Exploring the Real Japanese Cryptocurrency Market: A Coexistence of Secrecy and Contradictions, Where Are the Opportunities?

*Authors: 0xmin & James, * Deep Tide TechFlow

What do you first think of when you think of Japan?

Cherry blossoms, anime, Mount Fuji, Nintendo…?

When Japan is associated with Crypto, most crypto practitioners have little awareness. Although crypto trading and exchanges have had legal status in Japan since 2017, the Japanese market has always felt weak, with many people holding a perception of it being closed and independent.

What is the true state of the Japanese crypto market? Who are the core participants currently? How can one participate in the Japanese crypto market?

With curiosity, Deep Tide TechFlow reporters visited Tokyo in April to communicate with local crypto practitioners, gaining a wealth of information to share with everyone. There are no lengthy discussions, only the essentials. This article is co-authored by Emoote Venture Partner James, to whom we pay our respects.

This article is excerpted from the "Web3 Truth in the Asia-Pacific Market" report produced by TechFlow Deep Tide, focusing on the Japanese market.

Overview of the Japanese Crypto Market

Based on discussions with friends and data from third-party organizations, Japanese individuals participating in virtual currency investments can be divided into three tiers, with the lower tiers being complete subsets of the upper tiers. Overall, there are over 5 million local crypto users in Japan.

The Japanese crypto market is filled with uniqueness and contradictions, mainly in the following three aspects:

(1) Compliant but Lacking Vitality

In Japan, both trading crypto assets and operating exchanges can be conducted within a legal and compliant framework, primarily regulated by the Financial Services Agency (FSA) and the Japan Virtual Currency Exchange Association (JVCEA, a self-regulatory organization). The overall principle is: prioritize anti-money laundering/anti-terrorist financing regulations, then regulate trading platforms to protect user interests. For example, exchanges are required to separate customer assets from their operating funds, and at least 95% of the assets must be stored in cold wallets, fully ensuring the safety of individual investors.

However, heavy regulation also brings many restrictions, causing the Japanese crypto market to lack vitality. All tokens listed on compliant exchanges in Japan must be approved by the JVCEA, with a review period of at least 6 months to a year.

Additionally, Japan has a high tax burden. According to current rules, the tax rate on crypto-related income depends on an individual's total income, with the tax rate for high earners potentially rising to around 50%. This has led to a phenomenon where, despite the legality of converting crypto assets into Japanese yen, there remains a significant demand for OTC transactions, with many OTC practitioners present.

(2) Mismatched Trends, Strong Purchasing Power

The Japanese market is relatively independent and closed, which means its market trends may not completely align with global mainstream markets, leading to some degree of delayed mismatches. For example, previously, when the NFT craze in China and the U.S. subsided, various NFTs in Japan instead experienced a surge.
Moreover, the Japanese market still possesses strong retail purchasing power. Two direct examples:

1. Cardano conducted its initial coin offering (ICO) from 2015 to 2017, primarily focusing on the Asian market, with over 90% of early fundraising coming from Japan, earning it the nickname "Japan's Ethereum," although it is essentially a Western project.

2. The well-known trading platform Bybit relied heavily on the Japanese market for its rise, and in Japan, it benefited from the promotion of a super KOL, Yuta Misaki, along with other notable KOLs like Tsubasa Yozawa and Hikaru.

Later, another futures trading platform, Bitget, entered the Japanese market, offering higher commission conditions.

Compared to local compliant exchanges, which have fewer coins and high taxes with no leverage, offshore exchanges offer many coins with no taxes and 100x contracts, making them very tempting for retail investors. Despite the FSA continuously warning Bybit, MEXC, Bitget, and Bitforex, the effects have been minimal, or rather, ineffective; completely abandoning the Japanese market or full compliance is not feasible. For instance, compliant exchanges Coinbase and Kraken both withdrew from the Japanese market in early 2023, serving as cautionary tales.

As a result, in the Japanese market, many practitioners have privately reached a politically incorrect consensus: to make money, one cannot be too compliant.

(3) Turning Point: The FSA May Relax Some Regulations

After discussions with personnel from the FSA, it was found that they have mixed feelings.

On the positive side, despite FTX's bankruptcy severely impacting the entire cryptocurrency industry and the billions of dollars misappropriated by founder SBF evaporating, Japan's strict regulation of cryptocurrencies has protected individual investors in the country, which they take great pride in.

Thus, Mamoru Yanase, Deputy Director of the Strategic Development and Management Bureau (SDMB) under the FSA, stated that Japanese regulators have begun urging regulators in the U.S., Europe, and other regions to implement similar levels of regulation on cryptocurrency exchanges as those applied to banks and brokerages.

