variety of token types and is popular among numerous users.

Bybit meets Japanese investors’ preferences

Bybit offers custody for over 1,000 cryptocurrencies and operates a secure platform compliant with strict Japanese regulations, facilitating seamless entry into cryptocurrency trading. It provides direct local yen deposit options, including bank transfers, JCB cards, and Line Pay, streamlining investment avenues.

Bybit’s competitive advantages include low trading fees (starting from 0.01% for makers and 0.06% for takers), ample liquidity, over $30 billion in daily trading volume, and a vibrant community with over 20 million users, affirming its market-leading position.

Coincheck with user-friendly interface and no trading fees

Founded in 2014, Coincheck is the largest cryptocurrency exchange in Japan, serving over 2.5 million users. In 2018, it was acquired by Monex Group, a Japanese financial services company established in 1999, which operates a diversified business including online brokerage, asset management, and cryptocurrency services.

Coincheck offers a variety of cryptocurrency trading services, attracting a large number of local and international users with its user-friendly interface and the advantage of no trading fees, making it one of the most popular trading platforms in Japan.

Bitflyer is renowned for its advanced trading tools and features, ranking first in Bitcoin trading volume nationwide. It caters to different user groups, from beginners to experienced traders, by providing two tailored trading experiences: the intuitive bitFlyer Exchange for beginners and the advanced BitFlyer Lightning for more complex trading strategies.

BitFlyer expands its appeal through innovative features, including unique crypto credit cards, opportunities to earn BTC, and Bitcoin T-Point exchange. These initiatives consolidate BitFlyer’s reputation as the third-ranked cryptocurrency exchange platform in Japan, ensuring accessibility and depth for a broad range of investors.

Bitbank highest-rated app in Apple App Store

Bitbank is the highest-rated cryptocurrency trading app in the Japanese Apple App Store and one of the few in Japan to offer instant account verification services for digital asset exchanges, typically completing verification within minutes.

In addition to trading features, Bitbank offers lending services, allowing users to lease assets to Bitbank with returns of up to 3%, and has received high praise from third-party institutions for its security performance. The platform employs offline cold wallets and Multisig technology to ensure resilience against hacker attacks and protects users’ assets with advanced technology.

Zaif known for privacy and security

Zaif has over 500,000 users. Established in 2014, the platform offers a variety of cryptocurrencies, including Bitcoin, Ethereum, and others. Known for its focus on privacy and security, Zaif attracts traders who prioritize these features.

It allows users to buy and sell various cryptocurrencies in Japanese yen and offers margin trading, making it suitable for beginners and those looking to trade quickly. Since its inception, Zaif has been in a continuous development process, adding new features such as trading, payment services, and currency reserves.

5. Web3 Projects in Japan

The diversity of project types in the Japanese crypto market is relatively low, with a predominant focus on non-fungible tokens (NFTs) and gaming projects, which largely emphasize localization and long-term community building.

Japan Open Chain

Japan Open Chain (JOC) is a practical Ethereum-compatible Layer1 public chain that collaborates with trusted enterprises to provide reliable blockchain infrastructure for businesses and local governments. Japan Open Chain is operated by Japanese companies and complies with Japanese laws, providing a secure environment for developing web3 businesses.

INTMAX

INTMAX is a novel zkRollup, serving as an Ethereum L2 network suitable for various web services and financial applications. It will enable Ethereum to empower all online citizens to participate in the economy through payment infrastructure and the use of NFTs and community management tokens. INTMAX has achieved significant innovations in ZK implementation, making it a unique Layer2 rollup network with low costs, security, adjustable privacy, and most importantly, scalability.

HashPalette

Palette is a blockchain network for issuing, managing, and distributing digital items. Users can freely transfer ownership of digital items and use them in applications. Palette allows digital projects to be treated as NFTs on its own blockchain, Palette Chain, designed specifically for the issuance, management, and distribution of digital items in the entertainment sector, aimed at accommodating business models. Additionally, Palette Chain can connect to multiple blockchains, including Ethereum, and serve as a cross-chain platform for NFT issuance and distribution.

Hashport

HashPort is a cross-chain interoperability layer that supports fast and secure cross-network transfer of digital assets, developed and provided by the HashPort Corporation, established in 2018, with a vision of digitizing assets and providing blockchain technology consulting and solution services to clients.

KEKKAI

KEKKAI is a Web3.0 security plugin that detects dangers by analyzing transaction simulations, aiming to eliminate fraudulent activities in the growing Web3 domain. Users of KEKKAI can receive risk assessment information in transactions — if anomalies are detected, KEKKAI will display risk alerts on the page.

Murakami Flowers

Takashi Murakami is a renowned Japanese artist known for his colorful works and unique artistic style. The Murakami.Flowers project (M.F) initiated by him is a comprehensive project covering art, design, and digital creation. The project revolves around the digital “108” (composed of 108 backgrounds and 108 small flowers), echoing the numbers related to the Buddhist concept of afflictions or worldly temptations, signifying the artist’s attempt to transcend worldly constraints through digital art.

Crypto Ninja Partners

Crypto Ninja Partners (CNP) is an NFT series themed around Japanese ninjas, originally stemming from a community called NinjaDAO. Although NinjaDAO is not strictly a DAO organization, the community gathers numerous cryptocurrency enthusiasts from Japan. Two core figures, Ikehaya (Japanese NFT KOL and Web Marketer) and Road (another core contributor), jointly drive the development of CNP.

MetaSamurai

The project’s vision is to establish a digital fashion brand that empowers creators. The core idea of the project is “I GOT YOUR BACK,” symbolizing MetaSamurai’s commitment to support its NFT holders. The phrase “I GOT YOUR BACK” originates from a story depicting two individuals standing back to back, protecting each other in battle; the spirit of the samurai is to dedicate oneself to protecting the lord; and the loyal dog Hachiko waits steadfastly for its deceased owner. These are all sources of inspiration for MetaSamurai’s works.

6. Japanese Cryptocurrency Venture Capital

Skyland Ventures

Skyland Ventures (SV) is a venture capital (VC) fund headquartered in Shibuya, Tokyo, focusing on seed-stage startup investments. As of 2022, it has invested in over 120 startups, primarily based in Japan. Since 2022, the fund has targeted equity/token investments in startups in the Web3 space (cryptocurrencies, NFTs, and blockchain). The fund invests approximately $50,000 to $500,000 in pre-seed stage and up to $1,000,000 in seed and later-stage investments. Its founders are Max Kinoshita, Yonkuro Masanori Ikeda, and Yuan Xiaohang.

They collaborate with Hash Global, OKX Ventures, Foresight Ventures, MH Ventures, and Generative Ventures.

