Main Points:
- Convening of the FSA’s Crypto Asset System Working Group (WG) to discuss a shift from the Payment Services Act to the Financial Instruments and Exchange Act.
- Focus on strengthening investor protections, classifying crypto assets by fundraising characteristics, and addressing misuse.
- Reflection on past exchange hacks (e.g., Coincheck 2018) underscores regulatory gaps.
- Debate on corporate “Bitcoin treasury” strategies and the bubble risk from stock valuations exceeding BTC holdings by multiples.
- Industry bodies (JCBA, JVCEA) brief on global market size ($≈4 trillion USD) and self-regulatory measures.
- WG to deliver a report by year-end, paving the way for legislative proposals in the 2026 Diet session.
Shifting Regulatory Paradigms
The first meeting of the Financial Services Agency’s Crypto Asset System WG on July 31, 2025, marked the start of a comprehensive discussion on repositioning crypto assets beyond mere payment instruments toward mainstream investment products. This move follows the July 2025 recommendation by Minister of State for Financial Services, Mr. Katsunobu Kato, to review the crypto regulatory framework in light of rapid market maturation.
The WG revisited the Discussion Paper released in April 2025, which proposed transitioning regulatory oversight from Japan’s Payment Services Act to the Financial Instruments and Exchange Act. Central to this proposal is classifying crypto assets by their fundraising functions—distinguishing utility tokens, security tokens, and payment tokens—and imposing tailored regulations on each category to enhance investor protection.
Lessons from Historical Security Breaches
Professor Naoyuki Iwashita of Kyoto University began the discussion by recalling the January 2018 Coincheck hack, where stolen crypto assets were traced yet irretrievably laundered through Bitcoin, and subsequent incidents at Zaif and DMM Bitcoin, with no perpetrators ever arrested.
“Despite clear tracking, we could do nothing as assets vanished into the dark,” he lamented, warning that criminal misuse will persist so long as illicit gains remain detached from honest investors.
He argued that regulatory reforms must prioritize societal safety over industry convenience—a perspective that underscores the urgency of adopting stronger AML/CFT measures and custody standards.
Corporate Bitcoin Treasury: Boom or Bubble?
During the session, attention turned to the phenomenon of publicly traded companies holding large Bitcoin reserves as part of their treasury strategy. Mr. Naoya Kawai, Legal Advisor to the Japan Cryptoasset Business Association (JCBA), likened these firms to “investment companies” banking on long-term appreciation.
“We see cases where a company’s stock market capitalization is three to four times the USD value of its Bitcoin holdings, inflating expectations and possible bubble dynamics.”
This trend aligns with global data showing a $4 trillion crypto market cap milestone in mid-July 2025, driven by Bitcoin’s surge to over $120,000 per coin and Ether’s doubling over three months. Such figures reinforce why regulators are keen to monitor corporates’ crypto exposure to mitigate systemic risks.
Industry Body Insights and Self-Regulation
The WG heard from two key associations:
- Japan Cryptoasset Business Association (JCBA): Reported that the global crypto market tops ¥400 trillion (≈ $2.86 trillion USD at ¥140/USD), with institutional inflows and stablecoin regulation in the U.S. spurring further growth.
- Japan Virtual and Crypto-Asset Exchange Association (JVCEA): Detailed its review procedures for new tokens and ongoing member-monitoring practices.
Such self-regulatory activities, including code audits and KYC enhancements, demonstrate the industry’s commitment to bolstering trust as it scales.
Chart: Crypto Market Cap Growth (2021–2025)
Insert Figure 1 here: A line chart illustrating the rise of the global cryptocurrency market cap from $1 trillion in 2021 to $4 trillion in 2025.
Next Steps and Outlook
WG members engaged in vigorous debate for over 25 minutes past the scheduled end, reflecting the complexity of reconciling innovation with risk mitigation. The FSA aims to finalize a WG report by December 2025, with amendments to the Financial Instruments and Exchange Act slated for submission in the ordinary Diet session of 2026. Regulators will weigh stakeholder input, victim-compensation frameworks, and cross-border coordination to ensure Japan’s regime remains competitive yet secure.
Conclusion
The inaugural meeting of Japan’s Crypto Asset System WG signals a decisive shift toward comprehensive crypto regulation. By leveraging the Financial Instruments and Exchange Act’s robust investor protection mechanisms, addressing historical security failures, and scrutinizing corporate crypto strategies, the FSA seeks to foster a healthier market for new crypto assets and revenue opportunities. As global market cap breaches $4 trillion USD and institutional adoption accelerates, Japan’s regulatory overhaul could set a blueprint for balancing innovation with prudence in the blockchain era.
