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he Japanese government appears to be taking another step towards embracing cryptocurrency as an investable sector. In February 2022, the country's cabinet approved a proposal to revise current laws restricting what assets local investment partnerships can purchase. If enacted, the amendments would add cryptocurrencies to the list and enable venture capital firms to put money directly into projects developing digital assets and Web3 technologies.

This proposed legal adjustment could have major implications for crypto and web3 companies operating in Japan. Traditionally, domestic ventures in this space have faced difficulties acquiring capital from within the country due to regulations prohibiting certain types of crypto investment. As a result, many sought funding from foreign sources instead. By opening the doors for local venture firms, the regulatory change aims to foster the growth of the nation's digital asset industry and help more startups secure early support. 

Japan Flag with Cryptocurrencies like Bitcoin, Ethereum and Doge in the back
Japan Opens Doors for Web3 Investment

Challenges of the Status Quo

Under the existing legal framework, Japanese venture capital companies could not invest client money into actual cryptocurrencies, only companies working in adjacent areas like blockchain. This created barriers that hampered the development of local crypto and web3 enterprises.  

As Hiro Kunimitsu, founder and CEO of Japanese game studio Gumi Inc., noted, the restriction meant domestic projects had little choice but to look overseas for investment. This in turn posed challenges like loss of control, additional compliance complexities, and cultural barriers that come with foreign partnerships. 

Kunimitsu expressed optimism that the proposed regulatory change would "be a big opportunity for many Web3 startups from Japan" by allowing them to tap into domestic venture capital sources. His own firm launched a blockchain investment fund last year which, due to the status quo, could only target portfolio companies rather than allocating funds directly into digital assets.

Supporting "New Capitalism" 

The proposed revision aligns with Japan's broader goal of cultivating its digital economy. Prime Minister Fumio Kishida has pushed policies promoting what he dubs "new capitalism," with an emphasis on emerging technologies like blockchain. 

Other recent moves in this direction include approving amended tax rules this past December. The adjusted framework excludes some profits derived from crypto holdings, providing companies with incentives to operate in this arena. 

If adopted, enabling local venture capital investment directly into cryptocurrencies would complete another step along Japan's path toward embracing digital assets. It aims to streamline funding for domestic web3 entrepreneurs while stimulating broader growth of the country's cryptoverse. industry. The proposed changes may arrive at an opportune time as Japan solidifies its position as a leader in blockchain innovation across Asia.

Moving Closer to Reality

Japan's consideration of expanding what assets investment partnerships can acquire represents an encouraging step for the local crypto sector. The cabinet's approval sends this proposed revision to lawmakers, who will now deliberate over incorporating cryptocurrencies into the existing regulations. 

Passing the adjustments would remove a substantial barrier preventing Japan-based crypto and web3 companies from accessing domestic funding sources. As the country welcomes new legislation supporting digital assets, this regulatory change stands to boost its burgeoning blockchain industry. By empowering venture capital investment directly into cryptocurrency projects, authorities aim to foster homegrown innovation and help more startups secure vital early funding to prosper.

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