Implementation of the Financial Instruments and Exchange Act Marks a Big Bang for the Industry

At the Web3 conference "WebX2026" held in Tokyo, the title sponsor was bitFlyer, a cryptocurrency exchange founded in 2014.

On the first day of the event, July 13, the group's holding company, bitFlyer Holdings, announced its prime brokerage service "bitFlyer Prime" aimed at institutional investors and corporate clients. This service is designed to handle everything from OTC trading (over-the-counter transactions not conducted through an exchange) to custody, with a planned launch in 2027.

The day after the conference concluded, on July 15, the revised Financial Instruments and Exchange Act, which positions cryptocurrencies as financial products, was enacted. This transition could serve as a turning point that fundamentally alters the business environment for domestic exchange operators.

How do industry stakeholders perceive this change? We spoke with Hiroshi Kanou, CEO of bitFlyer Holdings, who has been involved in tax reform proposals and the establishment of self-regulatory rules for a long time, about the next challenges to address in terms of regulation, infrastructure development for institutional investor participation, and the significance of their achievement of "zero hacking."

Two Target Audiences: Beginners and Financial Institutions

What was the reason for choosing to be the title sponsor of WebX2026 at this timing?
bitFlyer has set the mission of "Making the world easy with blockchain" and has been working towards the spread of cryptocurrencies and the healthy development of the market since its establishment in 2014. We feel that there is a strong tailwind blowing across the entire industry. With the enactment of the revised Financial Instruments and Exchange Act on July 15, we are about to enter a new stage where cryptocurrencies are recognized as financial products. Participating as the title sponsor of WebX, a representative platform for the industry in such a milestone year, was a natural decision for us.

Considering the customers gathering at WebX, the first group we want to reach out to is the younger generation who will be exposed to cryptocurrencies for the first time, those who have never used them before, and beginners. We want to directly communicate what bitFlyer is newly working on and our vision to these customers.

Next, we want to reach out to traditional financial institutions that are considering entering this space. Through bitFlyer Prime, which we announced at WebX, we hope traditional financial institutions can engage in the cryptocurrency business safely and securely.

Additionally, many visitors and businesses from overseas will gather at WebX. We are expanding our business as a group in the U.S. and Europe, and we also see this as an opportunity to showcase initiatives originating from Japan to the world. This WebX2026 is precisely that opportunity.

Separate Taxation and On-Chain Finance

The long-advocated separate taxation is expected to be applied from 2028. Having overcome one hurdle, what do you see as the next most important issue to address in terms of systems and regulations?
Regarding separate taxation, what has been decided this time is "declaration" separate taxation. This means that customers themselves will have to file tax returns, which will create a corresponding burden. Ideally, source withholding tax, where the operator withholds and pays on behalf of the customer, would be more convenient for customers and would increase tax revenue. We position the realization of source withholding tax as our next goal in terms of tax policy.

On the regulatory side, the revised Financial Instruments and Exchange Act was enacted on July 15. However, this is not the end. There are still lower laws such as government ordinances and cabinet orders to be established, and issues such as the design of reserve funds remain piled up.

Additionally, there are further points to address. On-chain finance, which involves the design of new financial systems using blockchain, is one such area. Recently, there have been discussions surrounding DEX (decentralized exchanges). There are emerging cases overseas where unregistered operators handle tokens linked to shares of publicly listed companies representing Japan, creating new challenges. Transactions outside the regulatory framework raise concerns about customers being placed outside the protective framework they should receive. What to put on-chain, what licenses are required, and how to design the system are all issues that need to be seriously discussed.

Moreover, stablecoins are also a topic of discussion. In terms of legal classification, there are stablecoins as electronic payment methods, deposit tokens, and algorithmic stablecoins among cryptocurrencies. How stablecoins will be integrated into actual payments, especially how they will be used in payment processing, is the next point of discussion. The handling of stablecoins if a new registration category is established is also something that needs to be designed in practice moving forward.

Industry Restructuring and Compliance Burden

How do you see the industry landscape changing with the implementation of the revised Financial Instruments and Exchange Act? How does bitFlyer perceive and prepare for this change?
The implementation of the Financial Instruments and Exchange Act will bring about a transformation of a scale that can truly be called a big bang for the cryptocurrency industry. The overall reliability of the industry will significantly improve, and the investor base, including institutional investors and financial institutions, will expand. This is a long-awaited change.

