As the world's third largest economy and a region that established the status of cryptocurrencies early and formulated a regulatory framework, Japan has unique advantages and market characteristics.
Author: MIIX Capital
Introduction
In the cryptocurrency market, many people have the inherent impression that Japan is closed and independent. Often, its presence is not strong and is easily overlooked. In comparison to other markets in the Asian region, Singapore, Hong Kong, and South Korea are more frequently mentioned and paid attention to.
However, as the world's third largest economy and a region that established the status of cryptocurrencies early and formulated a regulatory framework, Japan has unique advantages and market characteristics. With the government strongly embracing cryptocurrencies and promoting industry development, new changes and opportunities are gradually emerging.
1. Macroeconomic Indicators and Current Situation
Japan has a strong and well-developed financial system, which has laid 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 maintain investor stability, market security, and overall integrity. Although these regulatory measures are aimed at protecting the industry, the complexity of compliance with cryptocurrency-related earnings and high tax burdens may pose obstacles to the entry and expansion of smaller cryptocurrency enterprises. In addition, the perception of prolonged token listing approval procedures may lead to a decrease in market activity.
1.1 Geographic Location and Population Size
Japan is an island nation in East Asia, located in the northwest Pacific Ocean as part of the Ring of Fire. It spans a group of islands consisting of 14,125 islands, with the five main islands being Hokkaido, Honshu ("Mainland"), Shikoku, Kyushu, and Okinawa, as well as nearly 4,000 smaller islands. Japan is closest to the Siberian region of Russia, while South Korea and China are located further south. Tokyo is the capital and largest city of the country, followed by Yokohama, Osaka, Nagoya, Sapporo, Fukuoka, Kobe, and Kyoto.
According to United Nations data, Japan has a population of nearly 125 million, of which nearly 122 million are Japanese nationals (estimated in 2022), accounting for 98.1% of the total population, with the remaining being minority foreign residents, including indigenous Ainu people, Ryukyuans, Koreans, Chinese, Filipinos, Brazilians of mostly Japanese descent, and Peruvians of mostly Japanese descent.
Japan is the country with the fastest aging population in the world, with the highest proportion of elderly people among all countries, accounting for one-third of its total population, accompanied by an increase in life expectancy and a decrease in birth rates. Japan's total fertility rate is 1.4, which is among the lowest in the world, and its median age is 48.4 years, the highest in the world. The Japanese government predicts that by 2060, there will be one elderly person for every working-age person. Immigration and incentives for childbirth are sometimes suggested as solutions to provide young workers to support the aging population of the country.
1.2 Economic Structure and Characteristics
Japan is the world's fourth largest economy, following the United States, China, and Germany (Germany surpassed Japan to become the third largest economy in 2023), with its economy mainly composed of the service industry, manufacturing, and import-export business. The economic characteristics of Japan reflect its high degree of industrialization, strong external dependence, and unique economic structure and organizational form of enterprises:
The service industry accounts for about 70% of Japan's gross domestic product (GDP), known for wholesale and retail trade, real estate services, and professional, scientific, and technical activities;
It has a high degree of industrialization and is a leading player in the global electronics and technology fields, with agriculture not playing a major role;
It is mainly focused on processing trade, importing raw materials and fuel, and exporting products to explore international markets, making it the world's fifth largest exporter and fourth largest importer;
Industries are mainly concentrated in the narrow coastal areas along the Pacific Ocean and the Seto Inland Sea, which is conducive to the import of raw materials and the export of products;
Manufacturers, suppliers, and distributors are closely integrated, forming strong business alliances with close teamwork;
Its distinctive features include a seniority-based promotion system and lifetime employment, making it difficult for foreign or new enterprises to enter the Japanese market;
In addition, demographic changes have a significant impact on its economy. Japan faces issues such as a declining proportion of the labor force, aging population, and declining birth rates, which lead to a decrease in housing demand, suppressed capital accumulation, reduced investment returns, and subsequently affect economic activities and innovation.
