According to recent research, the reason Japanese investors are withdrawing from the cryptocurrency market is due to complex tax regulations, not price fluctuations.
The Japanese financial planning platform 400F conducted a survey in November targeting 894 people nationwide to examine their usage of cryptocurrency assets. Among former cryptocurrency holders, 22.2% cited the difficulty of the tax system as a major reason for their withdrawal. This figure exceeds the 19.4% who cited price fluctuations as the primary reason for their exit.
Administrative requirements surpass market fluctuations
Current digital asset holders report price volatility (61.4%) and tax complexity (60%) as nearly equal challenges. In Japan, profits from cryptocurrency assets are classified as 'miscellaneous income,' and a maximum tax rate of 55% applies when local taxes are included. Investors must track each transaction, calculate profits or losses converted to yen, and report annually. This management challenge outweighs the benefits for many investors, with 62.7% citing long-term wealth creation as the main reason for investment, while only 15.1% prioritize short-term speculation.
Investors utilizing the two popular tax-advantaged accounts for equities and retirement funds, NISA and iDeCo, are particularly affected by the complexity of cryptocurrency reporting requirements. Familiarity with the simple procedures of traditional investment accounts makes the paperwork for digital assets feel even more burdensome.
Calls for regulatory changes are increasing
The vast majority of respondents (70.6%) maintain a neutral risk tolerance and aim for a balance between risk and return. Nevertheless, about 40% of 'neutral' investors express a willingness to take on more cryptocurrency risk if Japan's regulatory authorities clarify their approach to digital assets and taxes.
As calls for such clear regulations arise, reports suggest that Japan's Financial Services Agency (FSA) is planning to reclassify cryptocurrencies as standard financial products and lower the maximum tax rate to 20%. This could significantly alleviate the tax burden that is currently cited as a reason for withdrawal.
Where do Japanese investors obtain their information?
According to the survey, respondents use dedicated media or official media (63%) and social media or influencer platforms (58.9%) almost equally to obtain cryptocurrency information.
Overall, the survey results suggest that Japanese investors are more influenced by government regulations and administrative procedures than by price fluctuations when engaging with cryptocurrencies. A simplified tax system could significantly promote the growth of cryptocurrencies in Japan's large economy.