Investment history:

  • Raised a $4 million seed fund for seed-stage startups in 2012.
  • Invested in 16 companies.
  • Trasnlimit (provider of the BrainWars brain battle game, with 13 million global app installations, supported by LINE and Braindots, with a total download volume of 23 million)
  • Hachimenroppi (provider of a fresh food market supported by Recruit and Yahoo! Japan)
  • Kaumo.jp / CuRAZAY.com (targeting popular websites in Japan, with 4–5 million independent user visits)

Gumi Cryptos

This venture capital firm is a boutique early-stage venture capital firm based in Silicon Valley, investing in information technology, financial services, gaming, insurance, infrastructure, cryptocurrencies, cybersecurity, blockchain, and financial technology in the US, Canada, Europe, Israel, East Asia, South Asia, and Southeast Asia, including Japan. Its co-founders are Zirui Zhang, with managing partners from Japan and China.

Some of its major investment projects include OpenSea, 1inch, and Lit.

CGV Fund

CGV is an Asia-based fund management company specializing in crypto funds and crypto studios investments. CGV FoF consists of family funds from Japan, South Korea, Mainland China, and Taiwan, headquartered in Japan, with branches in Singapore and Canada. Its founders are Steve Chiu and Kevin Ren.

They collaborate with Waterdrip Capital, LK Venture, ZC Capital, Satoshi Lab, and Blockchain Founders Fund.

Some projects in their portfolio include AlchemyPay, Bitkeep, Metis, TheGraph, Avalon, Celestia, and recent Bitcoin ecosystem projects such as the Bitcoin wallet infrastructure UniSat, bitSmiley, and the BTC Layer 2 network ZULU.

BDASH Ventures

BDASH Ventures is a venture capital firm headquartered in Tokyo, Japan, investing in seed, early, and later-stage startups that will become the next generation technology core. The company’s CEO is Hiroyuki Watanabe.

B Dash Ventures hosts a semi-annual summit for senior technology industry executives and startup founders twice a year, called B Dash Camp. It is now one of Japan’s largest invitation-only tech events, attracting over 700 guests from Japan and abroad.

GMO AI&Web3

This cryptocurrency venture capital fund is part of GMO Internet Group Inc., which is listed on the Tokyo Stock Exchange. The group also includes GMO Coin, a licensed cryptocurrency exchange in Japan, listing 28 cryptocurrencies.

MZ Web3 Fund

The MZ Web3 Fund was established by Yousaku Maezawa, known as the Elon Musk of Japan, focusing on Web3 project investments. It is the most active crypto fund in Japan. The MZ Web3 Fund has invested in 24 startup projects in the Web3 field, including decentralized storage project SINSO, payment tools Slash and Transak, development community WEB3DEV, gaming public chain Oasys, and Web3 user growth platform Aki Network. The MZ Web3 Fund will provide community resources through MZ Club and MZ DAO for the invested projects to help them expand rapidly in the Japanese market.

7. Japanese Cryptocurrency Market Regulation

In the global cryptocurrency market, Japan stands out as a unique market, especially in the financial and investment sectors, with tremendous potential. However, due to frequent early attacks on the cryptocurrency market, the Japanese government maintains a cautious attitude towards the cryptocurrency industry and regulates it carefully. On the other hand, Japan’s strong sense of crisis has prompted authorities to attempt to utilize emerging technologies such as blockchain to maintain its position as the world’s third-largest economy. Japan’s blockchain industry regulation policy presents mature and stable characteristics, creating a favorable environment for blockchain startups.

In 2016, the Japanese Cabinet passed an amendment to the Payment Services Act, which came into effect in April 2017, defining cryptocurrencies legally and recognizing their legitimacy. Under the Payment Services Act, digital currencies meet all of the following criteria:

  • Property values recorded electronically on electronic devices or other items using electronic methods;
  • Transferable via electronic information processing organizations;
  • Not currency-denominated assets such as domestic or foreign currency;
  • Can be used by unspecified persons for the purchase, rental of goods, or receipt of services;
  • Can be bought or sold to unspecified persons.

In other words, Japan recognizes cryptocurrencies as a legitimate means of payment. The Payment Services Act is the world’s first law to incorporate digital currencies into the legal regulatory system, with significant implications for the digital currency market.

7.2 Tax Policy on Cryptocurrencies

In January 2022, the ruling party, the Liberal Democratic Party, established the Digital Society Promotion Headquarters, and at the same time, the Japanese government launched the “National Strategy.” Since then, its Web3 project team has been directly proposing legislative and regulatory reforms to the ruling party. Many of these reforms have been adopted, but others remain pending.

On the corporate tax side, to promote a “token-friendly financing environment” for businesses, the Japanese Web3 policy team proposed two reforms. First, exempting “tokens continuously held by issuing companies” from “enterprise income tax based on year-end market value”; second, exempting “tokens issued by other companies and held by third parties for purposes other than short-term trading” from taxation. The first reform took effect in June 2023, and the second reform was recently proposed by the FSA to be included in the 2024 legislative agenda and passed by the Ministry of Economy, Trade, and Industry (METI). Implementing these two measures may alleviate the long-term disadvantage of domestic enterprise investors compared to overseas investors who can rely on more favorable tax treatment.

On the individual tax side, income from cryptocurrency asset transactions is taxed as “miscellaneous income,” with a “minimum tax rate of 55%” when “income tax and resident tax” are combined. This tax is levied not only when the held cryptocurrency assets are exchanged for fiat currency but also when they are exchanged for other cryptocurrency assets, resulting in a significant outflow of taxpayers and hindering tax reporting. The Web3 policy team proposed four reforms. First, a uniform tax rate of 20% on cryptocurrency asset transactions; second, taxation only when “gains and losses” are converted to fiat currency, exempting taxation on “cryptocurrency exchanges”; third, allowing individuals to carry forward losses for up to three years; fourth, applying the same tax rate to “cryptocurrency derivatives trading.” However, these reforms were excluded from the 2023 agenda, and it is currently unclear whether these proposals will be part of the 2024 legislative agenda.

7.3 Licensing System and Self-Regulatory Organizations for Exchanges

According to the amendment to the Payment Services Act, institutions engaged in cryptocurrency trading need to apply for a license from the Japanese Financial Services Agency (FSA) and be regulated by it. Generally, to operate a cryptocurrency exchange in Japan, the following four basic conditions need to be met:

  • Entity: Kabushiki Kaisha or foreign cryptocurrency trading institutions (with business places in Japan and representatives in Japan);
  • Registered capital: with a financial base, registered capital of more than 10 million yen, and positive net assets;
  • Corporate system: a corporate system capable of appropriately and effectively conducting business (such as segregating user assets from company assets, establishing effective risk management systems to prevent risks such as hacking attacks, system failures, money laundering, and terrorist financing);
  • Compliance: comply with relevant laws and regulations, protect user privacy, fulfill anti-money laundering obligations, and cooperate with the FSA’s inspections and investigations;

All tokens listed on compliant exchanges in Japan need to be approved by the Japan Virtual Currency Exchange Association (JVCEA), a process that takes at least 6 months to a year, which also contributes to the lack of vitality in the Japanese cryptocurrency market.