1.3 GDP Ranking Overtaken by Germany
According to a report by Kyodo News on February 15, 2023, Japan's nominal gross domestic product (GDP) in 2023 was $4.2106 trillion, lower than Germany's $4.4561 trillion, dropping to the fourth place in the world. Japan's loss of the status as the "world's third largest economic power" is not accidental, but rather the inevitable result of its long-term lack of stable growth momentum. In October 2023, the International Monetary Fund (IMF) had predicted that Germany would overtake Japan in nominal GDP in 2023. Therefore, when this result was officially announced, it did not cause much public outcry or backlash, and Japanese society seemed to accept this result calmly.
The long-term lack of stable growth momentum in the Japanese economy is the deep-seated reason for Japan being overtaken by Germany in nominal GDP in 2023. Finding long-term growth momentum to drive 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 3-month high of 2.8% in February to 2.7%, in line 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 decline in prices of fuel and light sources over the past year was the smallest (-1.7% vs. -3.0%), and the decline in the speed of electricity (-1.0% and -2.5%) and natural gas (-7.1% vs. -9.4%) slowed down.
The Bank of Japan ended its negative interest rate policy last month, breaking away from a decade-long super loose monetary policy. The market is looking for clues as to when the Bank of Japan will raise interest rates again. The Bank of Japan stated that achieving a benign cycle of continuously and steadily achieving the 2% price target and strong 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 after adjusting for inflation, real wages have been declining for the past two years. 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 Legal Tender of Japan
The yen (Japanese: 円, Japanese Romanization: en, English: Yen), whose banknotes are called Japanese banknotes, is the legal tender of Japan and is often used as a reserve currency after the US dollar and the euro. The yen was established on May 1, 1871, and the issued banknotes come in four denominations: 1000, 2000, 5000, and 10,000 yen, while coins come in six denominations: 1, 5, 10, 50, 100, and 500 yen.
The issuer of the Japanese yen banknotes is the Bank of Japan ("Bank of Japan - Banknotes"), and the issuer of the Japanese yen coins is the Japanese government ("Japan"). In addition, Japanese yen coins do not have unlimited legal tender capability, so in principle, the maximum legal use limit for the same denomination coins in a single transaction is 20 coins (i.e., the maximum payment capacity of coins is 1 yen × 20 coins + 5 yen × 20 coins + 10 yen × 20 coins + 50 yen × 20 coins + 100 yen × 20 coins + 500 yen × 20 coins = 13,320 yen). Merchants have the right to refuse to accept the excess amount in accordance with the law.
While the Federal Reserve and other central banks actively raised interest rates in 2022 and 2023 to curb inflation, the Bank of Japan kept interest rates at zero and continued to print a large amount of legal tender. In 2023, Japan's core inflation rate rose by 3.1%, marking the largest increase since 1982.
Inflation has weakened the purchasing power of legal tender and prompted investors to allocate funds to alternative assets with value storage appeal, such as Bitcoin and gold. Unless the Bank of Japan accelerates the exit from its super-loose monetary policy, the US 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 releasing a web3 white paper, reforming taxation, and attracting investment. The Japanese government also announced a five-year policy for the development of startups, aiming to increase the number of Japanese startups to 100,000 and invest approximately 100 trillion yen to create 100 unicorn companies within five years.
2.1 Strong Government Support for Blockchain Development
The Web3 project team of the ruling party in Japan released a white paper on April 6, 2023, viewing Web3 as a national strategy. As a result, the Japanese government has invested a significant amount of resources in promoting research and application of blockchain technology. For example, the Japanese Cabinet Office has established several special funds to support the innovation and practical application of blockchain technology. Additionally, the Japanese government is actively promoting international cooperation and exchange with other countries in the establishment of standards and regulatory frameworks for blockchain technology.
The application of blockchain technology in Japan covers various aspects, such as real estate registration, identity authentication, interbank clearing, Bitcoin insurance, and supply chain finance. Some specific cases include:
Real Estate Registration: The Japanese government plans to integrate the national real estate data, approximately 230 million land plots and 50 million buildings, into a single blockchain ledger to improve 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 allows customers to share personal information among multiple banks and financial institutions and open accounts using a shared ID. In addition, SoftBank Group has collaborated with TBCASoft to launch a blockchain-based identity identification and verification project, using zero-knowledge proof and distributed ledger technology to protect personal identity information from theft.
