Crypto-Asset ETFs Do Not Eliminate Friction—They Move It

Why Japan’s emerging crypto-asset ETF framework will depend on connecting technical custody with the institutional responsibilities of investment trust trustees

Japan’s Regulatory Shift Is Not an Endorsement of Crypto-Asset Value

On July 15, 2026, Japan’s Diet passed legislation shifting the core regulation of crypto-asset transactions from the Payment Services Act to the Financial Instruments and Exchange Act, commonly known as the FIEA.

The relevant provisions are expected to take effect within one year of promulgation. However, additional work will still be required before crypto-asset ETFs can be listed in Japan. This includes the development of Cabinet Office ordinances, regulations under Japan’s investment trust legislation, product review standards and exchange-listing frameworks. Market commentary has cited 2027 or 2028 as one possible timeframe for the introduction of crypto-asset ETFs in Japan.

The shift to the FIEA should not, however, be interpreted as an official endorsement of the fundamental value of crypto assets.

I have often been described within JAMP as being enthusiastic about reforming the asset management industry but suddenly cautious whenever crypto assets enter the discussion. Some colleagues jokingly conclude that I simply dislike crypto assets.

That is not quite the case. It would be more accurate to say that I have not been able to fully resolve a sense of discomfort about them.

I understand that there are various theories supporting the value of crypto assets, including scarcity, network effects and demand for their use in payments or as collateral. Nevertheless, unlike equities, whose value may be linked to future earnings and dividends, or bonds, whose value may be linked to contractual principal and interest payments, crypto-asset value is difficult to anchor to future cash flows.

The fact that growth in the number of holders and users can itself have a significant influence on price formation is something I understand intellectually but do not yet find entirely convincing.

The recent legislative change does not resolve this question. It does not mean that society has reached a settled view on the fundamental role or value of crypto assets. It is more accurate to understand the amendment as an effort to align Japan’s regulatory framework with the reality that crypto assets have already become a major investment category.

ETFs Advance Investment Practice Without Settling the Value Debate

Viewed from this perspective, the essential function of a crypto-asset ETF becomes clearer.

The introduction and adoption of crypto-asset ETFs do not settle the debate over the role, function or value of the underlying assets. Instead, an ETF places exposure to crypto-asset price movements within the established securities and asset management infrastructure, without requiring investors to use the underlying crypto assets directly.

An ETF investor does not need to manage private keys, open a separate account with a crypto-asset exchange or use crypto assets for payments and transfers. The investor can hold the price exposure through an existing brokerage account, trading interface, portfolio report and investment management process.

The experience of U.S. spot Bitcoin exchange-traded products illustrates this distinction. When the U.S. Securities and Exchange Commission approved the listing and trading of spot Bitcoin ETP shares in January 2024, it expressly stated that the approval did not constitute an endorsement of Bitcoin or of the products’ custody arrangements. (SEC)

Before the introduction of spot products, a central question for many institutional investors was why crypto assets existed and what ultimately supported their value. Since they became available within conventional investment infrastructure, the practical discussion has increasingly focused on questions such as portfolio allocation and risk management.

In other words, the major change was not that an ETF resolved the crypto-asset value debate. It was that the ETF translated crypto-asset exposure into an investment product that could be handled through existing brokerage accounts and portfolio management frameworks without waiting for that debate to be resolved.

In this sense, the success of crypto-asset ETFs may be better understood not as a victory for the crypto-asset economy itself, but as a victory for the conventional securities and asset management infrastructure that absorbed crypto-asset exposure into its own operating model.

Friction Moves to the Connection Between Two Forms of Custody

Has this process connected crypto assets to conventional securities infrastructure without friction?

From the investor’s perspective, investing in crypto assets becomes substantially easier. That does not mean, however, that the friction has disappeared.

The complexities that investors no longer handle directly—including private-key management, asset safeguarding, trade execution and incident response—are transferred to the infrastructure providers. These may include asset managers, trustee banks, crypto-asset custodians and exchanges.

The difficulty is that the word “custody” is used for two different systems of responsibility.

One is the custody model developed within the crypto-asset industry, centered on the control and protection of private keys. The other is the institutional responsibility of a trustee bank within a Japanese investment trust, centered on the administration of trust assets and the protection of beneficiaries.

Crypto-Asset Custody: Protecting Private Keys

The central function of crypto-asset custody is the secure management of private keys and signing authority.

A crypto-asset custodian must prevent unauthorized transfers while ensuring that legitimate transfers are executed correctly. If a private key is stolen or lost, or assets are sent to the wrong address, the transaction ordinarily cannot be reversed.

Because of this irreversibility, the technical and operational responsibilities assumed by a crypto-asset custodian are extremely significant.

The custodian requires systems, controls and operational procedures for managing keys, authorizing transfers, responding to incidents and safeguarding assets against theft or loss. These are not simply administrative functions. They are central to whether the underlying assets can be protected at all.

Investment Trust Trusteeship: Protecting Beneficiaries

A trustee bank serving a Japanese investment trust has a different and broader institutional role.

It is not merely a provider of asset storage. As the trustee of the investment trust, it assumes responsibilities toward beneficiaries through functions including the segregation and administration of trust assets, asset settlement, trust accounting and oversight of sub-custodians or other delegates.

A 2022 regulatory change opened a pathway for trust banks, subject to approval of amendments to their business-method statements, to accept crypto assets under certain administration-type trust arrangements.

This represented an important entry point for holding crypto assets as trust property. It did not, however, automatically establish the full operational and responsibility framework required for a crypto-asset ETF.

If a trust bank were to act as trustee for a crypto-asset ETF, it would need to do more than arrange for the storage of the underlying crypto assets.

