Japan has passed a major new law that changes how bitcoin and digital assets are regulated. The new law officially recognizes digital assets like bitcoin as financial products instead of just payment tools.

It is expected to give investors better protection, introduce stricter rules for related companies, and make it easier to launch digital asset investment products in the future.

The law was approved by Japan's parliament after passing both houses of the Diet. It updates the country's Financial Instruments and Exchange Act (FIEA), making it one of Japan's biggest Bitcoin regulatory changes in recent years.

Before this change, bitcoin and other digital assets were mainly regulated under the Payment Services Act because they were viewed as a way to make payments. Under the new law, digital assets will now be treated more like investments, similar to stocks and bonds.

This change shows that Japan now sees bitcoin as an important part of the financial system, not just as a way to send or receive money.

One of the biggest changes is the introduction of insider trading rules for digital assets. This means people who have access to important non-public information, such as issuers or exchange employees, will not be allowed to trade before that information becomes public.

The goal is to make the market fairer and give investors more confidence. The new law also brings stricter rules for related businesses operating in Japan.

Companies will have to follow more compliance requirements, while some digital asset issuers will be required to publish yearly reports. Exchanges are also expected to provide more information about the digital assets they list, including details about the issuer, the blockchain, and how risky or centralized the asset may be.

Japan is also increasing the penalties for companies that operate without proper registration.

Under the new rules, the maximum prison sentence for running an unregistered digital asset business will increase from three years to 10 years. The maximum fine will also increase from 3 million yen to 10 million yen (~$61,000).

People who break the new insider trading rules could face up to five years in prison, fines of up to 5 million yen, or both. These tougher penalties show that Japan plans to treat crimes in the digital asset market as seriously as crimes in traditional financial markets.

The new law also lays the foundation for lower taxes on digital asset profits.

Right now, these profits in Japan are taxed as miscellaneous income, with tax rates reaching as high as 55%. Lawmakers now plan to introduce a separate tax system that would apply a flat tax rate of about 20%, the same rate used for stock investments.

The planned tax changes would also let investors carry forward trading losses for up to three years. This means they could use past losses to reduce taxes on future trading profits.

The lower tax rate is expected to begin in 2028 after the new law starts being enforced during the 2027 fiscal year.

Another important part of the new law is that it creates the legal foundation for domestic spot digital asset exchange-traded funds (ETFs).

Japan has not yet approved spot bitcoin ETFs, but moving the asset under the Financial Instruments and Exchange Act removes one of the biggest legal obstacles. Reports say the Japan Exchange Group could launch the country's first bitcoin ETFs as early as 2027, although no products have been officially approved yet.

The law is expected to take effect within one year after it is officially announced. More detailed rules will be introduced before the changes are fully implemented.