Japan Plans to Launch Cryptocurrency Spot ETF: A Comprehensive Overview of Market Status, Regulatory Shift, and Implementation Impact

Written by: FinTax

1 Introduction

Over the past year, crypto spot ETFs have been launched in multiple markets, creating a more direct connection between digital assets and traditional financial systems. According to Japanese media reports, the Financial Services Agency (FSA) plans to amend the Enforcement Ordinance of the Investment Trust and Investment Corporation Act (hereafter referred to as the “Investment Trust Act”) to include crypto assets within the scope of assets investable by investment trusts. The FSA expects to submit the bill to the National Diet as early as 2026. If ultimately approved, crypto spot ETF products could be listed and traded in Japan as early as 2028, with assets potentially reaching trillions of yen, and prompting securities firms and exchanges to offer supporting services. However, as early as April last year, the FSA’s discussion document on the review of crypto asset regulations (Examination of the Regulatory Systems Related to Cryptoassets, hereafter “Discussion Document”) clearly stated that under the current legal framework, ETFs primarily investing in crypto assets cannot be established. Now, with ongoing regulatory discussions, signals of a policy shift are beginning to emerge.

The FSA’s changing stance reflects certain regulatory trends in Japan. What hurdles remain before Japan can launch crypto spot ETFs? How will market opportunities and compliance requirements evolve in tandem? This article will explore Japan’s proposed push for crypto spot ETF trading, starting with the basic mechanisms of crypto spot ETFs and their key differences from futures-based products; analyzing the regulatory trends reflected in the Discussion Document and recent developments; and further examining how policy evolution impacts Japan’s crypto market ecosystem, financial institutions’ business strategies, and investor risk awareness and protection.

2 What is a Crypto Spot ETF: Concepts and Types

2.1 Basic Concepts

ETP (Exchange Traded Product) is a general term for exchange-traded investment products, with ETFs (Exchange Traded Funds) being the most common type structured as funds. In different jurisdictions, products based on crypto assets may not all be called ETFs, but because their trading experience and investor perception are closer to ETFs, they are generally referred to as crypto spot ETFs. A crypto spot ETF typically refers to a product whose underlying assets are actual crypto holdings, providing exposure through spot assets. While spot products make trading and holding more convenient, they do not eliminate risks such as price volatility, fraud, or market manipulation. When investors shift from self-managed wallets to exchange-traded products, their risk profile changes, but the most immediate variable remains volatility itself.

To understand crypto spot ETFs, think of them as a complete chain:

First is the underlying asset and valuation: products usually base their net asset value (NAV) on spot market prices or specified indices. The frequency of NAV calculation, the source of pricing, and how extreme market conditions are handled all affect tracking accuracy and investor experience.

Second is custody: the underlying assets of a crypto spot ETF must be stored within a compliant custody system. Key risk controls include private key management, cold storage ratios, access permissions, and audit arrangements, typically handled by regulated custodians.

Third is creation/redemption and authorized participant (AP) mechanisms: APs arbitrage between primary and secondary markets, helping to narrow premiums/discounts and influence liquidity. During periods of high volatility, premiums/discounts and trading frictions can be amplified.

Fourth is trading costs: trading a crypto spot ETF involves considerations of spreads, market impact costs, and tax treatment differences across markets.

2.2 Types: Spot, Futures, and Others

In investment markets, crypto-related exchange-traded products are often classified by their primary holding instruments, with the most common being spot-holding ETFs and futures-based ETFs. Spot Bitcoin and Ethereum ETFs typically hold the actual crypto assets to track their prices, while futures ETFs hold futures contracts based on those assets.

A spot ETF (or similar exchange-traded product) is an open-ended fund listed on an exchange, with shares created and redeemed via authorized participants, designed to track the price of a specific underlying asset. It generally holds and safekeeps the actual spot assets, with NAV calculated based on their fair value. Spot ETFs can hold a single asset, like BTC or ETH, or a basket of multiple assets. Single-asset ETFs hold one crypto, while multi-asset baskets diversify risk. Spot ETFs are suitable for investors who want exposure to crypto price movements within traditional securities accounts without managing wallets or private keys directly, though the product’s NAV will still reflect the underlying asset’s volatility.

Futures ETFs use crypto futures contracts as their main holdings, issuing publicly traded securities that provide exposure to futures price movements. Due to contract expiry and roll-over mechanisms, investors need to be aware of potential NAV deviations caused by contango or backwardation. Before the approval of spot products, the US market already had ProShares’ Bitcoin Strategy ETF.

Besides holding tools, crypto exchange-traded products can also be classified by tracking target (single asset or index/basket), underlying asset type (crypto assets or industry stocks), and leverage or inverse strategies. Leveraged, inverse, and some tactical products often reset daily, have stronger path dependency, and are suitable for narrower investor groups.

