According to the new amendments, the recognition of crypto as a financial asset at a cabinet meeting on April 10 is only the tip of the iceberg. The new act also applies insider trading controls that already apply to stocks to crypto transactions. Japan is looking to regulate crypto assets as financial instruments to prohibit insider trading based on non-public information. The Japanese government will require crypto issuers to disclose information at least once a year to create a healthy market environment. The bill is expected to be implemented in fiscal year 2027 if it is passed during the current Diet session.

Japan passes new bill to ensure fairness and protect investors

In his statement, Satsuki Katayama, Japan’s Finance Minister, emphasized that the country will boost the supply of growth capital to counter the effects of ever-evolving financial and capital markets. The bill, which reclassifies nearly 105 crypto assets, is also set to ensure markets remain fair and transparent, protecting investors. Meanwhile, investor protection will include increasing the prison sentence from 3 years to up to 10 years to strengthen penalties.

More stringent penalties, such as raising fines from the current 3 million yen to up to 10 million yen, further demonstrate Japan’s strong commitment to protecting investors. “We will expand the supply of growth capital in response to changes in financial and capital markets, and ensure fairness and transparency in the market and investor protection,” Satsuki Katayama, Finance Minister of Japan, said.

To achieve these objectives, the Financial Services Agency (FSA), which previously regulated crypto under the Payment Services Act, will shift regulation to the Financial Instruments and Exchange Act. Registered businesses will also be collectively renamed from the previous “crypto asset exchange businesses” to “crypto asset trading businesses.”

FSA set to allow banks to hold crypto under new policy

The FSA is shifting its crypto policy by submitting an amendment to the Financial Instruments and Exchange Act, allowing local banks and other institutions to hold crypto for investment purposes. The move will effectively integrate crypto into the country’s financial system. Japan was already the first major economy to regulate crypto post-Mt. Gox, and this move takes it a step further. The bill will shift the legal framing of crypto assets from digital payment tools to investible financial instruments.

Also, the use of crypto assets for investment purposes has increased in Japan, representing a significant strengthening of regulations. The country’s over 12 million verified crypto users and $34 billion in assets under local custody now have a real runway to grow with these institutional-grade rules in place. On the other hand, Japan signaled in January that it was bringing crypto under the same umbrella as traditional finance.

The development was confirmed when Katayama said that the role of exchanges and market infrastructure will be essential to ensure that citizens benefit from crypto assets. The country also plans to legalize crypto ETFs by 2028, marking a significant shift toward mainstream crypto adoption. Additionally, Katayama highlights 2026 as a pivotal year for bringing crypto under traditional financial regulation.

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“If you’re a resident of Japan, please note that starting from 2026, your account will be subject to gradual restrictions. You’ll receive additional updates on the remediation process in subsequent communications,” Bybit announced. The exchange is still not licensed by Japan’s Financial Services Agency (FSA), a requirement for serving users in the Japanese market.

Bybit to pull back from the Japanese market amid increased scrutiny

Bybit has been pulling back from the Japanese market over the past few months. The exchange stated in October that it would stop accepting new users as talks with the FSA continued. In February, Japan’s Financial Services Agency also asked Apple and Google to remove download access for five crypto exchanges operating without registration.

The exchanges in question included Bybit and MEXC Global. Now, with the phased restrictions, the exchange is further limiting its exposure in the country. Globally, Japan is considered one of the most rigorous crypto regulatory regimes, which, according to analysts and key players like WeFi co-founder and CEO Maksym Sakharov, will stifle innovation.

In October, Nikkei Asia had even reported that Japan’s financial authorities were explicitly planning to ban insider trading in the cryptocurrency market. According to the report, the Securities and Exchange Surveillance Commission (SESC) would be mandated to investigate questionable crypto trades and impose fines based on illegal gains, with the most serious cases referred for criminal proceedings.

The Financial Instruments and Exchange Act would also need to be updated, as it currently excludes cryptocurrencies from insider-trading provisions. Additionally, the FSA would need to establish a working group by the end of 2025 and submit legislative proposals in 2026. Earlier this year, the agency had also published a discussion paper examining crypto regulations.

The paper highlighted that future rules could cover insider trading in crypto transactions. Previous reporting indicates that the agency intended to classify cryptoassets under the FIEA, thereby subjecting them to existing securities laws. Meanwhile, Bybit is also staging a return to the UK following a two-year hiatus.

Bybit is introducing a new platform for spot and peer-to-peer trading that runs under a promotions arrangement approved by London-based crypto exchange Archax. Archax holds a special regulatory permit enabling it to approve financial promotions, effectively allowing firms without direct UK authorization to operate through its platform. So far, the platform has enabled both Coinbase and OKX to operate in the UK without having direct authorisation.

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Market analyst Linh Tran from XS.com said, “Bitcoin is currently in a re-accumulation phase following its short-term correction, with market sentiment stabilizing and institutional demand remaining resilient.” The rally also boosted companies with ties to the digital asset. Strategy (MSTR) jumped more than 2% after revealing a new purchase of 168 bitcoins between October 13 and 19, at an average cost of $112,051 each. As Cryptopolitan reported, the company now holds a total of 640,418 Bitcoins.

Bitcoin climbs its way to the top as crypto stocks gain momentum

Trading platforms were also not left out of the party as Robinhood (HOOD) climbed by 4.5%, while Coinbase (COIN) rose by 2.5%, tracking the rebound in overall crypto market sentiment. Circle (CRCL), the stablecoin issuer, surged by 3.5%, according to data from Yahoo Finance. Crypto mining firms saw boosts as well, with Bitcoin’s recovery boosting their performance.

