Japan’s cryptocurrency exchanges are urging regulators to relax margin trading restrictions on popular cryptocurrencies, such as bitcoin (BTC), to stimulate market growth and attract new participants, according to a report by Bloomberg. However, the Japan Virtual and Crypto Assets Exchange Association (JVCEA), a self-regulated body of local exchanges, has proposed increasing leverage limits for retail investors to up to 10 times their principals. This move comes as Japan explores regulations to support the growth of NFT and virtual lands-related businesses and considers the issuance of its own stablecoins.
Margin trading, a practice where investors can borrow funds to amplify their trading positions, was once a thriving market in Japan. In 2020 and 2021, trading volumes on Japanese exchanges reached about $500 billion annually, with leverage of up to 25 times the principal capital. However, Japanese regulators imposed stricter rules early last year, capping leverage at only twice the principal capital. Consequently, trading volumes plummeted.
The JVCEA argues that these restrictions hinder market growth and discourage new participants from entering cryptocurrency. JVCEA Vice Chairman Genki Oda stated in an interview with Bloomberg that reforming the leverage rule could make Japan “more attractive for crypto and blockchain companies,” potentially resulting in increased trading activities.
The proposal for revised margin trading caps is not without scrutiny. Regulators are expected to evaluate the suggestions, taking into account market risks and investor protection. Any revisions to the existing caps will undergo thorough reviews and consultations with industry participants to strike the right balance.
The push for higher leverage limits is to attract diverse traders, including institutional investors while enhancing market liquidity. Allowing higher leverage would enable traders to manage their positions more effectively, potentially reducing risks associated with margin trading. At present, Japanese crypto exchanges have processed just over $110 million worth of trading volumes in the past 24 hours, with the majority of the volume generated by bitcoin (BTC), ether (ETH), and xrp (XRP) trading.
Crypto regulation Japan
Japan’s willingness to embrace crypto regulation and stablecoin usage has gradually increased. Lawmakers are reportedly exploring Web3 regulations to support the growth of NFT and virtual lands-related businesses in the country. Additionally, local banks are working on plans to issue their stablecoins, tokens pegged to the Japanese yen, in the coming months.
Japan has been known for maintaining strict regulations in the cryptocurrency space, prioritizing investor protection and security. The country’s regulatory framework was crucial in safeguarding FTX Japan customers’ funds during the parent company’s bankruptcy. Earlier this month, Japan introduced new regulations requiring crypto exchanges to share customer information to crack down on money laundering activities. However, Nikkei Asia reported that some loopholes still affect the effectiveness of implementing this rule.
Despite its strict regulations, Japan has made efforts to position itself as a crypto-friendly country. It lifted its ban on foreign-issued stablecoins last year and initiated a central bank digital currency (CBDC) pilot program earlier this year. The government has also been investing in developing metaverse and NFT-related projects, further solidifying its commitment to embracing the digital economy.
