Japan’s financial watchdog, the Financial Services Agency (FSA), is considering introducing leverage caps for cryptocurrency margin trading in an effort to curb speculation and limit traders’ exposure to risk, local news outlet Nikkei Asian Review has reported.
Crypto exchanges are required to register with the watchdog in order to operate in the Asian country. However, transactions in crypto are not currently regulated, which could become problematic given that margin trading is responsible for a large portion of them.
According to the Nikkei report, about 80 percent of Japan’s 69 trillion yen ($613 billion) in cryptocurrency transactions in fiscal 2017 were conducted through margin trading. The publication cited data from the Japan Virtual Currency Exchange Association (JVCEA), a self-regulatory body comprised of the 16 crypto exchanges registered with the FSA. Seven of those platforms offer margin trading, including major exchanges Bitbank and bitFlyer.
Some exchanges voluntarily cap leverage at 25 times the deposit, which is the limit for foreign exchange trading. However, many experts argue that the volatile nature of crypto trading warrants a much lower limit of between two and four times, Nikkei notes. According to the publication, an upcoming FSA panel including experts will discuss new rules for possible legal changes.
The JVCEA already sets a leverage limit of four to one, although it sees this as a “provisional measure”.
“This is just a provisional measure -- I don't think a ratio of 4 is adequate,” Taizen Okuyama, president of Money Partners Group and head of the association, said, as quoted by Nikkei.
The JVCEA yesterday was officially approved by the FSA as a self-regulatory body of the Japanese crypto exchange sector. This will allow the JVCEA to set rule for local crypto exchanges and take action over any violations. The association applied for the FSA’s approval in August.