In addition to FSA regulation, to improve the industry’s credibility and transparency, protect investor interests, and promote the healthy development of the cryptocurrency market, Japan established the Japan Virtual Currency Exchange Business Association (JVCEA) in April 2018, initiated by 16 licensed exchanges under the approval and authorization of the Financial Services Agency. The association has formulated a series of self-regulatory rules and guidelines, including:

  • Classify and manage the cryptocurrencies provided by the exchange, and determine their listing conditions based on their security, liquidity, transparency and other factors;
  • Conduct risk assessments on exchanges, set leverage upper limits, margin ratios, forced liquidation mechanisms, etc.;
  • Provide information disclosure to exchanges and require them to disclose trading rules, fee standards, customer complaint handling methods, etc.;
  • Provide consumer education to exchanges to improve their understanding of digital currencies and risk awareness;

7.4 Rules for Cryptocurrency Issuance and Financing

In September 2019, the JVCEA issued “New Coin Offering Related Rules” and accompanying guidelines, allowing public issuance and sale of tokens for financing (IEO and ICO). This was Japan’s first explicit regulatory framework for cryptocurrency issuance and financing. According to the rules and guidelines, to issue and sell tokens compliantly in Japan, the following conditions must be mainly met:

  • The issuer or underwriter must be a licensed exchange and report relevant matters to the FSA and the association;
  • Issued tokens must comply with the association’s standards for security, liquidity, transparency, etc., and pass the association’s review;
  • Issued tokens must have a reasonable pricing mechanism and fully disclose relevant information to consumers;
  • Issued tokens must be fully sold within a certain period and report sales to the association;

Currently, under the “New Coin Offering Related Rules,” the frequency of ICOs/IEOs in Japan is not high. On September 26, 2023, to improve the situation of IEOs, the JVCEA further issued an initial proposal for the direction of IEO reform.

In summary, Japan is a country with an open and positive attitude towards blockchain technology and cryptocurrencies. It has relatively comprehensive and clear regulations in terms of laws, taxes, licenses, and self-regulation, and is still exploring and innovating to adapt to the rapid changes and diverse application scenarios of blockchain technology, aiming to establish a foothold in the global blockchain industry development. For blockchain entrepreneurs, although Japan has a strong localization sentiment, it still provides a good soil for the establishment and development of the cryptocurrency industry.

8. Conclusion

As early as 2017, Japan officially recognized BTC as a legal currency, and in April 2023, the ruling party’s Web3 project team released a white paper, indicating the government’s increasing investment in the industry, making Japan’s cryptocurrency market increasingly prosperous. However, restrictions such as banning direct investment in tokens and the inability to launch token issuance projects internally in Japan limit the development of DeFi-type projects and businesses in Japan, instead forming an industry characterized by NFTs and gaming.

In terms of compliance, to ensure the stability of the investment market and the safety of investors’ assets, Japan has strict laws and regulations in the cryptocurrency field. However, the high cost of compliance and high tax burden hinder the entry and development of projects. In particular, the lengthy approval process for token listings often leads people to believe that the market lacks vitality and lose confidence in this field, while also restricting the innovation of enterprises and the flexibility of the market, resulting in Japan’s cryptocurrency industry lagging behind other countries.

With the penetration and development of the cryptocurrency industry globally, institutional investors in Japan have also shown a strong interest in the cryptocurrency market and have a clearer understanding of its potential. The participation of institutional investors has brought more liquidity, stability, and credibility to the Japanese cryptocurrency market, driving the development of the Japanese cryptocurrency industry and attracting more interest from retail and institutional investors.

In the fluctuating regional competition of the cryptocurrency market, Japan has unique advantages in regulatory compliance, GameFi, and NFT fields, and its strong and sustainable community is also an indispensable weapon for industry development. However, overly strict tax policies and investment restrictions still pose strong obstacles to the rise and development of the cryptocurrency industry in Japan. If policy can be moderately opened under the premise of regulatory compliance, it will be more conducive to the rooting, innovation, and development of the cryptocurrency market. Especially the combination of Japan’s unique cultural characteristics and a strong financial system may have the opportunity to make it a global leader in the GameFi and NFT fields, leading the future of the global cryptocurrency industry.

Disclaimer:

  1. This article is reprinted from [PANews]. All copyrights belong to the original author [MIIX Capital]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
  2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
  3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.

Japan Crypto Market Report

BeginnerMay 27, 2024
As the world’s third largest economy, Japan is open to cryptocurrencies, but faces challenges with tax policies and approval processes. The crypto market is centered on NFTs and games, and is dominated by male investors, most of whom are over 30 years old. The Japanese government actively promotes Web3 technology, but the market poses obstacles to new entrants. The article also introduces Japan’s major cryptocurrency exchanges and Web3 projects, as well as regulatory policies and crypto venture capital.
Japan Crypto Market Report

Introduction

In the cryptocurrency market, Japan is often perceived as closed-off and independent, with its presence sometimes overlooked compared to other markets in the Asian region like Singapore, Hong Kong, and South Korea.

However, as the world’s third-largest economy and an early adopter of cryptocurrency with established regulatory frameworks, Japan possesses unique advantages and market characteristics. With the government’s embrace of cryptocurrency and efforts to promote industry development, new changes and opportunities are gradually emerging.

1. Macroeconomic Indicators and Current Situation

Japan boasts a robust and sophisticated financial system, laying a solid foundation for the development of blockchain and Web3 technologies in the country. When discussing the cryptocurrency market in Japan, regulation becomes a key focus.

The country maintains strict regulatory measures to uphold investor stability, market security, and overall integrity. While these regulations aim to protect the industry, the compliance complexity and high tax burden associated with cryptocurrency-related profits may pose barriers to entry and expansion for smaller cryptocurrency enterprises. Additionally, the perception of reduced market activity may arise due to prolonged token listing approval procedures.

1.1 Geographic Location and Population Size

Japan, an island nation in East Asia located in the northwest Pacific Ocean, consists of a chain of islands comprising approximately 14,125 islands, with the five main islands being Hokkaido, Honshu (“Mainland”), Shikoku, Kyushu, and Okinawa. Japan is closest to the Siberian region of Russia, while South Korea and China lie to the south. Tokyo serves as the capital and largest city, followed by Yokohama, Osaka, Nagoya, Sapporo, Fukuoka, Kobe, and Kyoto.

According to United Nations data, Japan has a population of nearly 125 million, with approximately 122 million being Japanese nationals (estimated for 2022), accounting for 98.1% of the total population, while the remainder consists of minority foreign residents, including indigenous Ainu people, Ryukyuans, Koreans, Chinese, Filipinos, Brazilians of predominantly Japanese descent, and Peruvians of predominantly Japanese descent.

