Japan Contemplates Significant Caps On Cryptocurrency Margin Trading

Japan’s dominant financial regulator is considering a leverage cap on the number of funds investors can borrow for margin trading with cryptocurrencies.

In a move to control speculative trading to reduce instability risks for investors, the Financial Services Agency (FSA) is contemplating leverage caps on margin trading.

For the time being, there is no limitation on margin trading borrowing in domestic Japanese markets, allowing some exchanges to offer traders up to 25 times the deposit as leverage, the default upper limit margin for foreign exchange trading. On the other hand, the financial regulator is allegedly contemplating caps between two to four times the deposits, with limits as low as 2:1 also suggested.

Data from the FSA from this April shows that Japan is a haven to over 3.5 million active cryptocurrency traders, with most aged from 20 to 40 years.

While yearly domestic trading in bitcoin increased from $22 million in 2014 to $97 billion last year, a majority of the overall domestic trading volume in 2017 happed in derivatives trading. Margin traders represented a substantial majority behind the $543 billion traded in 2017.

The Nikkei goes on to state that seven of the sixteen licensed cryptocurrency exchanges offer margin trading platforms. By the way, the self-regulatory body representing those licensed exchanges operators has already implemented a 4-to-1 limit on margin trading in July.

“This is just a provisional measure — I don’t think a ratio of 4 is adequate,” Japan Virtual Currency Exchange Association (JVCEA) chair Taizen Okuyama said.

The JVCEA presently has the potential to monitor and self-regulate the sixteen licensed exchanges after being accepted as a “certified fund settlement business association” after scrutiny over a two-month review by the FSA yesterday.