Japanese cryptocurrency exchanges may soon set a strict limit on the leverage they offer for margin trading in order to better protect investors. The association comprised of 16 government-approved crypto exchanges is reportedly imposing a leverage limit as part of its self-regulatory rules. There will be a grace period and exceptions.
Leverage Limit on Margin Trading
The Japan Virtual Currency Exchange Association (JVCEA) is reportedly planning to impose a leverage limit for crypto margin trading in order to protect investors, local media reported Wednesday.
The association’s members are all of Japan’s 16 government-approved crypto exchanges. It was set up in response to the hack of Coincheck in January in order to rebuild public trust in the crypto space.
The JVCEA has been working on self-regulatory measures. Nikkei reported Wednesday that the proposed rules include “an across-the-board cap on the extent to which traders can use borrowed funds to magnify gains and losses,” adding:
The self-regulatory body for Japan’s cryptocurrency exchanges is firming up plans to set a 4-to-1 leverage limit on margin trading, aiming to reduce the risk of massive losses given the volatility of these assets.
“The measure would take effect after a one-year grace period. The organization is considering allowing exceptions if exchanges meet certain conditions, such as implementing automatic stop-loss mechanisms,” the publication detailed. With the volatility of crypto trading, “some highly leveraged cryptocurrency investors in Japan have suffered heavy losses, spurring criticism from consumer protection groups.”
While the association itself has not confirmed its plans, the news outlet wrote that the “draft rules also include bans on insider trading and dealing in cryptocurrencies suspected to be used in money laundering.”
Last month, six of the association’s members received business improvement orders from Japan’s top financial regulator, the Financial Services Agency (FSA). Subsequently, Yuzo Kano and Hiroyuki Noriyuki, representative directors of Bitflyer and Bitbank Corporation, who were serving as vice presidents of the association, resigned to focus on their exchange businesses.
Exchanges Set Their Own Limits
Each cryptocurrency exchange in Japan sets its own limit for margin trading. DMM Bitcoin, the crypto exchange of Japanese e-commerce and entertainment giant DMM Group, for example, offers 5 times leverage.
Zaif, operated by Tech Bureau, offers up to 7.77 times leverage. “You can choose leverage from 1x to 7.77x, according to your trading style,” the exchange wrote on its website.
GMO Coin, the exchange subsidiary of Japanese internet giant GMO, offers 5 times and 10 times leverage for BTC/JPY. However, only 5 times leverage is offered for the margin trading of ETH, BCH, LTC, and XRP against the JPY.
Bitpoint offers leverage of 2x, 5x, 10x, and 25x for BTC/JPY, BTC/USD, BTC/EUR, and BTC/HKD. Bitflyer’s Lightning platform allows leverage of up to 15 times.
Nikkei further elaborated:
Japan currently lacks limits on cryptocurrency margin trading…Some exchanges permit leverage of up to 25 times the deposit, citing regulations, setting that as the ceiling for foreign exchange trading.
Do you think Japanese exchanges should have a lower leverage limit? Let us know in the comments section below.
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