Japan has the world’s fastest-aging population, with the proportion of elderly people being the highest among all countries, accounting for one-third of its total population, accompanied by an increase in life expectancy and a decline in birth rates. Japan’s total fertility rate is 1.4, below the replacement rate of 2.1, ranking among the lowest in the world; the median age is 48.4 years, the highest globally. The Japanese government projects that by 2060, there will be one elderly person for every working-age individual. Immigration and incentives for childbirth are sometimes suggested as solutions to support the aging population of the country.

1.2 Economic Structure and Characteristics

Japan is the fourth largest economy in the world, second only to the United States, China and Germany (Germany will surpass Japan to become the third largest economy in 2023). Its economic composition is mainly based on the service industry, manufacturing and import and export business. Japan’s economic characteristics reflect its high degree of industrialization, strong dependence on foreign countries, and unique economic structure and business organization:

  • The service sector accounts for approximately 70% of Japan’s gross domestic product (GDP), known for wholesale and retail trade, real estate services, and professional, scientific, and technical activities.
  • Highly industrialized, leading in the global electronics and technology fields, with agriculture not occupying a major position.
  • Primarily engaged in processing trade, importing raw materials and fuels, and exporting products to explore international markets, ranking as the world’s fifth-largest exporter and fourth-largest importer.
  • Industries are primarily concentrated in the narrow coastal strips along the Pacific Ocean and Seto Inland Sea, facilitating the import of raw materials and export of products.
  • Producers, suppliers, and distributors are closely integrated, forming strong business alliances with close teamwork.
  • The system of promotion based on seniority and lifetime employment is a distinctive feature, making it difficult for foreign or new enterprises to enter the Japanese market.

Additionally, demographic changes have a significant impact on its economy, with Japan facing issues such as a declining proportion of the labor force, aging population, and declining birth rates, leading to decreased housing demand, suppressed capital accumulation, reduced investment returns, and subsequently affecting economic activities and innovation.

1.3 GDP Ranking Overtaken by Germany

According to Kyodo News on February 15, 2023, Japan’s nominal gross domestic product (GDP) for 2023 was $4.2106 trillion, lower than Germany’s $4.4561 trillion, falling to the world’s fourth position. Japan’s loss of the status of “world’s third-largest economic power” was not incidental but a consequence of its long-term lack of stable growth momentum in the economy. In October 2023, the International Monetary Fund (IMF) had previously predicted that Germany would surpass Japan in nominal GDP in 2023. Therefore, when the official results were announced, there was not much public outcry or backlash, and Japanese society seemed to accept this result calmly.

Japan’s long-term lack of stable growth momentum in the economy is a deep-seated reason for its nominal GDP being overtaken by Germany in 2023, and finding long-term growth drivers for Japan’s economic development may have become an urgent task for the Japanese government. If the economy continues to stagnate in the next three to five years, this will become a real problem for Japanese society.

1.4 Inflation Rate Data

In March 2024, Japan’s annual inflation rate decreased from a three-month high of 2.8% in February to 2.7%, consistent with market expectations. Prices for transportation (2.9% vs. 3.0% in February), clothing (2.0% vs. 2.6%), furniture and household goods (3.2% vs. 5.1%), healthcare (1.5% vs. 1.8%), communication (0.2% vs. 1.4%), and culture and entertainment (7.2% vs. 7.3%) slowed down. Meanwhile, the inflation rates for food (4.8%), housing (0.6%), education (1.3%), and others (1.1%) remained stable. At the same time, the price declines for fuel and lighting were the smallest over the past year (-1.7% vs. -3.0%), with declines in electricity (-1.0% and -2.5%) and natural gas (-7.1% vs. -9.4%) slowing down.

The Bank of Japan ended its negative interest rate policy last month, breaking away from a super-loose monetary policy that had lasted for a decade. The market is now looking for clues as to when the Bank of Japan will raise interest rates again. The Bank of Japan has emphasized that achieving the 2% inflation target steadily and sustainably, along with robust wage growth, is crucial for policy normalization.

At the same time, the Bank of Japan will focus on whether service prices will rise along with wage growth. This year, Japanese corporate wage increases are the largest in 33 years, but real wages have continued to decline over the past two years after inflation adjustments. A Japanese Ministry of Internal Affairs official pointed out on Friday that the impact of recent wage increases has not yet been reflected in service prices.

1.5 Japan’s Fiat

The yen (Japanese: 円, Romanized as en, English: Yen), with its banknotes called Japanese banknotes, is Japan’s legal tender, often used as a reserve currency after the US dollar and the euro. The yen was established on May 1, 1871, and the circulating banknotes include denominations of 1,000, 2,000, 5,000, and 10,000 yen, while coins come in denominations of 1, 5, 10, 50, 100, and 500 yen.

What’s unique is that the issuer of yen banknotes is the Bank of Japan (“Bank of Japan — Japanese banknotes”), while the issuer of yen coins is the Japanese government (“Japan”). Additionally, yen coins do not have unlimited legal tender capability, so in principle, the maximum legal usage limit for coins of the same denomination in a single transaction is 20 pieces (i.e., the maximum payment capability of coins is theoretically calculated as 1 yen × 20 pieces + 5 yen × 20 pieces + 10 yen × 20 pieces + 50 yen × 20 pieces + 100 yen × 20 pieces + 500 yen × 20 pieces = 13,320 yen), and merchants have the right to refuse excess amounts according to the law.

Despite the active interest rate hikes by the Federal Reserve and other central banks in 2022 and 2023 to curb inflation, the Bank of Japan has kept interest rates at zero and continued to massively print legal tender. In 2023, Japan’s core inflation rate rose by 3.1%, marking the largest increase since 1982.

Inflation erodes the purchasing power of legal tender and prompts investors to allocate funds to alternative assets with attractive value stores such as Bitcoin and gold. Unless the Bank of Japan accelerates the exit from its ultra-loose monetary policy outlined in its plan, the dollar will continue to appreciate against the yen, making it more attractive relative to other assets.

2. Current Situation and Characteristics of the Cryptocurrency Market

Japan has been actively nurturing the web3 industry, with the government issuing a web3 white paper, reforming taxation, attracting investment, and announcing a five-year policy for startup development, aiming to increase the number of Japanese startups to 100,000 within five years and invest approximately 100 trillion yen to create 100 unicorn companies.

2.1 Government Strongly Supports Blockchain Development

The Web3 project team of Japan’s ruling party released a white paper on April 6, 2023, considering Web3 as a national strategy. Consequently, the Japanese government has invested substantial resources in promoting research and application of blockchain technology. For example, the Japanese Cabinet Office has established multiple special funds to support innovation in blockchain technology and research on practical applications. Additionally, the Japanese government is actively promoting international cooperation and exchanges with other countries in setting blockchain technology standards and constructing regulatory frameworks.

