Japanese Crypto Exchanges Face New Margin Trading Limits: Report

The Bitcoin news now show that the cryptocurrency exchanges in Japan will face significant restrictions on margin trading which are expected to kick in this spring. We can see that the Japanese crypto exchanges will be under new scrutiny by the country’s finance regulator, the Financial Services Agency (FSA), as the local English-language news outlet Japan Times reported a couple of days ago.

The goal is to limit the margin leverage and twice the total of the deposits that traders have. The move follows on from a limit of four times traders’ deposits which the domestic exchange industry imposed on itself through a self-regulatory body in 2019.

The reason for this restriction for the Japanese crypto exchanges, according to FSA sources, is to guard against periods of volatility on cryptocurrency markets. On the timeframe for implementation, the publication Japan Times added:

“The new rule will be included in a Cabinet Office order linked to the revised Financial Instruments and Exchange Act which will go into force in spring.”

It still remains unclear whether these restrictions will take effect immediately after the introduction of the Act. What we know so far is that Japanese crypto exchanges see margin trading as a vital option – and something which can involve significantly larger market moves due to the potential size of the wins or losses, especially when large numbers of investors engage in the practice at once.

As the media reported earlier before, the tool’s impact has become a cause of controversy for many people, who attribute it to manipulation of cryptocurrency price performance. In October 2019, data showed open interest in margin trading and reported that it was at an all-time high in Japan.

Additionally, exchanges appeared to at least in part forecast these changes. Coincheck announced that it would halt the leveraged trading altogether from March 2020.

All in all, we can conclude that the cryptonews and climate in Japan has sought to become a friendly jurisdiction for cryptocurrency, fostering permissive regulations and closely monitoring exchanges. At the same time, the authorities said that they see no demand for a central bank digital currency (CBDC) among consumers.