Business 26 October 2018

Erik Gibbs

Japan FSA reportedly considering caps for crypto margin trading

Japan continues to help shape the future of the cryptocurrency investment space. According to a report by Nikkei, the country’s Financial Services Agency (FSA) is preparing to introduce caps on the leverage possible for margin trading of cryptocurrencies. The move is designed to help control rampant speculation and risk.

Nikkei indicates that the FSA could introduce a cap that would be two to four times lower than an investor’s borrowing power. This would be a huge step for investors, as there are currently no regulations that cover crypto margin trading in the country. In many cases, exchanges have offered as much as 25 times the amount that is deposited. This is extremely dangerous, as well as counterproductive to crypto’s growth, as it means that a 4% drop in the target crypto’s value could completely eliminate the deposit.

Out of the 16 exchanges in Japan that are licensed by the FSA, seven offer margin trading, according to the Japanese news outlet. A panel recently created between FSA officials and financial and crypto experts is working to create regulations for margin trading.

Margin trading has seen exponential growth in Japan—to be expected if leverage is offered at 25 times a deposit. Last year, 80% of the crypto trading volume in the country was found in derivatives, accounting for $543 billion. Of this, 90% was led by margin trades.

The Japanese Virtual Currency Exchange Association (JVCEA), a body created by the 16 licensed exchanges in order to govern the crypto space, indicated that the margin trading cap should be set to as low as four times the amount of the deposit, but this was just a temporary step. JVCEA chairman and Money Partners Group president Taizen Okuyama, said at the time, “This is just a provisional measure—I don’t think a ratio of 4 is adequate.”

The JVCEA was just approved by the FSA to be a “certified fund settlement business association.” This designation gives the group the legal authority to create regulations for the country’s cryptocurrency exchanges, as well as to enforce them.

Japan is one of the few countries that has been proactively seeking ways to ensure that cryptocurrency and blockchains can mature in accordance with laws. While many countries have been reluctant to develop regulatory framework for the industry, Japan has dedicated a significant amount of time and resources to the subject in order to ensure Japanese investors are protected.

Note: Tokens on the Bitcoin Core (SegWit) chain are referenced as BTC coins; tokens on the Bitcoin Cash ABC chain are referenced as BCH, BCH-ABC or BAB coins.

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