Japan’s Financial Services Agency (FSA) is planning to put a cap on the leverage available for crypto margin trading to curb speculation and risk.
According to a news report from Nikkei Thursday, the financial market regulator is considering limiting crypto margin traders’ borrowing power to two to four times their deposits.
Currently, there are no regulations specifically governing the cryptocurrency margin trading space in Japan, the report added, with exchanges offering as much as 25 times leverage. That means traders can effectively borrow cryptocurrencies worth up to 25 times the deposit with an exchange, however, just a 4 percent drop in the purchased crypto assets would wipe out the initial deposit.
Nikkei said seven of the 16 licensed exchanges by the FSA now offer marge trading services, adding that a panel comprised of FSA officials and industry experts is now set to discuss ways to impose potential regulations in this area.
The news follows previous statistics released by the FSA, which indicated cryptocurrency margin trading has seen rapid growth in Japan. For instance, over 80 percent of the total cryptocurrency trading volume in Japan in 2017 came from derivatives trading, which recorded $543 billion. More than 90 percent of that figure came from margin traders.
Early this year, the Japanese Virtual Currency Exchange Association (JVCEA), a self-regulatory body formed by the 16 licensed trading platforms in Japan, pushed for setting a cap as a low as 4 times the deposit.
“This is just a provisional measure – I don’t think a ratio of 4 is adequate,” Taizen Okuyama, who chairs the association, was quoted as saying in the report.
Just yesterday, the FSA officially approved the JVCEA as a “certified fund settlement business association,” meaning it now has legal status to police domestic cryptocurrency exchanges.