Japanese cabinet approves crypto assets for investment by venture capital firms

The Japanese cabinet has approved the inclusion of cryptocurrencies among the assets that local investment limited partnerships (LP) firms can acquire or hold. 

In a move announced by the Ministry of Economy, Trade and Industry on Feb. 16, VCs engaged in crypto now have more regulatory clarity. The change is aimed at bolstering the strategic investment environment and providing enhanced support for local startups and medium-sized companies.

The amendment to the Act on Strengthening Industrial Competitiveness comes as a major change in the nation’s policy, directly allowing venture capital firms to invest in projects that exclusively issue cryptocurrencies. 

Hiro Kunimitsu, the founder and CEO of Gumi Inc., a Japanese game development firm with its blockchain investment fund, gumi Cryptos Capital, highlighted the significance of this development.

He pointed out that, until now, Japanese crypto projects were compelled to seek funding from foreign venture capitals, a process fraught with obstacles. The ability of Japanese venture capitalists to invest in crypto assets is expected to create substantial opportunities for the burgeoning web3 startup scene in Japan.

This move is part of Prime Minister Fumio Kishida’s “new capitalism” policy, under which Japan has been actively working to cultivate its web3 industry. This move comes on the heels of the cabinet’s approval in December of a revision to the tax regime. This revision could exempt companies from paying taxes on unrealized profits from cryptocurrencies.

Meanwhile, the revision to the Industrial Competitiveness Enhancement Act was previously approved with the aim of fostering new business creation and encouraging investment in the industry. This aligns with Japan’s broader strategy to bolster the economic drivers of the country, focusing on support for medium-sized companies and startups. 

This legislative change, now awaiting deliberation in the legislative body, could significantly impact how venture capital operates within the web3 domain in Japan, potentially setting a precedent for other nations to follow.

Moreover, the timing of this decision is particularly noteworthy, coming shortly after Japan’s top financial regulator, the Financial Services Agency (FSA), proposed measures to protect users from unlawful transfers, including those involving cryptocurrencies.

Accordingly, the Financial Services Agency (FSA) and the National Policing Agency (NPA) are urging banks to bolster user protection measures. To accomplish this, both agencies are implementing a range of initiatives, one of which mandates banks to intensify their surveillance of suspicious transactions heading toward cryptocurrency exchange providers.