On the downside, the lack of vitality in the Japanese crypto market is concerning, especially with Coinbase and Kraken's recent exits. Offshore exchanges are thriving in Japan, prompting attempts at some adjustments.

In April 2023, Japan's largest political party, the Liberal Democratic Party, released the "Japan 2023 Web3 White Paper" under the slogan "JAPAN IS BACK, AGAIN," attempting to relax regulations in various aspects, including:

• Tax Reform: Previously, investors had to pay a high income tax of up to 55% due to token appreciation. After tax reform, holding tokens issued by one's own company will be exempt, and holding tokens issued by other companies will also be exempt from taxation if there is no "short-term trading purpose."
• Token Review/Issuance/Circulation: The FSA will assist in reviewing overseas token listings to increase listing efficiency and regulate the issuance and circulation of stablecoins.
• NFTs: Restrictions will be placed on the use of NFTs for gambling, money laundering, etc., and clear regulations on NFT rights and profit-sharing will be established.

Japan 2023 Web3 White Paper

Local Trading Habits

Based on a survey of 300 Japanese exchange users, we found that the most popular exchanges in Japan include Coincheck, bitFlyer, GMO Coin, Rakuten Wallet, DMM Bitcoin, and bitbank.

Among exchanges not licensed by the FSA, the most commonly used by Japanese people are Binance and Bybit, both of which have received warnings from the FSA.

There are not many well-known crypto projects in Japan, especially lacking grassroots heroes who started from scratch; most projects have deep traditional resource backgrounds. Currently, the more core projects include Astar Network, Oasys, HashPort, and Jasmy.

In terms of social media, the primary channels for information and communication in Japan remain Twitter, followed by Instagram and Facebook. Some users collect and exchange cryptocurrency-related information through LINE Open Chat (similar to QQ chat rooms, where anyone can freely enter and exit), but this channel is not mainstream, with the largest chat room having only about 5,000 participants.

For the general public, vertical media in Japan include CoinPost, CoinTelegraph JP, CoinDesk JP, 仮想通貨 Watch, あたらしい経済, and bitpress.

From the perspective of influence and traffic, the largest crypto media outlet in Japan is Coinpost. Local crypto practitioners in Tokyo have informed us that Coinpost previously received investment from Chinese crypto capital.

Although the above media outlets all provide news services, the only service that deeply focuses on news and is used by all Japanese companies (including non-blockchain-related companies) is PRTimes, which is well-known among Japanese office workers.

At the same time, there are some self-media accounts on Twitter that collect blockchain-related information from both domestic and overseas sources and translate it into Japanese. Many vertical media outlets also create accounts on Twitter to enhance their presence. Notable examples include dAppsMarket, CRYPTO TIMES, BlockchainGame Info, and NFT JPN. Additionally, CoinGecko Japan should not be underestimated.

In terms of in-depth research (similar to services like Messari), the leading platform is HashHub Research, which has an interface and layout very similar to Messari.

In addition to the aforementioned types of media, there are many Affiliate Media (such as Kasobu) that operate based on SEO, newsletters, and personal blogs. The most famous newsletters include CoffeeTimes, のぶめい, マナブ, and ikehaya.

In terms of KOLs, we attempted to categorize and list representative accounts from various types (not exhaustive), with the analyzed accounts primarily concentrated on Twitter, and some KOLs appearing across multiple categories.

Researcher/Academic Type KOLs

Japan's orthodox KOL groups conduct due diligence when deciding whether to promote projects, considering their reputation. These KOLs need to maintain objectivity and neutrality, so they rarely write promotional articles.

shingen: Primarily analyzes ETH-related technologies and projects.

arata: Founder of the Japanese blockchain media outlet CryptoTimes.

やす@暗号通貨: A versatile figure whose research covers various aspects of virtual currencies.

GameFi Related KOLs

It is important to note that GameFi is not a widely recognized term in Japan; people prefer to use the term BCG, meaning Blockchain Games, which should be kept in mind when searching.

魔 LUCIAN: Undoubtedly the most influential KOL in the GameFi field in Japan. His influence extends far beyond Japan, and he serves as the regional ambassador for the star GameFi project Defi Kingdom. His call success rate is astonishingly high, capable of having a substantial impact on market trends. Recently, he created his own community, LFG (Lucian Finders Guild).

Makai Witch: An emerging star who frequently translates and shares major chain games (XANA, Sand, Star Atlas, etc.).

onchan: Although not many followers, he serves as a Japanese community manager for numerous well-known projects (LOA, Defina, GameStarter, H&E, Monsta Infinite, Guildfi, RIFI, Demole).