Japan’s applications in the blockchain field cover various aspects, including real estate registration, identity authentication, interbank clearing, Bitcoin insurance, supply chain finance, etc. Here are some specific cases:

  • Real Estate Registration: The Japanese government plans to integrate national real estate data, approximately 230 million parcels and 50 million buildings, into a single blockchain ledger to enhance data visualization, accuracy, and security. The project is currently in the testing phase and is expected to be completed within the next five years.
  • Identity Authentication: The Financial Services Agency of Japan (FSA) has developed a blockchain platform that enables customers to share personal information among multiple banks and financial institutions and open accounts using a shared ID. Additionally, SoftBank Group collaborated with TBCASoft to launch a blockchain-based identity identification and verification project, utilizing zero-knowledge proofs and distributed ledger technology to protect personal identity information from theft.
  • Interbank Clearing: Fujitsu, in collaboration with Mizuho Financial Group, Sumitomo Mitsui Financial Group, and Mitsubishi UFJ Financial Group, developed a peer-to-peer remittance service using blockchain, improving the efficiency and security of remittances.
  • Bitcoin Insurance: Due to frequent hacking attacks on Bitcoin exchanges, resulting in customer asset losses, Japan’s Mitsui Sumitomo Insurance Company launched a Bitcoin insurance product in partnership with bitFlyer, providing compensation services for Bitcoin assets and covering losses caused by internal accidents and employee misconduct.
  • Supply Chain Finance: Mizuho Bank and Japan IBM jointly developed a blockchain trade finance platform, enabling fast and secure digital transaction documents and exchange of supply chain transaction data, while enhancing transparency and credibility among transaction parties.

2.2 Web2 Giants Enter the Crypto Industry

Investments in the Japanese cryptocurrency industry are often led by existing Web2 giants such as securities firms, telecom companies, and distributors, rather than venture capitalists (VCs) specializing in Web3 investments. Local venture capital institutions dedicated to Web3 investment in Japan are also scarce. Among them, the Japanese Web2 giant SBI Group has entered the cryptocurrency industry through joint ventures and subsidiaries:

  • SBI Digital Asset Holdings: Securities tokenization services
  • SBI VC Trade: Cryptocurrency trading service
  • SBINFT: NFT business

Other companies establishing and developing subsidiaries and joint ventures specifically for the cryptocurrency industry include:

  • NTT DoCoMo (Japan’s largest telecommunications company): NTT Digital
  • Sony (a leader in the electronics and entertainment industry): Sony Network Communications Inc.
  • SoftBank and LINE: Z Venture Capital

2.3 GameFi and NFT Have High Popularity and Potential

Due to policy restrictions, Japan cannot directly invest in tokens or issue tokens, limiting the development of domestic DeFi in Japan. Therefore, in Japan, NFTs and blockchain games are widely regarded as the main participants in its cryptocurrency market.

Japan has a globally influential gaming industry, being one of the countries with the highest per capita profit in the global gaming market. Its gaming industry has a long and rich history, providing a solid foundation for the development of blockchain games. Japanese gamers are also known for their willingness to pay for high-quality games, making Japan’s blockchain gaming market have enormous profit potential.

Japan not only has a rich and long-standing history in video games but also has the most IPs (intellectual properties) in the world, including anime, manga, and video games, which have surpassed national borders and become globally renowned. Consequently, Japan’s NFT community also possesses unique aesthetics and preferences different from other regions worldwide. Moreover, Japan’s hotspots sometimes differ from the rest of the world, resulting in a certain degree of mismatch delay. Previously, there was a wave of various NFTs in Japan after the NFT frenzy in China and the United States subsided.

2.4 Market is Easy to Defend and Hard to Attack, with Strong Local Sentiments

The Japanese market is relatively independent and closed-off, with language barriers (Japanese psychological barriers to English) and cautious tendencies of Japanese Key Opinion Leaders (KOLs), making it challenging for cryptocurrency projects to promote themselves in Japan. Overall, it belongs to the type of market that is easy to defend but hard to attack. The localization sentiment of Japanese cryptocurrency users is very apparent. However, due to malicious harvesting behavior of some local projects, people’s sentiments towards local projects are becoming complex. Although still inclined to support domestic projects, there is a noticeable lack of confidence.

Compared to local projects, Japanese users are not very enthusiastic about foreign projects. Overseas projects need to adapt their products and services to local regulations, translate information into Japanese, and collaborate with local KOLs and media, as well as organize local events. By interacting with localized audiences, projects can gain more visibility and users.

It’s worth noting that Japanese users have a mindset that actively considers the interests of project parties or merchants. For example, when merchants price their products very low, users will think about whether the merchants can recover their costs. They consider the situation from the perspective of the merchants. If cryptocurrency projects are actively doing things, Japanese users will show a more tolerant and understanding attitude than users in some other markets, which helps to create a positive community atmosphere.

3. Characteristics of Cryptocurrency Users

According to the estimates by the TripleA agency, over 5 million people, which accounts for 4.0% of Japan’s total population, currently own cryptocurrencies. This figure has been verified by data from licensed exchanges. Additionally, a report from KuCoin in May 2023 revealed that approximately 3.8 million cryptocurrency investors in Japan had owned or invested in digital assets in the previous six months, representing about 5% of Japan’s adult population. While BTC and ETH remain the favorite crypto assets among Japanese investors, there is significant interest in diversifying into multiple sectors such as NFTs, metaverse, stablecoins, public chains, DeFi, and meme coins.

Male investors outnumber females significantly

Profile and Investment Experience of Cryptocurrency Investors in Japan

Based on an understanding of various regional markets, there is a higher interest among males in cryptocurrency investments. However, this phenomenon is most pronounced in the Japanese market, where 80% of investors are male, with only 20% being female investors.

Unlike several other markets, the majority of cryptocurrency investors in Japan are aged 30 and above, accounting for 77%. On the other hand, the younger generation aged 18 to 30 represents only 23% of cryptocurrency investors in Japan.

Furthermore, cryptocurrency adoption in Japan is relatively mature. Among surveyed investors, 27% have been investing in cryptocurrencies for over 3 years, 33% for 1–2 years, and only 9% of respondents are newcomers to crypto assets.

Cryptocurrency investment is also common among households with lower incomes, with 44% of investors coming from families with annual incomes of up to 5 million Japanese yen. However, only 21% of cryptocurrency investors in Japan have annual incomes exceeding 10 million Japanese yen.

Younger individuals trust in the innovative potential of cryptocurrencies

Other significant reasons for Japanese investors turning to cryptocurrencies include long-term wealth accumulation (40%) and diversification of investment risks and portfolios (38%). While 28% of investors participate in cryptocurrencies because they find it interesting, 26% believe it can lead to overnight wealth accumulation. Only 21% of Japanese cryptocurrency investors consider crypto assets as a hedge against inflation.

