Japan's financial landscape is on the cusp of a major transformation as the country's leading brokerages prepare to bring cryptocurrency investment trusts to retail investors. SBI Securities, Rakuten Securities, and Nomura are among the firms developing products that will allow ordinary Japanese investors to gain exposure to digital assets through traditional securities accounts, a significant departure from the current requirement of opening dedicated exchange accounts or setting up wallets. This development comes as Japan's Financial Services Agency (FSA) moves to formally allow crypto-holding funds by 2028, marking a pivotal moment in the integration of digital assets into mainstream finance.

Brokerage Firms Lead the Charge

SBI Securities plans to sell investment trusts developed by its group company, SBI Global Asset Management, with products spanning both exchange-traded funds (ETFs) and traditional investment trusts focused on liquid assets like Bitcoin and Ethereum. The group intends to handle everything from product development to distribution in-house, ensuring seamless integration and control. Rakuten Securities is taking a similar approach, working closely with Rakuten Investment Management to build products tradeable directly through its smartphone app, targeting the tech-savvy retail demographic that already uses the platform for stock and mutual fund investments.

Nomura, Daiwa, and SMBC Join the Fray

Among the larger names, Nomura Holdings has announced plans to develop crypto investment trusts within its group, leveraging its extensive asset management expertise. Daiwa Securities Group has also signaled its intention to enter the space, while SMBC Group, including SMBC Nikko, has established a cross-group task force to evaluate its options. Asset Management One, under Mizuho Financial Group, has begun preliminary exploration of crypto-holding funds, indicating that the entire spectrum of Japan’s financial institutions is mobilizing. This collective push underscores the industry's recognition that cryptocurrency is becoming an indispensable asset class for retail portfolios.

Regulatory Framework Paves the Way

The brokerage-led initiative aligns with the Japanese government's ongoing efforts to create a regulated environment for digital assets. Last month, Japan formally reclassified cryptocurrencies as financial instruments under an amended Financial Instruments and Exchange Act, bringing them under the same regulatory umbrella as stocks and bonds. This amendment, once enacted in the current parliamentary session, is expected to take effect in fiscal 2027. Moreover, the FSA is moving to revise the enforcement order of the Investment Trust Act by 2028, which would add cryptocurrencies to the list of specified assets that investment trusts can hold. These regulatory changes are designed to provide legal clarity and protect investors while fostering innovation.

Historical Context: Japan’s Crypto Journey

Japan has a storied history with cryptocurrency. It was one of the first countries to recognize Bitcoin as legal tender for payments in 2017, following the collapse of the Mt. Gox exchange, which was based in Tokyo and lost 850,000 Bitcoins in 2014. That event led to a crackdown on exchanges and the establishment of strict licensing requirements under the Payment Services Act. In subsequent years, Japan’s FSA tightened oversight, requiring exchanges to implement robust know-your-customer (KYC) and anti-money laundering (AML) protocols. The recent reclassification of crypto as financial instruments is the latest step in a long journey toward full institutional integration, moving away from the perception of crypto as a speculative, unregulated fad.

Implications for Retail Investors

For ordinary Japanese investors, the introduction of crypto investment trusts is a game-changer. Currently, buying digital assets requires opening a dedicated crypto exchange account, transferring funds, and managing private keys or third-party wallets. This process has been a significant barrier to entry, especially for older, less tech-savvy investors. Investment trusts held within securities accounts eliminate these hurdles, allowing investors to add crypto exposure with a few clicks on a familiar platform. Furthermore, investment trusts are eligible for tax-advantaged accounts such as the Nippon Individual Savings Account (NISA), which offers tax exemptions on capital gains and dividends for long-term holdings. This could drive substantial retail demand, as Japanese households have over $15 trillion in savings, much of it sitting in low-yielding bank deposits.

Potential Products and Timeline

SBI Holdings has already outlined plans for a Bitcoin-XRP dual ETF and a gold-crypto ETF, pending regulatory approval. These products reflect a trend of combining traditional safe-haven assets with digital ones. Most firms expect to have products ready by 2028, when the FSA's revised Investment Trust Act enforcement order takes effect. However, some may launch earlier under existing rules by structuring funds as cryptocurrency-denominated trusts, though such products would not yet qualify for NISA tax benefits. The race is on to capture first-mover advantage in what could be a multi-trillion-yen market.

Global Context and Competitive Pressure

Japan is not alone in exploring crypto investment trusts. In the United States, spot Bitcoin ETFs launched in early 2024 and have attracted over $50 billion in assets under management, setting a precedent for regulatory approval. South Korea has also been moving to allow crypto ETFs, and Hong Kong has authorized them for trading. For Japanese brokerages, the domestic market offers a unique opportunity because of Japan’s high rate of securities account ownership (over 30% of households) and the government's proactive stance on financial innovation. By integrating crypto into existing investment structures, Japan could become a global leader in retail crypto adoption, potentially influencing other Asian economies.

Challenges and Risks

Despite the enthusiasm, challenges remain. Crypto assets are highly volatile, and investment trusts will need to manage risks such as extreme price swings and security concerns. The FSA will likely impose stringent custody requirements to protect fund assets, and firms must ensure robust cybersecurity measures. Additionally, the tax treatment of crypto trusts under Japanese law is still evolving. While long-term holdings in NISA accounts may be tax-free, short-term trading could incur significant capital gains taxes of up to 55% on profits, depending on income brackets. Clear communication will be essential to ensure investors understand the risks and tax implications.

Industry Collaboration and Infrastructure

The development of crypto investment trusts is also spurring collaboration between traditional financial institutions and crypto exchanges. For instance, SBI Holdings has a stake in Bitbank, one of Japan’s leading crypto exchanges, and is exploring deeper integration. Similarly, Nomura has invested in Laser Digital, a digital asset subsidiary. These partnerships provide the infrastructure needed for custody, trading, and settlement. The Japan Securities Dealers Association is also working on guidelines for member firms to ensure consistent and safe practices when dealing with crypto assets.

The Road Ahead for Japan's Crypto Ecosystem

Japan’s approach balances innovation with investor protection. By allowing investment trusts, the government is opening the door for millions of retail investors to participate in the crypto economy without the technical complexities. At the same time, the FSA’s cautious timeline—finalizing rules by 2028—ensures that adequate safeguards are in place. This phased strategy is likely to serve as a model for other countries considering similar measures. With the world’s third-largest economy embracing crypto as an investable asset class, the implications for global markets could be profound.

Source: Cointelegraph News