Japan’s FSA (Financial Services Agency) has just allowed crypto industry the permission to self-regulate. However, immediately afterward, they brought up a subject of introducing a cap on cryptocurrency margin trading. The financial regulator expressed that this move would be done for the benefit of traders, as it would reduce their exposure to volatility risks and keep speculative trading in check.

A new report published by Nikkei today states that margin traders’ borrowing power will likely be limited to only two to four times of their deposit. This is significantly less than the current borrowing power, which can be up to 25 times larger than the deposit. This is troubling since a 4% drop in bought crypto assets might completely wipe out the deposits.

Despite the fact that 80% of total crypto trading for 2017 was conducted through margin trading, Japan still lacks regulations that would focus on this part of the trading industry. At this point, Japan has 16 officially registered exchanges, with seven of them offering margin trading services.

Considering that many are in favor of reducing the leverage cap, the FSA decided to employ experts and discuss potential legal changes and new rules that would regulate the area.

JVCEA Proposes the Leverage Cap

Due to numerous troubles that Japan’s crypto industry has experienced throughout 2018, a lot of changes are required. The infamous Coincheck hack that resulted in a theft of $500 million in crypto has led the FSA to become more strict regarding the exchange’s security. Not only that, but a special crypto association called the JVCEA (Japan’s Virtual Currency Exchange Association) was formed in order to bring proper changes to the growing market.

According to JVCEA, which only yesterday received a permission to regulate exchanges itself, the leverage cap should be set to 4:1. In other words, the borrowing power should only be four times larger than deposits, in every exchange. The Association’s head, Taizen Okuyama, who is also Money Partners Group’s president, declared that this is a provisional measure. According to him, a ratio of 4 is not adequate.

Margin trading is clearly a popular way to trade cryptos in Japan, and a decision to change it will affect numerous traders. For now, many remain supportive of introducing the cap, as it will reduce risks and improve user protection. Whatever the final decision may end up being, trading in Japan is expected to change significantly in the near future.

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