If Japan's policy changes, Bitcoin and Ethereum will surge significantly!

The Japanese Parliament is considering significantly reducing the cryptocurrency gains tax rate from a maximum of 55% to 20%, aligning it with the tax rates on stocks and investment funds. This tax reform in Japan will fundamentally change the after-tax returns calculation for 12.4 million cryptocurrency holders, releasing liquidity of over 4.26 trillion yen (approximately $275 billion) on domestic platforms. Bitcoin and Ethereum are expected to be the primary beneficiaries of this capital inflow.

From 55% to 20%: A Historic Breakthrough in Japan’s Tax Reform

Japan’s current cryptocurrency tax system is among the strictest globally. Most individual cryptocurrency gains are classified as miscellaneous income rather than capital gains, meaning profits are taxed at rates between 5% and 45%, plus a fixed 10% “residence tax,” pushing the effective tax rate on large profits close to 55%. Additionally, Japan’s tax system imposes strict restrictions on offsetting cryptocurrency losses; investors cannot offset gains with losses as they can with stocks.

This tax structure severely dampens enthusiasm for crypto investments. For example, if an investor earns 1 million yen profit from Bitcoin, the actual net received might be only 450,000 yen, with over half taken by the government. Such high taxes make long-term holding unprofitable; many investors are forced into short-term trading to avoid accumulating excessive tax bases, which in turn increases market volatility.

Currently, legislators are considering reducing the cryptocurrency gains tax rate to a flat 20%, aligning it with the capital gains tax on stocks and funds. This rate adjustment is not minor; it’s a reduction from 55% to 20%, a drop of 35 percentage points, which translates to a 175% increase in after-tax returns. Such a significant change in Japan’s tax policy could have a revolutionary impact on investment decisions, fundamentally altering the risk-reward profile of crypto investing.

Politicians have expressed support for this change, possibly because they see digital assets as part of a broader strategy to stimulate economic growth and retain more capital domestically, preventing capital outflows to attractive international markets like the US and China. Japan has long faced capital flight, with talented young professionals and investment capital tending to flow to countries with more favorable tax policies. Lowering crypto taxes can be viewed as a strategic move by the Japanese government to retain local funds.

12.4 Million Users and $275 Billion: The Suppressed Demand About to Be Released

Japan is not a niche market, and this is a key reason why the potential impact of the tax reform could be explosive. As of May 2025, approximately 12.4 million Japanese residents have held or used cryptocurrencies, with over 4.26 trillion yen (around $275 billion) held on domestic platforms. This capital base has grown rapidly from about 5.6 million users in 2022, reflecting progress in regulatory normalization and frustration with low savings yields amid inflation exceeding wage growth.

The scale of 12.4 million users is significant in the global crypto market. Japan’s population is about 125 million, meaning roughly 10% of the population already owns cryptocurrencies, a penetration rate quite high among developed nations. Most importantly, Japanese investors are known for discipline and long-term holding; if the tax environment improves, these investors could shift from short-term speculation to long-term allocation, providing a more stable demand foundation for the market.

The $275 billion in holdings is a potential reservoir of capital. If the tax reform is implemented, the liquidity and willingness to reallocate these funds will increase substantially. Investors might redeploy funds currently locked in low-yield accounts into crypto assets with more attractive after-tax returns. Additionally, the reform could attract new capital that is currently hesitant due to high tax rates—once the rate drops to 20%, similar to stocks, entry barriers will be significantly lowered.

Threefold Impact of Japan’s Tax Reform on the Crypto Market

Massive Increase in After-Tax Returns: From an effective rate of 55% down to 20%, after-tax returns increase by 175%

Incentive for Long-Term Holding: Lower taxes make long-term allocation more attractive, reducing short-term trading and increasing market stability

Unlocking Institutional Products: Paving the way for local crypto ETFs, asset management firms can package digital assets for retail investors

This tax change will fundamentally alter how these investors calculate their after-tax gains, almost certainly triggering a surge of investment into cryptocurrencies. Coupled with Japan’s already rapidly growing crypto participation, the impact on leading crypto prices could be substantial, especially over the long term.

Bitcoin and Ethereum Will Be the Primary Beneficiaries

When investment barriers are lowered, capital tends to seek the path of least resistance. For Japanese households and financial institutions that have been on the sidelines, this path will likely first pass through the largest and most globalized crypto assets—particularly Bitcoin and Ethereum—while Solana and other major projects may also gain strong momentum.

The Bank of Japan and other financial institutions are already exploring whether they will be permitted to hold Bitcoin directly and offer custodial and related services. If Japan’s tax system aligns with stocks, with a 20% capital gains tax, Bitcoin will be easier to rationalize as a long-term holding choice for Japanese investors familiar with equities. The narrative of Bitcoin as “digital gold” is especially appealing in Japan, where investors traditionally favor safe-haven assets like gold.

Ethereum will serve different roles, as its investment thesis centers on being the foundational layer for decentralized finance (DeFi) ecosystems. For Japanese asset managers, a flatter tax regime might make it easier to launch Ethereum-based financial products combining potential appreciation with staking or on-chain lending yields, despite these products being more complex and carrying additional risks from smart contracts and regulatory oversight.

Of course, this catalyst is not guaranteed. The tax proposal could be weakened, delayed, or rejected during the legislative process. Even if passed, Japan’s older, more conservative investor base may not immediately increase crypto exposure significantly. Nonetheless, global investors should view this policy as a potential tailwind that could start quite soon.