Among them, 44% of investors believe that investing in cryptocurrencies can grasp the future. The largest group in this category is investors aged 18 to 30, who invest in cryptocurrencies because they believe in their cutting-edge technology and financial innovation potential.

Overall trading frequency is low, especially among investors aged 40 and above

There is a strong correlation between trading frequency and age. Young investors aged 18–30 are the most active, trading weekly. Users aged 40–60 trade an average of once a month, while those aged 31–39 do not have a distinct pattern, with some trading once a week, multiple times a week, or multiple times a month.

Investors aged 40 and above prefer BTC and ETH

Similar to other regional markets, BTC and ETH have the highest proportion in the investment portfolios of Japanese users, covering all age groups. Investors aged 40 to 60 are particularly interested in these cryptocurrencies, with 80% of investors expressing interest in Bitcoin and 43% in Ethereum.

Other popular categories favored by Japanese investors include NFTs (27%), Metaverse (24%), stablecoins (16%), and public chain projects (15%);

Additionally, GameFi (11%), DeFi (8%), and Meme coins (8%) are gradually becoming investment choices for Japanese users;

Social media is the primary channel for people to learn about cryptocurrencies

Most Japanese investors learn about cryptocurrencies through social media and Key Opinion Leaders (KOLs), with this trend being most pronounced among younger demographics. 41% of investors aged 18–30 rely on influencers to learn about cryptocurrency investment.

The social media platforms trusted and used by people include: YouTube (32%), Twitter (23%), Line (15%), Instagram (13%), and TikTok (9%). Data shows that technical social channels such as Discord, Telegram, and Reddit are not trusted by Japanese users, who perceive these channels to carry greater risks.

4. Current Status of CEXs in Japan

According to local regulatory requirements, cryptocurrency exchanges need to obtain licenses from the Japan Financial Services Agency (JFSA). Most licensed cryptocurrency exchanges are registered in Tokyo or Osaka.

Binance Japan known for its diverse range of tokens

Binance Japan, launched in August 2023, is the rebranded entity following Binance’s acquisition of the local licensed CEX, Sakura Exchange BitCoin, in November 2022. This move marks Binance’s return to the Japanese market, after the country’s financial regulatory authorities warned against its unlicensed operations in 2021. Binance Japan is known for its wide variety of token types and is popular among numerous users.

Bybit meets Japanese investors’ preferences

Bybit offers custody for over 1,000 cryptocurrencies and operates a secure platform compliant with strict Japanese regulations, facilitating seamless entry into cryptocurrency trading. It provides direct local yen deposit options, including bank transfers, JCB cards, and Line Pay, streamlining investment avenues.

Bybit’s competitive advantages include low trading fees (starting from 0.01% for makers and 0.06% for takers), ample liquidity, over $30 billion in daily trading volume, and a vibrant community with over 20 million users, affirming its market-leading position.

Coincheck with user-friendly interface and no trading fees

Founded in 2014, Coincheck is the largest cryptocurrency exchange in Japan, serving over 2.5 million users. In 2018, it was acquired by Monex Group, a Japanese financial services company established in 1999, which operates a diversified business including online brokerage, asset management, and cryptocurrency services.

Coincheck offers a variety of cryptocurrency trading services, attracting a large number of local and international users with its user-friendly interface and the advantage of no trading fees, making it one of the most popular trading platforms in Japan.

Bitflyer is renowned for its advanced trading tools and features, ranking first in Bitcoin trading volume nationwide. It caters to different user groups, from beginners to experienced traders, by providing two tailored trading experiences: the intuitive bitFlyer Exchange for beginners and the advanced BitFlyer Lightning for more complex trading strategies.

BitFlyer expands its appeal through innovative features, including unique crypto credit cards, opportunities to earn BTC, and Bitcoin T-Point exchange. These initiatives consolidate BitFlyer’s reputation as the third-ranked cryptocurrency exchange platform in Japan, ensuring accessibility and depth for a broad range of investors.

Bitbank highest-rated app in Apple App Store

Bitbank is the highest-rated cryptocurrency trading app in the Japanese Apple App Store and one of the few in Japan to offer instant account verification services for digital asset exchanges, typically completing verification within minutes.

In addition to trading features, Bitbank offers lending services, allowing users to lease assets to Bitbank with returns of up to 3%, and has received high praise from third-party institutions for its security performance. The platform employs offline cold wallets and Multisig technology to ensure resilience against hacker attacks and protects users’ assets with advanced technology.

Zaif known for privacy and security

Zaif has over 500,000 users. Established in 2014, the platform offers a variety of cryptocurrencies, including Bitcoin, Ethereum, and others. Known for its focus on privacy and security, Zaif attracts traders who prioritize these features.

It allows users to buy and sell various cryptocurrencies in Japanese yen and offers margin trading, making it suitable for beginners and those looking to trade quickly. Since its inception, Zaif has been in a continuous development process, adding new features such as trading, payment services, and currency reserves.

5. Web3 Projects in Japan

The diversity of project types in the Japanese crypto market is relatively low, with a predominant focus on non-fungible tokens (NFTs) and gaming projects, which largely emphasize localization and long-term community building.

Japan Open Chain

Japan Open Chain (JOC) is a practical Ethereum-compatible Layer1 public chain that collaborates with trusted enterprises to provide reliable blockchain infrastructure for businesses and local governments. Japan Open Chain is operated by Japanese companies and complies with Japanese laws, providing a secure environment for developing web3 businesses.

INTMAX

INTMAX is a novel zkRollup, serving as an Ethereum L2 network suitable for various web services and financial applications. It will enable Ethereum to empower all online citizens to participate in the economy through payment infrastructure and the use of NFTs and community management tokens. INTMAX has achieved significant innovations in ZK implementation, making it a unique Layer2 rollup network with low costs, security, adjustable privacy, and most importantly, scalability.

HashPalette

Palette is a blockchain network for issuing, managing, and distributing digital items. Users can freely transfer ownership of digital items and use them in applications. Palette allows digital projects to be treated as NFTs on its own blockchain, Palette Chain, designed specifically for the issuance, management, and distribution of digital items in the entertainment sector, aimed at accommodating business models. Additionally, Palette Chain can connect to multiple blockchains, including Ethereum, and serve as a cross-chain platform for NFT issuance and distribution.

Hashport

HashPort is a cross-chain interoperability layer that supports fast and secure cross-network transfer of digital assets, developed and provided by the HashPort Corporation, established in 2018, with a vision of digitizing assets and providing blockchain technology consulting and solution services to clients.

KEKKAI

KEKKAI is a Web3.0 security plugin that detects dangers by analyzing transaction simulations, aiming to eliminate fraudulent activities in the growing Web3 domain. Users of KEKKAI can receive risk assessment information in transactions — if anomalies are detected, KEKKAI will display risk alerts on the page.

