Japan’s Crypto Margin Trading Debate: Higher Leverage for Growth or Investor Risk?

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Japanese cryptocurrency exchanges are urging regulators to reconsider strict margin trading restrictions on popular digital assets like bitcoin (BTC). While these platforms once offered leverage of up to 25 times the principal capital, with trading volumes soaring as high as $500 billion annually in 2020 and 2021, regulations have significantly impacted this dynamic.

In early 2022, Japanese regulatory authorities limited crypto exchanges to offering leverage of merely twice the principal capital. This dramatic reduction in leverage led to a sharp decline in trading volumes last year. However, the Japan Virtual and Crypto Assets Exchange Association (JVCEA), a self-regulated body of local exchanges, suggests that the current leverage restrictions may be hindering market growth and deterring new market participants.

The JVCEA is advocating for regulators to relax these constraints, requesting higher leverage limits of at least 10 times the principal capital. According to JVCEA Vice Chairman Genki Oda, in an interview with Bloomberg, revising the leverage rule could potentially make Japan “more attractive for crypto and blockchain companies” while also promoting increased trading activity.

Regulators are expected to review these proposals, taking into account both market risks and the need to protect investors. If any revisions to margin trading caps are made, they will likely involve thorough reviews and consultations with various industry stakeholders.

The push for more flexible margin trading caps aims to attract a diverse range of traders, including institutional investors, while also enhancing market liquidity. The JVCEA argues that allowing higher leverage limits would enable traders to manage their positions more effectively.

Data shows that Japanese crypto exchanges processed just over $110 million worth of trading volumes within the past 24 hours. Most volume came from bitcoin (BTC), ether (ETH), and xrp (XRP) trading.

The JVCEA’s comments coincide with Japan’s growing interest in crypto regulation and stablecoin usage. Lawmakers are reportedly exploring Web3 regulations to foster the development of non-fungible token (NFT)- and virtual land-related businesses in the country. Additionally, local banks are working on plans to issue their own stablecoins – tokens pegged to a fiat currency like the Japanese yen – within the next few months.

Source: Coindesk

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