Interbank Clearing: Fujitsu, in collaboration with the Mizuho Financial Group, Sumitomo Mitsui Financial Group, and Mitsubishi UFJ Financial Group, has 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, Mitsui Sumitomo Insurance in Japan has partnered with bitFlyer to launch a Bitcoin insurance product, providing compensation for Bitcoin assets and covering losses caused by internal incidents and employee misconduct.
Supply Chain Finance: Mizuho Bank and IBM Japan have jointly developed a blockchain trade finance platform, enabling fast and secure digital transaction documents, exchange of supply chain transaction data, and improving transparency and credibility for all parties involved in the transactions.
2.2 Entry of Web2 Giants into the Cryptocurrency Industry
Investments in the Japanese cryptocurrency industry are often dominated by existing Web2 giants such as securities companies, telecommunications companies, and distributors, rather than venture capitalists (VCs) specializing in web3 investments. There are few local venture capital firms specializing in web3 investments. For example, the Japanese Web2 giant SBI Group has entered the cryptocurrency industry through joint ventures and subsidiaries:
SBI Digital Asset Holdings: Securities token services
SBI VC Trade: Cryptocurrency trading services
SBINFT: NFT business
Other companies that have established and developed 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
SoftBank and LINE: Z Venture Capital
2.3 High Popularity and Potential of GameFi and NFT
Due to policy restrictions, Japan cannot directly invest in tokens or issue tokens, which has limited the development of DeFi within Japan. Therefore, in Japan, NFTs and blockchain games are widely considered to be the main participants in its cryptocurrency market.
Japan has a globally influential gaming industry and is one of the countries with the highest per capita profits 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 known for their willingness to pay for high-quality games, making Japan's blockchain gaming market highly profitable.
Japan not only has a rich and long-standing foundation in video game history but also has the most intellectual property (IP) in the world, including anime, manga, and video games, which have transcended national borders and become globally renowned. As a result, Japan's NFT community also has unique aesthetic views and preferences different from other regions in the world. Additionally, Japan's hotspots are sometimes not synchronized with the global trends, leading to a certain degree of mismatched delays. For example, after the NFT boom in China and the US, Japan experienced a wave of various NFT explosions.
2.4 Market is Easy to Defend and Difficult to Attack with Strong Local Sentiments
The Japanese market is relatively independent and closed, making it difficult for cryptocurrency projects to market in Japan due to language barriers (Japanese people's psychological barriers to English) and the cautious tendencies of Japanese Key Opinion Leaders (KOLs). Overall, it belongs to the type of market that is easy to defend and difficult to attack. The localization sentiment of Japanese cryptocurrency users is very evident. However, due to malicious harvesting behavior of some local projects, people's sentiments towards local projects have become complex. Although there is still a tendency to support domestic projects, there is a clear lack of confidence.
Compared to local projects, local users are not very enthusiastic about foreign projects. Overseas projects need to adapt their products and services to local regulations, translate information into Japanese, collaborate with local KOLs and media, and hold local events to gain more visibility and users through contact with localized audiences.
It is worth noting that Japanese users have a mindset of actively considering the interests of project parties and merchants. For example, when merchants set low prices, they consider whether the merchants can recover their costs, showing understanding and tolerance if cryptocurrency projects are actively working, which helps create a more positive community atmosphere.
3. Characteristics of Cryptocurrency Users
According to the TripleA agency, over 5 million people, accounting for 4.0% of Japan's total population, currently own cryptocurrencies. This figure has been verified by data from licensed exchanges. In addition, a report from KuCoin in May 2023 showed that there are approximately 3.8 million cryptocurrency investors in Japan who have owned or invested in crypto assets in the previous 6 months, accounting for about 5% of Japan's adult population. While Bitcoin (BTC) and Ethereum (ETH) are still the favorite crypto assets for Japanese investors, there is significant interest in diversifying into various areas such as NFTs, metaverse, stablecoins, public chains, DeFi, and meme coins.
Male Investors Far Outnumber Female Investors
Overview of Japanese Cryptocurrency Investors and Investment Experience
Based on an understanding of various regional markets, men show a higher interest in cryptocurrency investment. However, this phenomenon is most pronounced in the Japanese market, where 80% of investors are male, and only 20% are female investors.