Murakami Flowers

Takashi Murakami is a renowned Japanese artist known for his colorful works and unique artistic style. The Murakami.Flowers project (M.F) initiated by him is a comprehensive project covering art, design, and digital creation. The project revolves around the digital “108” (composed of 108 backgrounds and 108 small flowers), echoing the numbers related to the Buddhist concept of afflictions or worldly temptations, signifying the artist’s attempt to transcend worldly constraints through digital art.

Crypto Ninja Partners

Crypto Ninja Partners (CNP) is an NFT series themed around Japanese ninjas, originally stemming from a community called NinjaDAO. Although NinjaDAO is not strictly a DAO organization, the community gathers numerous cryptocurrency enthusiasts from Japan. Two core figures, Ikehaya (Japanese NFT KOL and Web Marketer) and Road (another core contributor), jointly drive the development of CNP.

MetaSamurai

The project’s vision is to establish a digital fashion brand that empowers creators. The core idea of the project is “I GOT YOUR BACK,” symbolizing MetaSamurai’s commitment to support its NFT holders. The phrase “I GOT YOUR BACK” originates from a story depicting two individuals standing back to back, protecting each other in battle; the spirit of the samurai is to dedicate oneself to protecting the lord; and the loyal dog Hachiko waits steadfastly for its deceased owner. These are all sources of inspiration for MetaSamurai’s works.

6. Japanese Cryptocurrency Venture Capital

Skyland Ventures

Skyland Ventures (SV) is a venture capital (VC) fund headquartered in Shibuya, Tokyo, focusing on seed-stage startup investments. As of 2022, it has invested in over 120 startups, primarily based in Japan. Since 2022, the fund has targeted equity/token investments in startups in the Web3 space (cryptocurrencies, NFTs, and blockchain). The fund invests approximately $50,000 to $500,000 in pre-seed stage and up to $1,000,000 in seed and later-stage investments. Its founders are Max Kinoshita, Yonkuro Masanori Ikeda, and Yuan Xiaohang.

They collaborate with Hash Global, OKX Ventures, Foresight Ventures, MH Ventures, and Generative Ventures.

Investment history:

  • Raised a $4 million seed fund for seed-stage startups in 2012.
  • Invested in 16 companies.
  • Trasnlimit (provider of the BrainWars brain battle game, with 13 million global app installations, supported by LINE and Braindots, with a total download volume of 23 million)
  • Hachimenroppi (provider of a fresh food market supported by Recruit and Yahoo! Japan)
  • Kaumo.jp / CuRAZAY.com (targeting popular websites in Japan, with 4–5 million independent user visits)

Gumi Cryptos

This venture capital firm is a boutique early-stage venture capital firm based in Silicon Valley, investing in information technology, financial services, gaming, insurance, infrastructure, cryptocurrencies, cybersecurity, blockchain, and financial technology in the US, Canada, Europe, Israel, East Asia, South Asia, and Southeast Asia, including Japan. Its co-founders are Zirui Zhang, with managing partners from Japan and China.

Some of its major investment projects include OpenSea, 1inch, and Lit.

CGV Fund

CGV is an Asia-based fund management company specializing in crypto funds and crypto studios investments. CGV FoF consists of family funds from Japan, South Korea, Mainland China, and Taiwan, headquartered in Japan, with branches in Singapore and Canada. Its founders are Steve Chiu and Kevin Ren.

They collaborate with Waterdrip Capital, LK Venture, ZC Capital, Satoshi Lab, and Blockchain Founders Fund.

Some projects in their portfolio include AlchemyPay, Bitkeep, Metis, TheGraph, Avalon, Celestia, and recent Bitcoin ecosystem projects such as the Bitcoin wallet infrastructure UniSat, bitSmiley, and the BTC Layer 2 network ZULU.

BDASH Ventures

BDASH Ventures is a venture capital firm headquartered in Tokyo, Japan, investing in seed, early, and later-stage startups that will become the next generation technology core. The company’s CEO is Hiroyuki Watanabe.

B Dash Ventures hosts a semi-annual summit for senior technology industry executives and startup founders twice a year, called B Dash Camp. It is now one of Japan’s largest invitation-only tech events, attracting over 700 guests from Japan and abroad.

GMO AI&Web3

This cryptocurrency venture capital fund is part of GMO Internet Group Inc., which is listed on the Tokyo Stock Exchange. The group also includes GMO Coin, a licensed cryptocurrency exchange in Japan, listing 28 cryptocurrencies.

MZ Web3 Fund

The MZ Web3 Fund was established by Yousaku Maezawa, known as the Elon Musk of Japan, focusing on Web3 project investments. It is the most active crypto fund in Japan. The MZ Web3 Fund has invested in 24 startup projects in the Web3 field, including decentralized storage project SINSO, payment tools Slash and Transak, development community WEB3DEV, gaming public chain Oasys, and Web3 user growth platform Aki Network. The MZ Web3 Fund will provide community resources through MZ Club and MZ DAO for the invested projects to help them expand rapidly in the Japanese market.

7. Japanese Cryptocurrency Market Regulation

In the global cryptocurrency market, Japan stands out as a unique market, especially in the financial and investment sectors, with tremendous potential. However, due to frequent early attacks on the cryptocurrency market, the Japanese government maintains a cautious attitude towards the cryptocurrency industry and regulates it carefully. On the other hand, Japan’s strong sense of crisis has prompted authorities to attempt to utilize emerging technologies such as blockchain to maintain its position as the world’s third-largest economy. Japan’s blockchain industry regulation policy presents mature and stable characteristics, creating a favorable environment for blockchain startups.

In 2016, the Japanese Cabinet passed an amendment to the Payment Services Act, which came into effect in April 2017, defining cryptocurrencies legally and recognizing their legitimacy. Under the Payment Services Act, digital currencies meet all of the following criteria:

  • Property values recorded electronically on electronic devices or other items using electronic methods;
  • Transferable via electronic information processing organizations;
  • Not currency-denominated assets such as domestic or foreign currency;
  • Can be used by unspecified persons for the purchase, rental of goods, or receipt of services;
  • Can be bought or sold to unspecified persons.

In other words, Japan recognizes cryptocurrencies as a legitimate means of payment. The Payment Services Act is the world’s first law to incorporate digital currencies into the legal regulatory system, with significant implications for the digital currency market.

7.2 Tax Policy on Cryptocurrencies

In January 2022, the ruling party, the Liberal Democratic Party, established the Digital Society Promotion Headquarters, and at the same time, the Japanese government launched the “National Strategy.” Since then, its Web3 project team has been directly proposing legislative and regulatory reforms to the ruling party. Many of these reforms have been adopted, but others remain pending.

