Japan’s Financial Services Agency (FSA) has released a discussion paper proposing a new regulatory framework for digital assets, titled “Verification of the State of the System Related to Crypto Assets.”
The paper suggests classifying cryptocurrencies into two categories based on fund distribution. The FSA seeks public feedback on the proposal until May 10, 2025, to help shape the final regulations.
The proposed dual framework divides cryptocurrencies into two main categories: Type 1 and Type 2. Type 1 includes assets primarily used for business operations or to raise capital for the parent project. These are typically altcoins from emerging projects that depend on community funding to sustain growth. In contrast, Type 2 encompasses more established or decentralized cryptocurrencies, such as Bitcoin and Ethereum, which do not issue tokens to raise funds for business purposes. These assets are categorized as “non-fundraising” or “non-business crypto.”
The FSA further clarified that Type 1 regulations will take effect when a project gains a substantial number of general investors, and it may assess whether some Type 1 tokens should be classified as security tokens. However, the agency will not directly engage with Type 1 project issuers due to challenges in identifying them and enforcing regulations. Instead, the FSA will implement Type 2 crypto regulations for exchange platforms, requiring these exchanges to report significant price fluctuations in Type 2 assets that could affect the market. This approach aims to ensure transparency and regulation in market activities, with much communication regarding Type 2 crypto being handled through the exchanges.
Looking ahead, the FSA is also considering classifying cryptocurrencies as financial products similar to securities. This follows ongoing private consultations with experts as the agency reassesses its approach to crypto regulation. As global regulatory trends evolve, the FSA will consider public feedback and international developments before finalizing Japan’s new crypto framework.
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