Unlike several other markets, the majority of cryptocurrency investors in Japan are over 30 years old, accounting for 77%. On the other hand, the younger generation, aged 18 to 30, represents only 23% of cryptocurrency investors in Japan.
Additionally, the maturity of cryptocurrency adoption in Japan is relatively high. Among surveyed investors, 27% have been investing in cryptocurrencies for over 3 years, 33% for 1-2 years, and only 9% of respondents have recently started dealing with crypto assets.
Cryptocurrency investment is also more common in lower-income households, with 44% of investors having a family annual income of up to 5 million yen. However, only 21% of cryptocurrency investors in Japan have an annual income exceeding 10 million yen.
Young People Believe More in the Innovative Potential of Cryptocurrencies
Other major reasons why Japanese investors turn 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. Only 21% of Japanese cryptocurrency investors see 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 for Investors Over 40
There is a strong correlation between trading frequency and age. Young investors in the 18-30 age group are the most active, trading every week. Users aged 40-60 trade an average of once a month, while those aged 31-39 do not show any distinct pattern, with some trading weekly, multiple times a week, or multiple times a month.
Investors Over 40 Prefer BTC and ETH
Similar to other regional markets, BTC and ETH have the highest allocation in the investment portfolios of Japanese users across 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%);
In addition, GameFi (11%), DeFi (8%), and meme coins (8%) are gradually becoming popular choices for Japanese cryptocurrency investors;
Social Media is the Main Channel for Understanding Cryptocurrencies
Most Japanese investors learn about cryptocurrencies through social media and Key Opinion Leaders (KOLs), with this trend being most prominent among the younger demographic. 41% of investors aged 18-30 rely on influential individuals to understand cryptocurrency investments.
The social media platforms trusted and used by people include: YouTube (32%), Twitter (23%), Line (15%), Instagram (13%), and TikTok (9%). From the data, it is evident that more technical social channels like Discord, Telegram, and Reddit are not trusted by Japanese users, who perceive these channels to carry greater risks.
4. Current Status of CEX in Japan
According to local regulatory requirements, cryptocurrency exchanges need to obtain approval from the Japanese Financial Services Agency (JFSA). Most licensed cryptocurrency exchanges are registered in Tokyo or Osaka.
Binance Japan Known for Diverse Token Types
Binance Japan, launched in August 2023, was renamed after Binance acquired the locally licensed CEX Sakura Exchange BitCoin in November 2022. This marks Binance's return to the Japanese market, after the country's financial regulatory authority issued a warning in 2021 for operating without a license. Binance Japan is currently known for its diverse range of token types and is popular among many users.
Bybit Fully Meets the Preferences of Japanese Investors
Bybit, with custody of over 1,000 cryptocurrencies and a secure platform compliant with strict Japanese regulations, facilitates seamless entry into cryptocurrency trading. It offers direct local yen deposit options, including bank transfers, JCB cards, and Line Pay, simplifying investment pathways.
Bybit's competitive advantages include low trading fees (starting at 0.01% for market makers and 0.06% for takers), abundant liquidity, a daily trading volume of over $30 billion, and a vibrant community of over 20 million users, confirming its market-leading position.
Coincheck - User-Friendly Interface with No Trading Fees
Established in 2014, Coincheck is Japan's largest cryptocurrency exchange with over 2.5 million users. In 2018, it was acquired by Monex Group, a financial services company established in 1999, which operates a diverse range of businesses including online brokerage, asset management, and cryptocurrency services.
Coincheck offers a diverse range 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, Coincheck has become one of the most popular trading platforms in Japan.
Bitflyer - Popular for Advanced Trading Tools
Bitflyer is known for its advanced trading tools and features, with the highest Bitcoin trading volume nationwide. It cleverly meets the needs of 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 has expanded its appeal through innovative features, including unique cryptocurrency credit cards, opportunities to earn BTC, and the Bitcoin T-Point exchange. These measures solidify bitFlyer's reputation as the third-ranked cryptocurrency trading platform in Japan, while catering to the accessibility and depth of a wide range of investors.
