Japan’s Financial Services Authority (FSA), the independent regulator of the financial services sector there, is considering imposing a limit as low as 2-1 on margin trades of cryptocurrency conducted on local exchanges, Nikkei Asian Review (NAR) reports.
The move is being contemplated as a measure to protect users, temper speculative trading and possibly reduce volatility.
According to the NAR (citing the Japan Virtual Currency Exchange Association), close to 80% of the $613 billion in cryptocurrency trades conducted annually in Japan involve margin trading.
And though crypto exchanges must be registered in Japan, there are no rules yet in place that restrict the size or nature of transactions. Crypto traders in Japan are currently using the same margins available to foreign exchange currency (forex) traders: 25X.
For example, says NAR, a crypto trader could place a 5 million yen trade with just a 20 000 yen deposit, and that 20 000 yen could easily be absorbed by the house in a margin call if the price of a crypto drops a mere 4%.
Bitcoin for example has fairly regularly seen price changes as high as 20% in a single day, and other cryptos can be even more volatile.
As well, the unregulated nature of most exchanges around the globe means exchanges themselves could conceivably trade against customers. Several exchanges have been accused of doing so.
According to NAR, 7 of Japan’s 16 registered exchanges now offer margin trading, including bitFlyer and bitbank.
Japan has been the site of several extreme crypto exchange hacks this year, including a $60 million hack on the Zaif exchange in September and a $500 million hack on Coincheck in January.
According to NAR, the FSA says it has seen a 5X increase in the number of inquiries coming in regarding customer experiences with the country’s crypto exchanges.
The Japan Virtual Currency Exchange Association (JVCEA), created after the Coincheck hack, is the country’s newly-approved crypto self-regulatory organization.
The JVCEA has recently recommended a 4-1 leverage limit on crypto trades, though JVCEA head Taizen Okuyama has qualified this as, “a provisional measure.”
“I don’t think a ratio of 4 is adequate,” he said.