DeFi Related KOLs

shingen: See the introduction above.

lagoon: Primarily analyzes upcoming IDO tokens and projects that may/will airdrop in the near future.

仮想戦士ロイ: An emerging star who often interacts with LUCIAN and hosts Twitter Spaces, primarily focusing on AVAX chain, analyzing DeFi and gamified DeFi projects.

Makai Related KOLs

High-risk, high-reward tokens (similar to the Chinese colloquial term "hundred-fold coins") are humorously referred to as "Makai" by the Japanese due to their "once you enter, it's a deep pit" nature. Makai tokens are mainly categorized into DeFi, GameFi, and CX tokens.

KOLs who pride themselves on delving into the Makai include: 魔 LUCIAN, Makai Witch, 元 GA, and らぐらぐぷりん.

NFT Related KOLs

miin: Dedicated to discovering quality Japanese domestic NFT projects and collecting related information, updating the Japanese domestic NFT rankings weekly.

ikehaya: An early investor in NFTs, holding Crypto Punk and BAYC, with over 340,000 followers.

雨弓: Head of the NFT business department at the well-known Japanese internet company SBI, frequently sharing information related to NFT businesses of large Japanese companies.

KOL Groups

Kudasai: The largest and oldest KOL group in Japan. Its Telegram community has over 18,000 participants, making it the largest virtual currency-related community in Japan. Its core members consist of over 20 KOLs, each with specific roles, including project liaison, research due diligence, project promotion, translation/AMA, etc. The leader is Watacchi.

ソフィクラ (Sophie Kura): The second-largest group, with influence just behind Kudasai. Its Discord community has over 12,000 participants. The leader is Sophie Cherie.

Scam Dunk: Primarily shares information on Makai projects and conducts AMAs (high-risk, high-reward tokens, colloquially known as hundred-fold coins). The leader is仙道.

Otaku Guild: Primarily shares projects related to chain games and the metaverse.

Giveaway / Airdrop Information Collecting KOLs

Giveaway-type KOLs are somewhat unique, as some do not deeply engage in the virtual currency industry and will accept any type of airdrop (tokens, cash, vouchers, etc.), so caution is warranted. The ones mentioned here are all KOLs deeply involved in the crypto field.

Fig: A KOL who gained fame due to a STEPN airdrop, receiving thousands of RTs and likes.

ADMEN: A KOL who frequently conducts airdrops for various star projects, recently establishing his own benefits group, ADMEN DAO, due to rising popularity.

Business Pillars

Yusaku Maezawa: A Japanese billionaire, the first private passenger to orbit the moon with SpaceX, and a close friend of Elon Musk, also known as Japan's Elon Musk. He has a crypto investment fund, MZ Web3 Fund, with 10 billion yen (approximately 70 million USD) and also has MZ DAO.

Hiroshi Kunioka: Founder of Gumi and former chairman. After leaving Gumi, he founded Third Verse and Financie. Although he left Gumi, his influence remains profound, as evidenced by his role as a co-founder of the game chain Harmony, which Gumi recently invested in.

Yūzō Kanō: Co-founder of bitFlyer, one of Japan's largest exchanges, and representative director of the Japan Blockchain Association.

Sōta Watanabe: Founder of the Polkadot parachain Astar Network, carrying the hopes of many Japanese VCs for Japan to have a place in the Web3 industry.

Yoshihiro Yoshida: CEO of HashPort, operating Japan's first IEO token $PLT and Japan's largest NFT marketplace PLTPlace, fluent in Chinese.

Noritaka Okabe: CEO of JPYC, the largest yen stablecoin project, who enjoys engaging in deep conversations in sauna rooms.
Yosui: Founder of the Hokusai project, providing integrated NFT issuance solutions for Japanese companies.

Many influencers operate their own communities, and selecting the right influencers in corresponding niche areas (such as GameFi/DeFi/research/airdrops) will significantly enhance the effectiveness of communication.

Local Crypto VCs in Japan

From our understanding, traditional venture capital in Japan is not very active, and there are very few Japanese VCs truly engaged in Crypto and Web3, most of which can only conduct equity investments.

Skyland Ventures is a relatively active Japanese crypto fund, which has established a seed fund focused on Web3 investments within its fourth fund.
On April 13, Skyland Ventures announced that its Web3 fund, "Skyland Ventures No.4 Fund," completed fundraising of 5 billion yen (approximately 38 million USD) and announced an investment in the Ethereum ZKEVM solution Takio.

