Japan Reshapes Its Crypto Framework as Regulation Moves Under Securities Law For The First Time

The crypto market is entering a decisive moment as Bitcoin and most major altcoins continue to face intense selling pressure, with investors increasingly capitulating and locking in losses. Short-term holders are realizing losses at historic levels, while liquidity thins across spot and derivatives markets. Yet, amid this downturn, a new development from Japan introduces a potential long-term catalyst for structural growth within the digital asset ecosystem.

A report from CryptoQuant reveals that Japan’s Financial Services Agency (FSA) has finalized its 2025 Working Group on crypto-asset reform, outlining a sweeping redesign of the nation’s regulatory framework. The reforms reflect a clear acknowledgement that crypto assets have evolved into mainstream investment instruments, while risks—ranging from fraud to opaque trading venues—have expanded alongside adoption.

The core shift transitions crypto oversight away from the Payment Services Act and into the Financial Instruments and Exchange Act, strengthening investor protection through standardized disclosures, unfair-trading controls, clearer issuer-risk communication, and enhanced technical and security transparency.

The framework also targets unregistered offshore platforms, explores a regulatory category for decentralized exchanges, and introduces reserve-fund requirements to protect users against hacks.

Japan’s Regulatory Shift Could Unlock a New Wave of Crypto Demand

The report by XWIN Research Japan highlights that, from an on-chain perspective, Japan currently appears to play a limited role in crypto activity. Estimates suggest that only 20,000 to 40,000 unique active Bitcoin addresses per day originate from Japan, compared with a global range of 450,000 to 800,000. Measured solely through address activity, Japan seems to be a marginal participant in worldwide on-chain demand, especially when compared with the US, Europe, and emerging Asian markets.

However, the report emphasizes that address counts dramatically underestimate Japan’s potential influence. The country holds one of the largest pools of household financial assets in the world, with trillions in savings sitting in conservative instruments.

If the new regulatory framework opens access to Bitcoin and digital assets through ETFs, institution-managed products, retirement accounts, and compliant investment platforms, capital inflows could rise sharply. Under these conditions, Japan could evolve into a major driver of market demand, far exceeding what current blockchain activity implies.

These reforms represent a foundational shift toward a transparent, secure, and institution-ready crypto environment. As investor protections increase and access barriers fall, large asset managers may enter the space with confidence. In the long term, this could apply meaningful upward pressure on Bitcoin’s supply-demand balance and reshape regional participation dynamics within the global crypto market.

Crypto Market Pullback Reaches Key Support Zone

The total crypto market cap is showing clear signs of stress as it pulls back sharply from the $4 trillion region and now trades around $2.96 trillion. The weekly chart reveals a decisive breakdown from the prior consolidation range, with momentum shifting downward as sellers dominate. This decline has erased months of gains and taken the market back to levels not seen since early summer, reflecting the intensity of the correction across Bitcoin, Ethereum, and major altcoins.

Price is currently sitting near the 100-week moving average, a historically important dynamic support level that has acted as a springboard during previous market recoveries. If this level holds, the market could establish a temporary bottom and attempt a rebound toward the $3.2T–$3.4T zone.

However, if the market cap falls below the 100-week MA with conviction, the next major area of support stands near the 200-week moving average around $2 trillion, which would imply significantly deeper downside.

Trading volume has increased during the decline, signaling strong participation in the selloff rather than a low-liquidity drift lower. This reflects fear-driven capitulation rather than gradual correction. For sentiment to shift, buyers must step in and defend current levels with consistency.

Featured image from ChatGPT, chart from TradingView.com