Japan’s cryptocurrency scene is soon set to go through a major change as exchanges change the margin trading rules. The decision in this regard has been taken by the primary self-regulatory body of Japanese crypto exchanges, and now new limits on margin trading await the crypto traders who take advantage of leverage in crypto trading.
The new limits decided by Japan Virtual Currency Exchange Association (JVCEA) propose a maximum limit of up to 4 times the amount deposited by someone. According to JVCEA currently some exchanges are going to the extremes of up to 25 times of deposited money, which is not a health development. Therefore, JVCEA has decided to control the situation before it worsens.
Explaining its decision JVCEA said that the purpose is to limit the risk to which investors of these volatile market are exposed. The lack of restrictions on margin trading multiplies those risks, so this issue had to be addressed as soon as possible. The body also said that it’s considering exceptions of these limits in some special cases, like in default circuit breaker mechanisms depending on the market conditions.
While it’s imperative to obtain a license from Financial Services Authority in Japan for operating a cryptocurrency exchange, once an entity has obtained the license it’s free to be regulated under the self-regulatory body JVCEA. And since JVCEA hadn’t drafted any margin trading related limitations till now, exchanges were doing whatever they wanted to do! Now when a certain limit has been fixed, it will be interesting to see how many exchanges fall in line and how many come into line after seeing some action.
JVCEA was launched in March, and it’s an effort between sixteen licensed cryptocurrency exchanges of the country. It seeks to establish the trust of authorities that was lost after some hacks in the early part of this year.
In the meantime FSA is working to bring cryptocurrency exchanges under the purview of Financial Instruments and Exchange Act (FIEA), post which they’ll be subject to same laws that apply to stock exchanges of the country. Let’s see how long this takes!