A country’s tax structure has a big impact on what people invest.
Currently, Japan taxes cryptocurrencies very aggressively.
If that changes, and it looks like it will, it would be great for many different crypto assets.
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As boring as it may seem to many people, fiscal policy can move markets even more than news of the launch of a fancy new product. When administrations change what people keep after the government takes its cut, they change how much risk investors are willing to take and how long they are willing to hold it.
And right now, Japan is flirting with a very big tax change that has big implications for all cryptocurrencies, especially major ones like bitcoin(CRYPT: BTC), Ethereum(CRYPT: ETH)and solarium(CRYPT: SUN). If the policy ends up being implemented, it could spark a new boom. Here’s what’s being considered and why I predict it will be very optimistic if it happens.
Image source: Getty Images.
For years, Japan has combined strict consumer protections with a strict tax regime for cryptocurrency holders.
Under existing rules, most personal crypto profits are treated as miscellaneous income rather than capital gains. That means profits are taxed between 5% and 45%, plus a flat 10% “housing tax”, for an effective tax cap of around 55% on large profits. There are also strict limits on taxes that offset crypto losses.
But for now, the country’s lawmakers are weighing the possibility of reducing the effective tax rate on cryptocurrency profits to 20%, similar to the rate on stocks and mutual funds. Politicians in the National Diet, Japan’s deliberative and legislative body, have expressed support for the change, perhaps because they see digital assets as part of a broader strategy to try to revive the country’s economic growth while keeping more capital in the country rather than letting it flow to attractive international markets such as the United States and China. Industry leaders hope that if the reform is passed, it will also open doors for the issuance of local cryptocurrency exchange-traded funds (ETFs) and clarify how asset managers can package digital assets for retail investors.
Japan is not a niche market; As of May 2025, approximately 12.4 million Japanese residents already owned or used cryptocurrencies, with more than 4.26 trillion yen (around $27.5 billion) held in custody on domestic platforms. That capital base has grown very quickly from around 5.6 million users in 2022, reflecting both progress toward regulatory normalization and frustration over low returns on savings as inflation has outpaced wage growth.
The tax change would therefore radically adjust the after-tax math for those investors, and would almost certainly lead to a flood of cryptocurrency investments by investors who were previously too put off by the tax structure to participate. When combined with the already rapid pace of growth in the country’s crypto participation, the effect on major cryptocurrency prices could be substantial, especially over time.
When barriers to investment are removed, capital tends to seek the path of least resistance to generate a return it could not before. For Japanese households and financial institutions that have been on the sidelines, that path will likely run first through the largest, most global cryptoassets, specifically Bitcoin and Ethereum, with Solana and other large companies likely to get a solid tailwind as well.
Japanese banks and other financial companies are already exploring whether they will be allowed to hold Bitcoin directly and offer custody and related services. If the tax code aligns with stocks, taxing 20% on capital gains, Bitcoin becomes much easier to justify as a long-term allocation for tax-conscious Japanese investors who already understand investing in stocks.
Ethereum would play a different role, as its investment thesis holds that it is the default base layer for the decentralized finance (DeFi) ecosystem. For Japanese asset managers, a flatter tax regime may make it easier to launch Ethereum-based financial products that combine its potential appreciation with a return from on-chain lending or staking activities, although they are more complex and carry additional risks from both smart contracts and regulators.
Of course, this catalyst is not necessarily a failure. The tax proposal could be diluted in the legislative process, delayed or even rejected outright. Even if approved, Japanese households are on average older and have historically been more conservative investors, so it is not obvious that they will significantly increase their exposure to cryptocurrencies right away.
For investors outside of Japan, the way to look at this policy is as a potential additional tailwind that could begin fairly soon. This is not something you can build a thesis on, but if lawmakers vote in favor of implementing the tax cut, keep in mind that it is another vote in favor of purchasing these leading crypto assets.
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Alex Carchidi has positions in Bitcoin, Ethereum and Solana. The Motley Fool has positions and recommends Bitcoin, Ethereum and Solana. The Motley Fool has a disclosure policy.
Prediction: If this policy changes, Bitcoin and Ethereum will skyrocket was originally published by The Motley Fool