Bitbank has the highest rating in the App Store
Bitbank is the highest-rated cryptocurrency trading app in the Japanese Apple App Store and one of the few digital asset exchanges in Japan to offer instant account verification services, typically completed within minutes.
In addition to trading functions, Bitbank also offers lending services, allowing users to lease assets to Bitbank with a return rate of up to 3%. Third-party institutions have highly praised Bitbank's security performance. The platform employs offline cold wallets and Multisig technology to ensure resilience against hacker attacks and protect users' asset security with advanced technology.
Zaif is 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 also permits margin trading, making it suitable for beginners and those looking for quick trades. Zaif has been in a continuous process of development since its inception, 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. While there are public chain and DeFi projects, the focus is mainly 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 a blockchain infrastructure operated by a Japanese company in compliance with Japanese laws, providing a secure environment for developing web3 businesses.
INTMAX
INTMAX is a new type of zkRollup, serving as an Ethereum L2 network suitable for various web services and finance. It will enable Ethereum to allow all online citizens to participate in the economy through payment infrastructure and the internet-native ownership of NFTs and community management tokens. INTMAX has made significant innovations in ZK implementation, making it a unique Layer2 roll-up network with low cost, 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 within applications. Palette allows digital projects to be treated as NFTs on its own Palette Chain blockchain. Palette Chain is designed specifically for the issuance, management, and distribution of digital items in the entertainment sector and is intended to adapt to 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 eponymous HashPort Corporation, established in 2018 with the 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 through transaction simulation analysis, aiming to eliminate fraudulent activities in the growing Web3 field. Users who use KEKKAI can obtain risk judgment information in transactions - if there are anomalies, 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 Takashi Murakami, is a comprehensive project covering art, design, and digital creation. The project is centered around the digital "108" (consisting of 108 backgrounds and 108 small flowers), echoing the numbers related to afflictive obscurations or mundane temptations in Buddhism, 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. While NinjaDAO is not strictly a DAO organization, the community has gathered numerous cryptocurrency enthusiasts from Japan. Two key figures, Ikehaya (Japanese NFT KOL and Web Marketer) and Road (another core contributor), have jointly driven the development of CNP.
MetaSamurai
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The vision of the project is to establish a digital fashion brand and empower creators. The core concept of the project is "I GOT YOUR BACK," symbolizing MetaSamurai's commitment to supporting its NFT holders. The phrase "I GOT YOUR BACK" originates from a story of two people fighting back to back, protecting each other; the spirit of the samurai is to dedicate oneself to protecting the lord; loyal dog Hachiko waited for its deceased owner for over ten years. These are all sources of inspiration for MetaSamurai's work.
6. Cryptocurrency Venture Capital in Japan
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 in Japan. Starting from 2022, the fund will target equity/token investments in startups in the Web3 space (cryptocurrency, NFT, and blockchain). The fund's previous seed-stage investments ranged from approximately $50,000 to $500,000, with investments in seed and later stages ranging from $100,000 to $1,000,000. Its founders are Max Kinoshita, Yonkuro Masanori Ikeda, and Yuan Xiaohang.
They have partnerships with Hash Global, OKX Ventures, Foresight Ventures, MH Ventures, and Generative Ventures.
Investment history:
Raised a $4 million venture fund for seed-stage startups in 2012.
Invested in 16 companies.
Trasnlimit (provider of BrainWars brain battle game, installed globally 13 million times, supported by LINE and Braindots, with a total download count of 23 million)
Hachimenroppi (provider of a fresh market supported by Recruit and Yahoo! Japan)
Kaumo.jp / CuRAZAY.com (aiming to be a popular website 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, with investments in information technology, financial services, gaming, insurance, infrastructure, cryptocurrency, cybersecurity, blockchain, and fintech in the United States, Canada, Europe, Israel, East Asia, South Asia, and Southeast Asia, including Japan. Its co-founder is Zirui Zhang, and its managing partners are 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 focusing on investments in crypto funds and crypto studios. CGV FoF consists of family funds from Japan, South Korea, mainland China, and Taiwan, with headquarters in Japan and branches in Singapore and Canada. Its founders are Steve Chiu and Kevin Ren.
