Japan’s Financial Services Agency (FSA) is weighing a plan to put a cap on the leverage in cryptocurrency margin trading in a move that is set to curb speculation and market risks.
According to a news report from Nikkei on Thursday, the financial market regulator is considering limiting crypto margin traders’ borrowing power to two to four times of their deposits.
Currently, there’s no regulation specifically governing the cryptocurrency margin trading space in Japan, the report added, with exchanges offering as much as 25 times of borrowing power. That means users can trade cryptocurrencies worth up to 25 times of their deposits with the exchange but a four percent drop in the purchased crypto assets will wipe out the original deposits.
Nikkei said seven of the 16 licensed exchanges by the FSA now offer marge trading services. And a panel that consists of FSA officials and industry experts will discuss rules for imposing potential regulation on this area.
The news follows previous statistics released by the FSA, which indicated a rapid growth of cryptocurrency margin trading 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. And more than 90 percent of that was 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 putting a cap as a low as 4 times.
“This is just a provisional measure — I don’t think a ratio of 4 is adequate,” Taizen Okuyama, who heads chairs the association, was quoted as saying in the report.
Just on Wednesday, the FSA officially approved the JVCEA as a “certified fund settlement business association” with a legal status to police domestic cryptocurrency exchanges.