MARA Holdings (MARA), which has expanded into HPC data centers, jumped by 6%. Bit Digital (BTBT) surged by 15%, while Cipher Mining (CIFR) climbed by 6%. Analysts said miners’ diversification into AI hosting and compute services has kept them cushioned even when Bitcoin cools off, but Monday’s rally showed that price still rules sentiment in the sector.

Adding to the mood change was a report from Japan’s Financial Services Agency, which said it was considering allowing domestic banks to hold Bitcoin and other cryptocurrencies directly. Meanwhile, Ethereum followed suit, reclaiming the $4,000 level after briefly slipping to $3,700 last week. The synchronized bounce across assets showed that the correction phase might be fading faster than expected, at least for now.

Rob Mitchnick, BlackRock’s head of digital assets, said that last week’s brief “mini-crash” in Bitcoin and the accompanying sell-off across altcoins came mostly from highly leveraged speculative trading on offshore futures exchanges. He said that while those derivatives platforms represent less than 2% of Bitcoin’s total ownership, they still account for most of the daily trading volume, making them a source of short-term volatility.

Rob added, “Over time, the more sophisticated sort of long-term buy-and-hold-type investing activity takes over and predominates, but not with that short-term noise.” His comments are similar to what many market veterans have observed lately: institutional players tend to remain calm during dips, while overleveraged retail traders tend to panic first.

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The move aims to close a regulatory gap and strengthen trust in the nation’s growing digital asset market. According to Nikkei Asia, the Securities and Exchange Surveillance Commission (SESC) will soon have the power to investigate suspected insider trading in cryptocurrencies and recommend penalties or criminal action.

Regulators Move Toward Tighter Oversight

Currently, crypto assets are not covered under Japan’s Financial Instruments and Exchange Act (FIEA). The Japan Virtual and Crypto Assets Exchange Association (JVCEA) also has limited capacity to monitor insider activities. To address this gap, the Financial Services Agency (FSA) plans to consult on new measures that will take effect by 2026.

Officials intend to amend the FIEA to explicitly prohibit trading based on undisclosed information related to crypto assets. The FSA will then issue detailed guidelines to define which actions qualify as insider trading. These include trading on confidential knowledge of upcoming exchange listings or unannounced security flaws in digital assets.

The SESC’s expanded role is expected to create a fairer trading environment and enhance public confidence in cryptocurrency as a legitimate investment sector.

Challenges in Applying Traditional Laws

Applying insider trading laws to cryptocurrencies presents unique challenges. Unlike stocks or bonds, many digital tokens lack a clear issuer, making it difficult to determine who constitutes an insider. Japan also has limited experience in prosecuting cases of crypto-related insider trading.

When the European Union introduced its crypto regulations in 2024, it avoided defining specific types of insider information. This reflects the difficulty of applying traditional financial frameworks to decentralized assets. Regulators worldwide continue to seek balanced solutions that protect investors without hindering innovation.

Global Context and Domestic Momentum

Japan’s cryptocurrency market continues to expand rapidly, with 7.88 million active trading accounts recorded in August. This marks a fourfold increase in just five years. As global insider trading and fraud cases rise, international bodies such as the International Organization of Securities Commissions have urged stronger oversight. The EU and South Korea have already introduced measures to address these risks.

Japan’s FSA and SESC plan to draw on both global models and domestic experience to develop their own comprehensive framework. Many analysts believe this will bring greater clarity to Japan’s regulation of different types of tokens, including payment, security, and utility assets.

Sanae Takaichi, a leading contender for Japan’s next prime minister, is expected to support the digital economy while maintaining strict regulatory standards. Her administration could bring new focus to technological development and crypto market regulation. Experts believe this balance between innovation and control will reinforce Japan’s reputation as a responsible and forward-looking financial hub.

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According to reports, the commission will also place digital assets under trading restrictions to build investor trust.

Japan wants to clarify digital assets as financial products

According to the FSA, it hopes to build a robust framework for the crypto industry and remove uncertainties among traders. The commission also wants to grant legal status to digital assets, seeing them as financial products. However, it will restrict part of the buying and selling of assets based on undisclosed information to better protect investors.

The agency mentioned that a committee will begin discussing the proposed amendments in the summer of 2025. The report also noted that the agency hopes to have submitted its final amendments to the bill to parliament as early as 2026. While it remains unclear what other amendments will be introduced, this is not the first time the commission has discussed crypto regulatory changes. In September 2024, the Financial Council working group met to discuss possible updates on fewer restrictions for crypto companies and even the allowance of short-term government bonds.

Japan’s LDP wants to reduce tax on crypto gains

Before the FSA made its announcement, LDP Lawmaker Akihisa Shiozaki previously proposed the establishment of a new asset class for digital assets. The lawmaker argued that the assets should no longer be seen as property, suggesting that their regulations be shifted from the Payments Services Act to the Financial Instruments and Exchange Act. He recommended that crypto be classified under “financial products,” subjecting it to regulations similar to securities but with a separate framework.

Meanwhile, the ruling LDP also proposed a reduction in crypto-realized gains to 20%. Startale Group CEO Sota Watanabe even remarked that tax cuts could encourage more people to buy crypto and increase on-chain activity. He believes that the cuts may also set the foundation for Bitcoin ETFs in the nation. So far, crypto transactions in Japan have been subject to a 55% tax rate on realized gains, classified as miscellaneous income.

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