They have partnerships 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 - Bitcoin wallet infrastructure UniSat, bitSmiley, and BTC second-layer network ZULU.
BDASH Ventures
BDASH Ventures is a venture capital firm based in Tokyo, Japan, investing in seed, early-stage, and later-stage startups that will become the core of the next generation of technology. The company's CEO is Hiroyuki Watanabe.
B Dash Ventures hosts a semi-annual summit for senior technology industry executives and startup founders 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., a company listed on the Tokyo Stock Exchange. The group also includes GMO Coin, a licensed cryptocurrency exchange in Japan, listing 28 cryptocurrencies.
MZ Web3 Fund
MZ Web3 Fund was established by Yuzaku Maezawa, known as the Elon Musk of Japan, focusing on Web3 project investments and being the most active crypto fund in Japan. MZ Web3 Fund has invested in 24 startup projects in the Web3 space, including decentralized storage project SINSO, payment tools Slash and Transak, development community WEB3DEV, game public chain Oasys, and Web3 user growth platform Aki Network. MZ Web3 Fund will provide community resources through MZ Club and MZ DAO to help the invested projects expand rapidly in the Japanese market.
7. Cryptocurrency Market Regulation in Japan
In the global cryptocurrency market, Japan is a unique market with enormous potential, especially in the financial and investment sectors. However, due to frequent early attacks on the cryptocurrency market by hackers, the Japanese government maintains a conservative attitude towards the cryptocurrency industry and exercises cautious regulation. On the other hand, Japan's strong sense of crisis has led authorities to attempt to maintain the position of the world's third-largest economy by leveraging emerging technologies such as blockchain. Japan's blockchain industry regulatory policies exhibit mature and stable characteristics, creating a favorable environment for blockchain startups.
7.1 Legal Status of Cryptocurrencies
In 2016, the Japanese Cabinet passed an amendment to the "Fund Settlement Law," which came into effect in April 2017, providing a legal definition for cryptocurrencies and recognizing the legitimacy of cryptocurrencies. Under the "Fund Settlement Law," a digital currency falls under the following criteria:
Property value recorded electronically on electronic devices or other items;
Can be transferred by electronic information processing organizations;
Assets not denominated in domestic or foreign currencies;
Can be used by unspecified persons when purchasing, renting items, or receiving services;
Can be bought and sold by unspecified persons;
In other words, Japan recognizes cryptocurrency as a legal means of payment. The "Fund Settlement Law" is the world's first law to include digital currency in the legal regulatory system, which is of great significance to the cryptocurrency market.
7.2 Cryptocurrency Tax Policies
In January 2022, Japan's 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 reform suggestions to the ruling party. Many of these reforms have been adopted, but others are still pending.
In terms of corporate taxation, to promote a "token financing-friendly environment," the Japanese Web3 policy team has proposed two reforms. First, exempting "year-end fair value-based corporate income tax on tokens held by issuing companies"; second, tax exemption for "tokens issued by other companies and held by third parties for purposes other than short-term trading." 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 approved by the Ministry of Economy, Trade, and Industry (METI). Implementing these two measures may alleviate the long-term disadvantage of domestic corporate investors compared to overseas investors who can rely on more favorable tax treatment.
In terms of individual taxation, income from cryptocurrency asset trading is taxed as "miscellaneous income," with a "minimum tax rate of 55%" when combined with income tax and resident tax. 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, leading to a significant outflow of taxpayers and hindering tax reporting. The Web3 policy team has proposed four reforms. First, a unified 20% tax on cryptocurrency asset trading; second, taxation of "gains and losses" only when converted to fiat currency, exempting taxation on "cryptocurrency asset exchanges"; third, allowing individuals to carry forward losses for up to three years; fourth, applying the same tax rate to "cryptocurrency derivative trading." However, these reforms have been 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 "Fund Settlement Law," institutions engaged in cryptocurrency trading in Japan need to apply for a license from the Japanese Financial Services Agency (FSA) and be subject to its regulation. Generally, to engage in cryptocurrency trading in Japan, the following four basic conditions need to be met:
Entity: Kabushiki Kaisha (stock company) or foreign cryptocurrency trading institution (with a place of business in Japan and a representative in Japan);
Registered capital: Having a financial base, with registered capital of at least 10 million yen and positive net assets;
Corporate system: Having a corporate system that can properly and effectively conduct business (such as segregating user assets from company assets, establishing effective risk management systems, preventing hacking, system failures, money laundering, and terrorist financing risks);
Compliance: Complying with relevant laws and regulations, protecting user privacy, fulfilling anti-money laundering obligations, and cooperating with inspections and investigations by the FSA;
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 has also led to a lack of vitality in the Japanese cryptocurrency market.
