Japan is considering stricter regulations for the cryptocurrency market as the country’s Financial Services Agency (FSA) looks to combat insider trading. A new report suggests that the agency is preparing to classify cryptocurrencies, including Bitcoin, as financial products under Japan’s Financial Instruments and Exchange Act. This would significantly change the way digital assets are regulated, subjecting them to stricter compliance rules. According to Nikkei, the proposal could be presented to the Japanese parliament as early as 2026.

Currently, cryptocurrencies like Bitcoin are categorized under the Payment Services Act, primarily being seen as a means of settlement for payments. This classification was based on the initial expectation that crypto would be widely used for payments. However, with the growing surge in crypto trading activity in Japan, the FSA is now considering a reclassification to treat digital currencies more like traditional securities such as stocks.

As of 2024, Japan has seen substantial growth in cryptocurrency trading, with over 7.1 million active cryptocurrency accounts, a significant increase from five years ago. This growing interest in digital assets has prompted concerns about investor protection. If the new rules are passed, companies that offer cryptocurrency investments may need to register with regulators, not just cryptocurrency exchanges. The FSA has reportedly received increasing complaints from investors claiming they were misled into buying crypto products, making it more urgent for the government to step in.

The proposed reclassification would mean that crypto companies pitching investments could face more oversight, even if they are based outside Japan. The exact enforcement strategies are still unclear, but the FSA’s plans indicate that international companies could also be held accountable under Japan’s regulatory framework. The move is seen as part of a broader effort to protect investors and ensure greater transparency in the booming crypto market.

Earlier this year, Japan’s Cabinet also approved a proposal to amend the Payment Services Act, which aims to relax regulations for stablecoins and crypto brokerages. This amendment is intended to encourage crypto firms to establish a presence in Japan, making it easier for businesses to operate within the country’s regulatory environment.

These steps show Japan’s commitment to balancing innovation in the crypto space with the need for investor protection and market integrity. As the country prepares to revise its laws, both investors and crypto companies will need to stay updated on these developments.