Japan remains cautious on approving crypto ETFs, even as markets like the US and Hong Kong move forward with digital asset products. Despite ambitions to position itself as a digital asset hub, the country’s regulatory framework continues to limit widespread adoption of cryptocurrency-backed exchange traded funds (ETFs).

Slow Regulatory Shift

While the US and other regions have approved spot crypto ETFs for bitcoin and ether, Japan’s Financial Services Agency (FSA) is still hesitant. The conservative stance stems from long-standing concerns within Japan’s Ministry of Finance about the risks associated with cryptocurrencies, according to Oki Shiozawa from Sumitomo Mitsui Trust Asset Management. Efforts to convince regulators have so far proven challenging.

High Taxes Deter Investment

One major obstacle to launching crypto ETFs in Japan is the tax burden. Currently, profits from cryptocurrency investments are taxed as high as 55% under miscellaneous income. In contrast, ETFs are subject to a lower capital gains tax of around 20%. Advocates argue that crypto-backed ETFs could help lower the tax burden for investors and offer other perks, such as loss carry-forward.

Japan’s cautious stance is also shaped by the country’s history of high-profile crypto scandals, including the infamous MTGox exchange collapse. Regulatory authorities remain concerned about the security of digital assets, making large asset managers hesitant to jump into the space without clear guidance.

Signs of Change on the Horizon

Despite the regulatory roadblocks, major financial institutions are preparing for potential shifts. In July, SBI Holdings partnered with Franklin Templeton to develop digital asset products, including crypto ETFs. Other firms, such as Nomura, are also setting up digital asset subsidiaries in anticipation of future approval. However, as of now, Japan’s FSA has not signaled any imminent regulatory changes.

Japan may eventually catch up with global peers on crypto ETFs, but for now, regulatory caution prevails.