In a bold move, Japanese cryptocurrency exchanges are striving to loosen the reins on margin trading, with plans to submit a proposal to the Japan Financial Services Agency (FSA) in the coming month.
This endeavor seeks to enable retail investors to leverage their trades by four to ten times, a significant increase from the current maximum borrowing exposure.
According to the Japan Virtual & Crypto Assets Exchange Association, many industry insiders advocate for permitting retail investors to leverage their trades at higher ratios.
Genki Oda, the association’s Vice Chairman, emphasized the potential benefits, stating that such reform could make Japan more appealing to crypto and blockchain companies, thereby encouraging more trading activities.
Oda revealed that the nation’s digital-asset exchanges are actively discussing a recommended leverage limit and are poised to present their proposal to the FSA in the near future. While Japan has made strides in easing certain crypto regulations related to token listing and taxation, it is generally known for its stringent regulatory environment.
Notably, the Japanese branch of the failed exchange FTX managed to return funds to its clients earlier this year, a testament to Japan’s focus on investor protection.
Crypto Firms Must Present Convincing Reasons for Loosening Caps
The FSA remains cautious and insists that crypto firms must present compelling reasons as to how relaxing margin trading restrictions would align with the government’s objective of expanding blockchain-based industries. The agency, however, expressed its willingness to engage in discussions with digital-asset businesses on this matter.
Once boasting leverage ratios as high as 25 times, Japanese crypto platforms witnessed a significant decline in margin trading volumes, plummeting 75% by 2022 due to the FSA’s imposed limit of two times leverage.
In comparison, digital-asset exchanges in other jurisdictions typically offer margin trading ratios between five and ten times initial deposits, with some platforms providing even more aggressive lending options.
Oda asserted that digital-asset volatility has decreased since 2020, and Japanese exchanges possess the necessary capabilities to help investors manage the risks associated with margin trading. Nonetheless, he anticipated that any relaxation of leverage rules would not occur before 2024.
Following the global crypto market crash in the previous year, regulators worldwide implemented stricter measures to address risky practices. While some jurisdictions like Hong Kong and Dubai aim to attract digital-asset firms, the United States has taken a more stringent approach.
In 2023, the top 100 cryptocurrencies experienced a rebound of 33%, albeit still recovering from the turbulence of 2022. The market has witnessed some institutional and individual investors exiting, leading to decreased liquidity and a subdued indicator of anticipated price fluctuations in Bitcoin.
As Japanese cryptocurrency exchanges strive for more flexible margin trading regulations, they face the challenge of convincing the FSA that such a move aligns with the government’s goals while safeguarding investors’ interests.
However, the outcome of this initiative will significantly impact the landscape of crypto trading in Japan and potentially draw increased attention from global players.
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