Emoote is a Web3 fund established by the Japanese gaming company Akatsuki, with an initial fund size of 20 million USD. Originally Akatsuki Crypto, it has now invested in 24 projects, including STEPN, BreederDAO, ETHSign, Akinetwork, etc. The well-known Japanese KOL Miss Bitcoin serves as an advisor to Emoote.

Z Ventures, a joint venture between SoftBank and Line, is also targeting the Web3 field, making some investments in NFT trading platform X2Y2, blockchain game development platform double jump.tokyo, and crypto live streaming platform Stacked, all of which are equity investments.

The Japanese financial group SBI Group also has a presence in the cryptocurrency field, being a core investor and spokesperson for Ripple in Asia, while investing in numerous local trading platforms.

Among incubators primarily operated by Japanese individuals, the most notable is Fracton Ventures, which does not engage in investment activities but recently raised funds from various Japanese VCs to establish Next Web Capital, participating in investments in projects like EthSign.

Among other notable VCs operated by Japanese individuals or centered in Japan, Gumi Cryptos is prominent. Hiroshi Kunioka founded Gumi in 2007 and successfully took the company public in 2014. Notably, Kunioka studied at Fudan University in Shanghai for four years from 1996, although his Chinese proficiency has significantly declined. In 2021, Kunioka retired from Gumi to go all-in on blockchain and VR, but he still holds considerable influence over Gumi.

Currently, Gumi Cryptos has invested in dozens of crypto projects, including Opensea and YGG, but Kunioka is also concerned about having invested in many overseas projects that cannot be launched in the Japanese market or promote the development of the Japanese market.

Another prominent figure in the Japanese market is billionaire Yusaku Maezawa, known as Japan's Elon Musk, who has over ten million followers on Twitter, making him Japan's top KOL. He founded the Web3 fund MZ Fund, with investment amounts ranging from 100,000 to 5 million USD, and owns Japan's largest Web3 guild, Web3 Club, with 30,000 crypto-native members, as well as Japan's largest "crypto education platform," MZ DAO, claiming to have 300,000 non-crypto-native users.

Currently, MZ Fund has invested in several projects, including some with Chinese backgrounds, such as MetaOasis, Akiprotocol, and SINSO.

Additionally, there are local VCs such as Headline Asia (and its affiliated cryptocurrency fund Infinity Ventures Crypto), i-nest Capital, and THE SEED.

Strategies for the Japanese Market

The previous success of STEPN in Japan highlights the potential of the Japanese market. As of February 25 last year, 35% of its 21,000 active users were from Japan. Analyzing its promotional path reveals that many top KOLs participated in giveaway activities, with some even personally purchasing shoes for giveaways. This indicates that as long as multiple top KOLs are involved and their token model has good sustainability, Japan remains a market with considerable purchasing power.

However, considering the user base and the cautious tendencies of Japanese KOLs, it is advisable not to focus too much on Japan initially. However, if a project can gather a certain level of popularity in Japan, it will make it easier to radiate to surrounding markets, especially Southeast Asia.

Moreover, Japan is generally a market that is easy to defend but hard to attack. Although language barriers (the psychological barrier of Japanese people towards English is a well-known fact) and the cautious tendencies of Japanese KOLs make market promotion challenging, conversely, as long as project teams do not abandon their efforts and actively engage, Japanese users tend to exhibit a more tolerant and understanding attitude compared to users in some other markets, which helps foster a positive community atmosphere.

An interesting issue is that we initially thought Japanese people would take pride in domestic projects and hold a high level of vigilance towards Chinese projects. However, based on my research on Japanese users, Japanese people have a complex sentiment towards domestic projects, and some actually view the Chinese attribute as a positive factor, as many excellent projects originate from Chinese hands (of course, the positive attributes of Western projects go without saying).

In contrast, due to the numerous successful cases of Chinese and Western projects, those who have been paying attention to this field for a long time and are more rational tend to view this attribute as a positive factor. However, it is important to note that the number of users fitting this profile is limited.

Overall, in terms of localization, I still believe it is necessary to have community managers who are native Japanese speakers and understand Japanese culture (knowing how Japanese comedy works, being aware of sports references, political references, and popular slang, and being able to skillfully use popular phrases (e.g., 全米が泣いた), etc.) to bridge the gap with users based on cultural understanding.

Of course, if the collaboration with the manager goes well, it may also be worth considering bringing them into the team, as from the perspective of user psychology, there is a significant difference between core members and externally cooperative members. This way, having Japanese members in the team can make Japanese users feel more at ease and closer, while the team remains sufficiently global, making Japanese users feel that the project has "potential."