The Japanese government will set rules for trading bitcoin, including imposing taxes on transactions with the virtual currency, that will become the basis for guidelines applicable to similar currencies in future, the Nikkei reported.
Japan's government is still trying to explain the collapse of Mt.Gox - once the world's once largest bitcoin exchange - and figure out how the Tokyo-based company could lose nearly half a billion dollars in bitcoins, Finance Minister Taro Aso said on Tuesday.
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Mt.Gox filed for bankruptcy protection in Japan on Friday, saying it may have lost some 850,000 bitcoins due to hacking into its faulty computer system.
The guidelines proposed by the Japanese cabinet will call for taxing bitcoin transactions, defining the virtual currency as a commodity rather than a currency, the Nikkei said.
Gains from trading bitcoins on online exchanges, purchases made with bitcoins, and companies earning revenue from bitcoin transactions will be subject to Japanese tax, the financial newspaper said.
(Read more: Another bitcoin site bites the dust)
Banks will be also be prohibited from handling bitcoins while securities firms will be barred from brokering bitcoin trades, the Nikkei reported.
Bitcoin is a digital currency that, unlike conventional money, is bought and sold on a peer-to-peer network independent of central control. Its value has soared in the last year, and the total worth of bitcoins minted is now about $7 billion.
The virtual currency has engendered a new wave of creative criminality from hacking online platforms to steal bitcoins to their potential for use in money laundering, bribery and purchases of illicit products.
Last week, U.S. Federal Reserve Chair Janet Yellen said the U.S. Congress should look into legal options for regulating virtual currencies such as bitcoin.
Shanghai-based BTC China, the world's largest bitcoin exchange by volume, has imposed new regulations to curb bitcoin trade weeks after Beijing banned financial institutions from trading in bitcoin due to the risks involved.
(Read more: Why Mt.Gox collapse could ultimately help bitcoin)
Russian authorities have issued warnings against using bitcoin, saying treating it as a parallel currency is illegal.
Britain, however, has supported bitcoin and is preparing to abort its plans to tax bitcoin trading, according to a Financial Times report.