As the popularity of cryptocurrency trading continues to surge, Japan’s crypto exchanges are seeking to increase the permitted leverage for retail investors. The current 2x leverage cap, imposed by the country’s financial regulators, has caused a significant drop in annual margin trading volume, nearly 75% since its peak in 2020 and 2021. The country’s Virtual & Crypto Assets Exchange Association revealed that exchanges aim to propose leverages ranging from four to ten times for retail investors, a considerable shift from the previous 25x leverage previously offered.
In a recent interview with Bloomberg, Genki Oda, Vice Chairman of Japan’s Virtual & Crypto Assets Exchange Association, discussed the potential benefits that updated leverage rules could bring in attracting more crypto and blockchain companies to Japan. According to Oda, the revisions could promote industry growth and maintain investor protection. Local exchanges hope to reach a consensus on an appropriate leverage limit before presenting their proposal to the Financial Service Agency (FSA) next month.
However, Japan has a reputation for prioritizing strict cryptocurrency regulations that emphasize investor protection. As such, convincing the FSA to relax margin trading regulations may prove to be a demanding task for local exchanges. Despite these challenges, an official from the Financial Services Agency has expressed a willingness to engage in discussions regarding the potential changes. Nevertheless, exchanges must present justifications for increasing leverage to the FSA, outlining how this change aligns with the government’s objective of attracting more blockchain companies to Japan.
Earlier this month, Japan implemented even stricter anti-money laundering rules, specifically targeting cryptocurrencies. The Asian country has adopted the Financial Action Task Force’s (FATF) controversial Travel Rule for crypto exchanges. Under this rule, exchanges must share transaction information with each other when transactions exceed a certain threshold, and restrictions are placed on transactions from exchanges to platforms that have not adopted the Travel Rule Universal Solution Technology yet.
Most Japanese crypto exchanges are currently struggling to comply with these new regulations. The situation presents a fascinating dynamic, as local exchanges must now navigate the complexities of convincing the financial regulator to loosen regulations that could potentially increase risks for retail investors, given Japan’s strict stance on cryptocurrency regulations.
In conclusion, the push for higher margin trading leverage in Japan highlights both the potential benefits and risks associated with such a change. While increased leverage could attract more crypto and blockchain companies, it might also present heightened risks for retail investors. It remains to be seen how the negotiations between exchanges and the FSA will unfold and whether a compromise can be reached that satisfies both growth and investor protection objectives.
Source: Cryptonews