Table 1: ETF Product Classification Dimensions

3 From Rejection to Promotion: Japan’s Regulatory Shift on Crypto Assets

3.1 Market Structure and International Competition

The positive signals from the FSA regarding crypto spot ETFs contrast sharply with its previous cautious stance. This near-180° shift is related both to structural changes in Japan’s domestic crypto market and to international competitive pressures.

In Japan, prior crypto regulation mainly focused on payment attributes, including compliance of trading platforms, customer asset management, and price monitoring. Since 2025, Japan has initiated a series of policy and regulatory updates aimed at integrating crypto assets into the mainstream financial system, moving beyond their role as marginal payment methods. Legally, the FSA proposed transferring crypto asset regulation from the Payment Services Act (PSA) to the Financial Instruments and Exchange Act (FIEA) last December, to treat crypto assets more like financial products, aligning their legal status closer to securities. Tax policies are also evolving; Japan released a blueprint for 2026 tax reforms last year, proposing to reduce crypto asset gains tax from a maximum of 55% to a separate 20% tax. These policies and potential future adjustments lay a solid foundation for the financialization of crypto assets and the development of a crypto spot ETF market.

Second, international competition and regulatory benchmarking are key drivers. After the US introduced mainstream crypto spot products like the Bitcoin futures ETF, the institutional infrastructure and compliance services quickly matured. For Japan, this is not only about product offerings but also about maintaining competitiveness as a financial hub and attracting capital markets. If Japan remains absent of compliant products long-term, high-quality flows and service capabilities may leak abroad, and domestic financial institutions will lack opportunities to gain experience within a regulated environment.

Third, the FSA’s discussion document does not outright reject crypto spot ETFs but emphasizes their current regulatory infeasibility under existing frameworks. Market and regulatory environment adjustments still have room for evolution. The document recognizes the strong investment appeal of crypto assets in practice and stresses the importance of establishing appropriate regulatory tools. It proposes a classification-based regulatory approach:

• The first category includes crypto assets used for fundraising or with utility functions, focusing on issuer disclosure obligations, such as clear explanations of fund use and project progress.

• The second category covers non-fundraising crypto assets like BTC and ETH, where regulation shifts toward ensuring fairness in trading due to the absence of a single issuer.

3.2 Comparing International Paths for Crypto Spot ETF Regulation

Globally, the US, EU, and UK represent three different regulatory approaches: the US allows crypto spot products to enter mainstream markets with strict rules, disclosures, and market surveillance; the EU emphasizes a unified framework to reduce regulatory arbitrage; the UK, with a focus on retail protection, restricts high-risk products initially and considers boundary adjustments under stricter disclosure and risk management conditions. Japan may adopt a middle path—introducing compliant products while strengthening disclosures, suitability management, and anti-fraud measures to enhance oversight and investor protection.

Table 2: Comparative Overview of Crypto Spot ETF Regulation in Major Jurisdictions

4 Predicted Impact of Crypto Spot ETF Launch in Japan

4.1 Current Japanese Market

Japan’s crypto market has expanded significantly in recent years. As of July 2025, there were approximately 13.2 million crypto trading accounts domestically, fewer than securities accounts but still with growth potential. The total crypto assets held by investors reached about 5 trillion yen in July 2025, then declined to around 4.9 trillion yen in September amid volatility, but overall trend remains upward. This reflects increased risk appetite amid inflation and income growth mismatches. Meanwhile, consulting and complaints related to crypto have also risen. FSA data shows that crypto-related inquiries and complaints in Q4 2024 totaled 1,304, higher than previous quarters. Regulators face dual pressures: enabling compliant channels for participation while safeguarding investors and financial stability.

4.2 Predicted Effects: Domestic Market and Investors

If crypto spot ETFs are approved in Japan, the most immediate impact would be a shift of crypto investment flows into regulated securities accounts. Funds that previously traded directly on platforms might move into ETF products, putting pressure on retail trading volumes and existing assets on local platforms.

For traditional financial institutions, the potential launch of crypto spot ETFs presents both an opportunity for innovation and a test of compliance and reputation risk. Given the high volatility of crypto prices, rapid declines after market entry could raise questions about risk disclosures, sales compliance, and product suitability. Continuous regulatory focus on fraud and operational security means internal controls will be a core threshold for institutions seeking to introduce such products under the hypothetical regulatory framework.

For investors, especially global asset managers, family offices, and hedge funds seeking Asian allocations, progress on Japan’s crypto spot ETF will be closely watched. If Japan allows these products, it would add a compliant entry point in a mature capital market, facilitating asset allocation: products could be traded via securities accounts, with standardized reporting and disclosures, and custody managed by regulated entities, making internal approval processes easier.