The latest survey reveals that Japanese investors are stepping out of the crypto market not because of price volatility, but due to complex tax requirements.
Japan's 400F financial planning platform surveyed 894 participants nationwide in November about their behavior regarding cryptocurrency. Among those who had previously held crypto, 22.2% indicated that difficulties with the tax system were the primary reason for exiting the crypto market, which was more than the price volatility, with 19.4% of former investors citing volatility as the main reason for stopping using crypto.
The demand for management overshadows market volatility.
Current digital asset holders report that volatility (61.4%) and tax complexity (60%) are almost equally significant challenges. In Japan, crypto gains are classified as 'miscellaneous income' and may be taxed at a maximum rate of 55%. After local taxes, investors must track each trade, calculate profits or losses in yen, and report annually. For many, the challenges of managing this outweigh the benefits, even though 62.7% indicated that building long-term wealth is the main reason for investing compared to 15.1% who prioritize short-term speculation.
Investors using NISA and iDeCo accounts, two popular tax-exempt accounts for stocks and retirement, are particularly affected by the complex reporting requirements for crypto. Their experience with uncomplicated traditional investment accounts makes the documentation for digital assets seem even more burdensome.
The calls for regulatory change are increasing.
A large group of respondents (70.6%) indicated that their risk tolerance is moderate, expecting to balance risk and reward. Approximately 40% of these 'moderate' investors indicated that they would be willing to take on more risk with crypto if Japanese regulators clarify how to manage digital assets and taxes clearly.
This demand for clearer regulation comes as reports indicate that Japan's Financial Services Agency (FSA) plans to reclassify crypto as standard financial products and reduce the maximum tax rate to 20%. These changes could significantly alleviate the tax burden that is currently cited as a reason for exiting the crypto market.
Sources that Japanese investors seek
The survey found that respondents used specialized or official media (63%) and social platforms or influencers (58.9%) almost equally for information about crypto.
Overall, the survey results suggest that Japanese investors are more concerned with crypto than with government regulation and political processes compared to price volatility. Simplified tax regulations could unlock further growth of crypto in Japan's large economy.