On the corporate tax side, to promote a “token-friendly financing environment” for businesses, the Japanese Web3 policy team proposed two reforms. First, exempting “tokens continuously held by issuing companies” from “enterprise income tax based on year-end market value”; second, exempting “tokens issued by other companies and held by third parties for purposes other than short-term trading” from taxation. The first reform took effect in June 2023, and the second reform was recently proposed by the FSA to be included in the 2024 legislative agenda and passed by the Ministry of Economy, Trade, and Industry (METI). Implementing these two measures may alleviate the long-term disadvantage of domestic enterprise investors compared to overseas investors who can rely on more favorable tax treatment.

On the individual tax side, income from cryptocurrency asset transactions is taxed as “miscellaneous income,” with a “minimum tax rate of 55%” when “income tax and resident tax” are combined. This tax is levied not only when the held cryptocurrency assets are exchanged for fiat currency but also when they are exchanged for other cryptocurrency assets, resulting in a significant outflow of taxpayers and hindering tax reporting. The Web3 policy team proposed four reforms. First, a uniform tax rate of 20% on cryptocurrency asset transactions; second, taxation only when “gains and losses” are converted to fiat currency, exempting taxation on “cryptocurrency exchanges”; third, allowing individuals to carry forward losses for up to three years; fourth, applying the same tax rate to “cryptocurrency derivatives trading.” However, these reforms were excluded from the 2023 agenda, and it is currently unclear whether these proposals will be part of the 2024 legislative agenda.

7.3 Licensing System and Self-Regulatory Organizations for Exchanges

According to the amendment to the Payment Services Act, institutions engaged in cryptocurrency trading need to apply for a license from the Japanese Financial Services Agency (FSA) and be regulated by it. Generally, to operate a cryptocurrency exchange in Japan, the following four basic conditions need to be met:

  • Entity: Kabushiki Kaisha or foreign cryptocurrency trading institutions (with business places in Japan and representatives in Japan);
  • Registered capital: with a financial base, registered capital of more than 10 million yen, and positive net assets;
  • Corporate system: a corporate system capable of appropriately and effectively conducting business (such as segregating user assets from company assets, establishing effective risk management systems to prevent risks such as hacking attacks, system failures, money laundering, and terrorist financing);
  • Compliance: comply with relevant laws and regulations, protect user privacy, fulfill anti-money laundering obligations, and cooperate with the FSA’s inspections and investigations;

All tokens listed on compliant exchanges in Japan need to be approved by the Japan Virtual Currency Exchange Association (JVCEA), a process that takes at least 6 months to a year, which also contributes to the lack of vitality in the Japanese cryptocurrency market.

In addition to FSA regulation, to improve the industry’s credibility and transparency, protect investor interests, and promote the healthy development of the cryptocurrency market, Japan established the Japan Virtual Currency Exchange Business Association (JVCEA) in April 2018, initiated by 16 licensed exchanges under the approval and authorization of the Financial Services Agency. The association has formulated a series of self-regulatory rules and guidelines, including:

  • Classify and manage the cryptocurrencies provided by the exchange, and determine their listing conditions based on their security, liquidity, transparency and other factors;
  • Conduct risk assessments on exchanges, set leverage upper limits, margin ratios, forced liquidation mechanisms, etc.;
  • Provide information disclosure to exchanges and require them to disclose trading rules, fee standards, customer complaint handling methods, etc.;
  • Provide consumer education to exchanges to improve their understanding of digital currencies and risk awareness;

7.4 Rules for Cryptocurrency Issuance and Financing

In September 2019, the JVCEA issued “New Coin Offering Related Rules” and accompanying guidelines, allowing public issuance and sale of tokens for financing (IEO and ICO). This was Japan’s first explicit regulatory framework for cryptocurrency issuance and financing. According to the rules and guidelines, to issue and sell tokens compliantly in Japan, the following conditions must be mainly met:

  • The issuer or underwriter must be a licensed exchange and report relevant matters to the FSA and the association;
  • Issued tokens must comply with the association’s standards for security, liquidity, transparency, etc., and pass the association’s review;
  • Issued tokens must have a reasonable pricing mechanism and fully disclose relevant information to consumers;
  • Issued tokens must be fully sold within a certain period and report sales to the association;

Currently, under the “New Coin Offering Related Rules,” the frequency of ICOs/IEOs in Japan is not high. On September 26, 2023, to improve the situation of IEOs, the JVCEA further issued an initial proposal for the direction of IEO reform.

In summary, Japan is a country with an open and positive attitude towards blockchain technology and cryptocurrencies. It has relatively comprehensive and clear regulations in terms of laws, taxes, licenses, and self-regulation, and is still exploring and innovating to adapt to the rapid changes and diverse application scenarios of blockchain technology, aiming to establish a foothold in the global blockchain industry development. For blockchain entrepreneurs, although Japan has a strong localization sentiment, it still provides a good soil for the establishment and development of the cryptocurrency industry.

8. Conclusion

As early as 2017, Japan officially recognized BTC as a legal currency, and in April 2023, the ruling party’s Web3 project team released a white paper, indicating the government’s increasing investment in the industry, making Japan’s cryptocurrency market increasingly prosperous. However, restrictions such as banning direct investment in tokens and the inability to launch token issuance projects internally in Japan limit the development of DeFi-type projects and businesses in Japan, instead forming an industry characterized by NFTs and gaming.

In terms of compliance, to ensure the stability of the investment market and the safety of investors’ assets, Japan has strict laws and regulations in the cryptocurrency field. However, the high cost of compliance and high tax burden hinder the entry and development of projects. In particular, the lengthy approval process for token listings often leads people to believe that the market lacks vitality and lose confidence in this field, while also restricting the innovation of enterprises and the flexibility of the market, resulting in Japan’s cryptocurrency industry lagging behind other countries.

With the penetration and development of the cryptocurrency industry globally, institutional investors in Japan have also shown a strong interest in the cryptocurrency market and have a clearer understanding of its potential. The participation of institutional investors has brought more liquidity, stability, and credibility to the Japanese cryptocurrency market, driving the development of the Japanese cryptocurrency industry and attracting more interest from retail and institutional investors.

In the fluctuating regional competition of the cryptocurrency market, Japan has unique advantages in regulatory compliance, GameFi, and NFT fields, and its strong and sustainable community is also an indispensable weapon for industry development. However, overly strict tax policies and investment restrictions still pose strong obstacles to the rise and development of the cryptocurrency industry in Japan. If policy can be moderately opened under the premise of regulatory compliance, it will be more conducive to the rooting, innovation, and development of the cryptocurrency market. Especially the combination of Japan’s unique cultural characteristics and a strong financial system may have the opportunity to make it a global leader in the GameFi and NFT fields, leading the future of the global cryptocurrency industry.

Disclaimer:

  1. This article is reprinted from [PANews]. All copyrights belong to the original author [MIIX Capital]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
  2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
  3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.
Start Now
Sign up and get a
$100
Voucher!
Create Account