To stimulate market growth and attract new participants, Japanese cryptocurrency exchanges are pressing regulators to ease the current restrictions on margin trading, specifically for popular cryptocurrencies like bitcoin (BTC). The Japan Virtual and Crypto Assets Exchange Association (JVCEA), a self-regulated body representing local exchanges, asserts that these limitations are impeding the industry’s progress.
Previously, Japan’s cryptocurrency exchanges offered leverage of up to 25 times the principal capital, leading to staggering annual trading volumes of up to $500 billion in both 2020 and 2021. However, the landscape shifted in early 2022 when Japanese regulators curtailed leverage options to a maximum of only twice the principal capital. Consequently, trading volumes experienced a sharp decline last year.
Genki Oda, the Vice Chairman of JVCEA, emphasized in an interview with a reputed news publishing house that revising the leverage rule could significantly enhance Japan’s appeal to crypto and blockchain companies, ultimately encouraging greater trading activity. However, any revisions to margin trading caps will undergo rigorous reviews and consultations with industry participants, with regulators prioritizing market risks and investor protection.
The JVCEA’s request for higher leverage limits, at least 10 times the principal, aims to promote market liquidity and attract a diverse range of traders, including institutional investors. The ability to employ higher leverage would empower traders to manage their positions more effectively, offering them increased flexibility and potential profitability.
According to recent data, Japanese crypto exchanges processed trading volumes worth just over $110 million in the past 24 hours. Notably, the majority of this volume was generated through trading in bitcoin (BTC), ether (ETH), and xrp (XRP).
This development follows a warning issued by Japan’s Financial Services Agency (FSA) in April 2023 to foreign crypto exchanges Bybit, BitForex, MEXC Global, and Bitget, which were found to be operating in the country without proper registration. The FSA’s proactive approach indicates its commitment to ensuring compliance with existing regulations, as Japan seeks to strike a balance between embracing the potential of cryptocurrencies and maintaining regulatory oversight.
Over the years, Japan has been recognized for its progressive stance toward cryptocurrencies, having been one of the first countries to regulate exchanges following the Mt. Gox incident. In 2020, the country passed a bill recognizing cryptocurrencies as a legal form of payment. The government has actively promoted the use of crypto and blockchain technology in various industries, such as finance and healthcare.
While the impact of the FSA’s warning on the crypto industry remains uncertain, it may prompt crypto exchanges to approach the Japanese market with greater caution. Striking a balance between compliance and innovation will be crucial as the country continues to refine its regulations for the crypto and Web3 sectors.
As Japanese cryptocurrency exchanges advocate for looser margin trading restrictions, the outcome of these deliberations will have significant implications for the future of Japan’s crypto sector. The potential relaxation of leverage limits could reignite trading volumes, attract institutional investors, and position Japan as a more attractive hub for crypto and blockchain companies, fostering continued growth and innovation in the industry.