In addition to FSA regulation, to enhance the industry's reputation and transparency, protect investor interests, and promote the healthy development of the cryptocurrency market, Japan established the Japan Virtual Currency Exchange Association (JVCEA) in April 2018, initiated by 16 licensed exchanges, for self-regulation under the approval and authorization of the FSA. The association has formulated a series of self-regulatory rules and guidelines, including:
Categorizing and managing the cryptocurrencies provided by exchanges based on factors such as security, liquidity, and transparency to determine their listing conditions;
Risk assessment of exchanges, setting limits on leverage ratios, margin ratios, and forced liquidation mechanisms;
Information disclosure by exchanges, requiring them to publicly disclose trading rules, fee standards, and customer complaint handling procedures;
Consumer education by exchanges, raising awareness and risk awareness of digital currencies among consumers;
7.4 Rules for Cryptocurrency Issuance and Financing
In September 2019, the JVCEA issued the "New Coin Offering Rules" and accompanying guidelines, allowing public issuance and sale of tokens for financing (IEO and ICO). This was the first time Japan had established a clear regulatory framework for cryptocurrency issuance and financing. According to the rules and guidelines, to issue and sell tokens in compliance with Japan, the main requirements are:
The issuer or underwriter must be a licensed exchange and report relevant matters to the FSA and the association;
The issued tokens must comply with the association's standards for security, liquidity, transparency, and pass the association's review;
The issued tokens must have a reasonable pricing mechanism and fully disclose relevant information to consumers;
The issued tokens must be fully sold within a certain period, and the sales situation must be reported to the association;
Currently, under the "New Coin Offering Rules," the frequency of ICO/IEO in Japan is not high. On September 26, 2023, in order to improve the situation of IEO, the JVCEA further released an initial proposal for 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 legal, tax, licensing, and self-regulation, and is continuously exploring and innovating to adapt to the rapid changes and diverse applications of blockchain technology, aiming to establish a foothold in the global blockchain industry. For blockchain entrepreneurs, although Japan has a strong localization sentiment, it still provides a good environment for the establishment and development of the cryptocurrency industry.
8. Conclusion
As early as 2017, Japan officially recognized BTC as legal tender, and in April 2023, the ruling party's Web3 project team released a white paper, indicating that the government's investment in the industry is increasing, making Japan's cryptocurrency market increasingly prosperous. However, restrictions such as prohibiting direct investment in tokens and the inability to launch token issuance projects internally in Japan have limited the development of DeFi-type projects and businesses in Japan, resulting in an industry characterized by NFTs and gaming.
In terms of compliance, Japan has strict laws and regulations in the cryptocurrency field to ensure market stability and the safety of investors' assets. However, the high cost of compliance and high tax burden have hindered 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 limiting the innovation and flexibility of enterprises, 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 shown a strong interest in the cryptocurrency market and have gained a clearer understanding of the industry's potential. The participation of institutional investors has brought more liquidity, stability, and credibility to Japan's cryptocurrency market, driving the development of the industry and attracting more interest from retail and institutional investors.
In the fluctuating regional competition in the cryptocurrency market, Japan has unique advantages in regulatory compliance, GameFi, and NFT fields, and its strong and sustained community is an indispensable tool for industry development. However, overly stringent tax policies and investment restrictions still pose strong obstacles to the rise and development of the cryptocurrency industry in Japan. If policies can be moderately opened under the premise of regulatory compliance, it would be more conducive to the establishment, innovation, and development of the cryptocurrency market. In particular, 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.
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