Japan Considers Caps Between 2 and 4 Times on Crypto Margin Trading
Japan’s Financial Services Agency (FSA) is considering to put a cap on the leverage for cryptocurrency margin trading, according to local news source Nikkei. The move is designed to temper rampant speculation and volatility risks.
Nikkei indicates that the country’s financial watchdog plans to limit crypto margin traders’ borrowing power to two to four times their deposits.This would be a major regulatory change in the industry, considering that there are no rules yet in place to govern crypto margin trading right now. In many cases, crypto exchanges have offered up to 25 times leverage, which means a 4% drop in the target crypto’s value could completely wipe out the trader’s original deposit.
Margin trading has seen a sharp increase in Japan. According to the FSA’s statistics , 7 out of the 16 licensed crypto exchanges have now offer margin trading.Last year, over 80 percent of the total cryptocurrency trading volume in the country came from derivatives trading,which recorded $543 billion. More than 90 percent of that figure was from margin traders.
The Japanese Virtual Currency Exchange Association (JVCEA), the country’s newly-approved crypto self-regulatory organization, pushed for setting the margin trading cap to as low as four times the amount of the original deposit. Taizen Okuyama, JVCEA chairman and Money Partners Group president, was quoted as saying “This is just a provisional measure— I don’t think a ratio of 4 is adequate.”
But some cryptocurrency enthusiasts in the country believed the move may force many margin traders to turn to overseas exchanges which offer higher leverage.
Just on October 25, the JVCEA was approved by the FSC as the cryptocurrency-self regulatory body which has been given the mandate to police 16 licensed exchanges for any violations. “It’s a very fast moving industry. It’s better for experts to make rules in a timely manner than bureaucrats do,” a senior FSA official said.
In general, Japan, one of the most cryptocurrency-friendly countries, aims to regain public trust in the cryptocurrency space with stricter and more reasonable rules and regulations, setting a good example for other jurisdictions.