July 25, 2024

Japan Aims to Ease Venture Capital Crypto Investment Rules, Potentially Revolutionizing Web3 Funding


Japan is poised to relax its venture capital (VC) crypto investment regulations, opening the door for VCs to invest in Web3 startups that exclusively issue cryptocurrencies. The Japanese Cabinet has approved proposed amendments to the Act on Strengthening Industrial Competitiveness, signaling a potential shift in the country’s approach to crypto assets.

As part of the proposed changes, the Cabinet aims to include crypto assets on the list of assets that investment business limited partnerships (LPS) can acquire. LPS entities typically function as funds investing in unlisted companies and startups. The legal reforms have been submitted to the legislative body for debate.

Previously, operators of LPS were prohibited from holding crypto assets. If approved, this modification would enable VCs to make direct investments in crypto assets, potentially reshaping the landscape for Web3 startups seeking funding in Japan. Existing regulations restrict startups from offering crypto to LPS investors, compelling them to provide shares in their companies to VCs.

The government plans to present a bill to parliament later this year to formalize the changes to VC crypto investment rules. While parliamentary approval is still required, it is noteworthy that no government-proposed crypto legislation has failed to receive approval in Japan thus far.

This regulatory shift occurs amid heightened scrutiny of “unlawful” crypto transactions to exchanges. Japan’s financial regulator, the Financial Services Agency (FSA), has urged banks to enhance monitoring efforts to combat fraudulent crypto transactions. The evolving regulatory landscape reflects Japan’s ongoing efforts to strike a balance between fostering innovation in the crypto space and ensuring robust oversight to protect investors and maintain financial integrity.

As Japan considers opening up new avenues for crypto investment, the potential impact on the Web3 ecosystem and the broader crypto industry is closely monitored, with stakeholders eager to witness how these regulatory changes will shape the future of venture capital in the country.

Digital Assets Desk

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