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Japan Throttles Crypto Margin Trading From 25x Down to 2x-4x with New Regulation

Last Updated March 4, 2021 3:20 PM
David Hundeyin
Last Updated March 4, 2021 3:20 PM

Following similar action by Japanese financial authorities last year, the country’s cabinet has approved a new raft of regulation aimed at bringing cryptocurrency trading into the mainstream fold.

The Nikkei Asian Review  reports that on Friday, the cabinet approved a set of amendments for existing payment services and financial instrument laws. Under the new regulations, cryptocurrency exchanges that offer margin trading will only be able to offer between 2x and 4x leverage.

The new regulations also make it compulsory for such exchanges to register with the government in what may be viewed in some quarters as a significant step on the road to cryptocurrency becoming recognized as legal tender in the country. Already one of the world’s most crypto-positive regulatory environments, the new regulations could potentially place Japan at the vanguard of global cryptocurrency regulatory practice.

The significance of New Regulation

The main thing that the new laws do for Japanese crypto trading is that they are an attempt to bring the already closely-regulated market more closely in line with conventional financial market regulations. The new leverage limit for margin trading, for example, is well within the limit given to foreign exchange traders in the country. The fact that the Japanese government is placing crypto and foreign exchange in the same conversation may be taken as evidence that sooner or later, it will officially recognise and sanction crypto as legal tender.

This view becomes more plausible when one takes into account the fact that the new registration requirement for crypto exchanges is wholly separate to existing registration requirements, which were put in place largely to fight money laundering. Unlike previously, when crypto was primarily seen by regulators through the prism of potentially enabling illegal transfer of value, the new regulations effectively bring crypto into the fold and provide a framework for monitoring and controlling rather than fighting it.

The implication for Crypto Trading in Japan

This is not Japan’s first regulatory attempt to rein in margin trading, which has become something of an extreme sport with the growth of platforms offering up to 300x leverage, such as the infamous BitMEX. In October, CCN.com reported that the country’s Financial Services Agency (FSA) was considering imposing a 4x leverage limit on margin trading, down from the maximum of 25x offered by some crypto exchanges at the time.

The amendments approved by the cabinet are framed in such a way as to protect investors, as against primarily going after money launderers, which is the most telling thing about them. Under the new laws which are set to go into effect in April next year, all crypto trading platforms offering will need to be registered within 18 months of the effective date. This will give the FSA ample time to investigate and go after so-called “Quasi-operators” offering crypto trading services while their registration applications are still under review.

Another interesting thing about the new laws is that for the first time, crypto exchanges will be categorised distinctly, for example differentiating platforms offering margin trading to those offering ICO investment access. Investors will no doubt see this as evidence that the FSA and other Japanese financial regulators now fully appreciate the nuances of crypto trade, giving them the ability to fight against scam investments without hurting the legitimate market.

It will be recalled that last year, CCN.com reported that the FSA granted self-regulatory status to all 16 licensed Japanese crypto exchanges under the Japan Virtual Currency Exchange Association (JVCEA). This dispensation gave the body the power to create regulatory guidelines for fighting insider trading and enforcing security standards across board.