Japan’s Financial Services Agency (FSA) plans to further reduce allowable limits on leveraged cryptocurrency bets, down from 4X of customer deposits to 2X.
Japan’s Cabinet voted to greatly reduce leveraged crypto trades on local platforms last April. At that time, permitted leveraged trades were reduced from 25X to 4X.
According to The Japan Times, the new rule is, “stricter than the industry’s self-imposed cap of four times, (and) will be established to reduce the risks of losses ballooning due to volatile price fluctuations.”
Because crypto trading platforms across the globe are variably regulated and because many cryptocurrencies trade very thinly, it is conceivable that “whales” (large holders of crypto) can easily tip markets.
Rumours have also abounded alleging that some crypto platforms trade against their customers.
Monitors appointed in the bankruptcy case of the Quadriga CX platform found, for instance, that prior to his sudden death, proprietor Gerald Cotten was using his customers’ cryptocurrencies to conduct large trades on other platforms.
The new rule regarding leveraged crypto trades in Japan will be included, according to Japan Times, “in a Cabinet Office order linked to the revised Financial Instruments and Exchange Act which will go into force in spring…”
The outlet notes that cryptocurrencies have been lauded as “future money,” but so far, have found much of their utility in speculation.
The new rule, according to Japan Times, has been partly inspired by standards imposed in Europe and the US.
“Exchange operators are expected to be pressured to alter their business models (in response to the new rules) as the new regulations may lead speculative traders to lose interest in cryptocurrency margin trading.”
Prominent economist and professor Nouriel Roubini has been an outspoken critic of cryptocurrencies and crypto trading platforms.
“To be clear, with 100-to-one leverage, even a 1% change in the price of the underlying assets could trigger a margin call and wipe out all of one’s investment. Worse, BitMEX applies high fees whenever one buys or sells its toxic instruments, and then it takes another bite of the apple by siphoning customers’ savings into a ‘liquidation fund’ that is likely to be many times larger than what is necessary to avoid counter-party risk. It is little wonder that, according to one independent researcher’s estimates, liquidations at times account for up to half of BitMEX’s revenue.”