However, restructuring in the industry has already begun without waiting for the implementation. Currently, many cryptocurrency exchange operators are in business, but many are facing a harsh environment in terms of both revenue conditions and compliance burdens. We feel this acutely in our daily operations, where the standards for governance, compliance, and anti-money laundering have been raised significantly. Even for a single code release, rigorous audits, reviews, and checks are required, and the audit burden reaches levels comparable to or even exceeding those of publicly listed companies. It is becoming increasingly difficult for small operators without the capacity to bear this burden to survive independently, and mid-sized operators are similarly facing challenges.

In fact, the movement towards restructuring is becoming apparent. In June 2026, SBI Holdings announced its complete acquisition of Bitbank. Once this transaction is completed, bitFlyer will be the only independent operator among the major domestic cryptocurrency exchanges that does not belong to a specific corporate group. We believe the industry will ultimately consolidate into a few companies.

For bitFlyer, this is an opportunity to leverage the internal management systems and security we have invested in so far. We will continue to prepare ourselves to compete on a global scale.

Custody and Liquidity in the Spot Market

As the reality of the lifting of the ban on cryptocurrency spot ETFs becomes more tangible, what infrastructure do you think needs to be established for the full-scale entry of institutional investors? Please also share the role distribution between the bitFlyer group and Custodiem.
Looking ahead to the full-scale entry of institutional investors, there are two infrastructures that need to be established. One is custody, where institutional investors can safely deposit their assets. We will leverage the security technology we have cultivated as a group under Japanese law. We aim to build a company that can hold assets from institutional investors, asset management firms, trusts, as well as banks, securities companies, and even competing firms. This is the vision we have entrusted to Custodiem.

The other is liquidity in the domestic spot market. ETFs can only be established if there is price formation in the spot market. If sufficient liquidity is not secured in the domestic spot market, the ETF itself will not function. Additionally, the development of the derivatives market is also essential. Derivatives are used as hedging tools in the composition and operation of ETFs, so as the lifting of the ETF ban becomes more tangible, discussions about the nature of leverage ratios are likely to arise. The increase in leverage ratios has been a point of request from industry associations for some time.

The design of the bitFlyer group is a clear division of labor, where trading and liquidity are handled by bitFlyer, and custody for institutional investors is handled by Custodiem. Custodiem will operate as an independent entity within the group, expanding its customer base not only among bitFlyer group customers but across the industry. Considering the responsibilities that come with the custody function, we aim to gain trust as a public utility while contributing to the development of the industry. We also strive to maintain a high level of security. This is the vision we are pursuing.

Self-Help as the True Competitive Domain

If the security standards are raised across the industry with the implementation of the Financial Instruments and Exchange Act, the significance of the advantage of "zero hacking" may also change. How do you plan to convert this achievement into value in the future?
Since our founding, "zero hacking" has remained our strength. Moving forward, we want to advance to the stage of promoting our operational know-how backed by this achievement as "enterprise wallets." This dual approach of leveraging our achievements and the operational substance that supports them is the direction we aim to expand our value.

Security can be organized into three layers: public assistance, mutual assistance, and self-help. Public assistance refers to the public framework that supports the safety of the industry, such as the establishment of systems through the Financial Instruments and Exchange Act and ongoing dialogue and collaboration with authorities. Mutual assistance refers to the sharing and collaboration of security information across the industry through JPCrypto-ISAC (Crypto Information Sharing and Analysis Center). Self-help refers to the initiatives that each operator builds on their own. In a world where the overall level of the industry has been raised, we believe that self-help will become the true competitive domain for operators.

This self-help can be further divided into two categories. One is "commoditized security." This refers to areas where mature products, external services, and established best practices can be utilized, such as monitoring devices through EDR (a system that detects and responds to suspicious behavior), WAF (defensive functions that protect web applications), DDoS countermeasures, vulnerability management, authentication and access management, hardening of cloud environments, and security monitoring by SOC (Security Operations Center). Of course, simply introducing products or services does not guarantee safety; proper design and ongoing operation tailored to one's environment are essential, but this area can be seen as one where necessary functions and specialized knowledge can be more easily procured from the market.

The other is security unique to blockchain. This is not something that is sold in the market. If wallets are built without understanding the essence of blockchain and cryptography, the risk of accidents becomes extremely high. Wallets do not always operate as expected, and attackers employ various means to launch attacks. The ability to protect against this comes from the accumulation of operational experience and know-how. Specifically, this includes the accumulation of audits, ensuring the integrity of source code, establishing operational systems, training personnel, collaborating with law enforcement agencies, and accumulating knowledge of research levels regarding cryptographic technology itself. The management of private keys and the design of wallets can only be safely established through a deep understanding of cryptographic theory and the mechanisms of blockchain.

bitFlyer has a significant advantage in this area. The achievement of "zero hacking" is supported by the substance of self-help behind it. We plan to clearly promote this substance under the keyword "enterprise wallets."

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