Within the investment trust structure, the trustee would need to administer the delivery and receipt of assets based on instructions from the asset manager, manage the trust property and establish an appropriate responsibility framework for selecting and supervising any external crypto-asset custodian.

Outsourcing private-key management to an external custodian would not necessarily allow the trustee bank to outsource the institutional responsibilities it owes to investment trust beneficiaries.

Connecting the Two Responsibility Systems

This is not a simple question of the crypto-asset custodian having limited responsibility while the trustee bank carries the heavier burden.

The technical responsibility of the crypto-asset custodian is exceptionally significant because it arises from the irreversible nature of private-key loss, theft and unauthorized transfer.

The trustee bank’s responsibility is broader in a different sense. Even where technical custody is delegated to an external provider, the trustee remains institutionally responsible for the administration of the trust property and for the protection of beneficiaries within the investment trust framework.

A crypto-asset ETF therefore cannot be established simply by selecting one of these two forms of custody.

The technical responsibility for safeguarding private keys must be incorporated into the institutional responsibility system under which an investment trust trustee administers assets for beneficiaries.

Connecting these two systems is where the real difficulty lies.

The Design Challenge Extends Beyond Custody

Crypto assets trade 24 hours a day, 365 days a year. A Japan-domiciled crypto-asset ETF would therefore need to address several issues that do not arise in exactly the same way for conventional assets.

These include price formation when the Japanese securities market is closed, the design of in-kind creation and redemption processes, responses to hard forks and network outages, and the allocation of responsibility when an operational incident or asset loss occurs.

Using futures rather than physical crypto assets may reduce the need for direct custody of the underlying assets. It does not eliminate friction. It replaces custody-related issues with other challenges, including roll costs and potential divergence between futures prices and spot prices.

ETF conversion therefore does not make friction disappear.

It removes certain forms of friction from the investor’s trading interface and transforms them into infrastructure-design questions involving several institutions and two different systems of responsibility.

The Real Competition Is in the Responsibility Infrastructure

The real competition surrounding crypto-asset ETFs may not be determined by which provider lists the first product or develops the most compelling distribution story.

The more important questions are structural.

Who controls the private keys? Who assumes trustee responsibility for the trust property? Who supports price formation and market liquidity? If a network outage, unauthorized transfer or loss of assets occurs, which party bears which portion of the loss and responsibility?

The competitive question is whether these responsibilities can be allocated in a way that is safe for investors and sustainable for service providers.

This allocation is not limited to drafting legal agreements. It also requires an economic design.

The parties must determine who will bear the cost of the capital, insurance, systems investment and service fees required to manage the risks. Unless the legal allocation of responsibility is supported by a sustainable economic structure, the product itself will not be sustainable.

The invisible infrastructure beneath the ETF might be described as its “responsibility plumbing.”

The long-term competitive advantage will belong not merely to the provider with the most visible product or the most convenient brokerage interface, but to the institutions capable of connecting the technical responsibilities of crypto-asset custody and the institutional responsibilities of an investment trust trustee into one secure and workable operating framework.

What This Means for JAMP

Within the JAMP Corporation Group, JAMP Fund Management provides ETF White-Label Services and ManCo-style platform functions for Japan-domiciled ETFs. Its role is to support the fund structuring, listing preparation and operating foundation that allows an asset manager’s investment strategy to be implemented as a Japanese product.

From this position, crypto-asset ETFs should not be viewed simply as the next potentially popular product category, or as a market development that a platform provider should enter merely because it is attracting attention.

The more important role is to consider how the functions and responsibilities of asset managers, trustee banks, crypto-asset custodians, exchanges and market makers should be connected, and how that connection can be implemented in practice.

A crypto-asset ETF does not eliminate the friction associated with investing in crypto assets. It transfers the friction experienced by investors into complexity and responsibility within the financial infrastructure.

For that reason, the institutions with the strongest competitive position in the crypto-asset ETF era may not be those with the most prominent products. They may be those capable of redesigning the technical responsibility of crypto-asset custody and the institutional responsibility of investment trust trustees as one secure and sustainable infrastructure.

FAQ

Does regulation under the FIEA mean that Japan endorses the value of crypto assets?

No. Moving the core regulatory framework for crypto-asset investment transactions to the FIEA does not resolve the debate over the fundamental value or economic role of crypto assets. It reflects an effort to apply an investment-oriented regulatory framework to an asset category that has already become significant in practice.

Do crypto-asset ETFs eliminate investment friction?

No. They can make access considerably easier for investors by allowing them to obtain price exposure through conventional securities accounts and portfolio systems. However, the operational complexity is transferred to asset managers, trustee banks, crypto-asset custodians, exchanges and other infrastructure providers.

Why are trustee banks important for Japan-domiciled crypto-asset ETFs?

A trustee bank in a Japanese investment trust is responsible not only for asset safekeeping but also for administering segregated trust property and fulfilling institutional responsibilities toward beneficiaries. Where an external crypto-asset custodian is used, the responsibility framework would also need to address its selection and oversight.

What is the central infrastructure challenge for crypto-asset ETFs?

The central challenge is connecting two different responsibility systems: the technical responsibility for safeguarding private keys and the institutional responsibility of the investment trust trustee. A sustainable ETF framework must also allocate the related legal, operational and economic risks among the participating institutions.

Author: Keiichi Ohara, President & CEO, JAMP Corporation
About This Article
This article is an adapted English edition of JAMP Perspective No. 341, originally written in Japanese by Keiichi Ohara and distributed on July 12, 2026. It has been edited and supplemented where necessary to make the discussion and its Japan-specific context clearer to readers outside Japan. It is therefore not a direct translation of the original Japanese newsletter.
This article is provided for informational purposes only and does not constitute investment advice or a recommendation regarding any financial product.