Japanese cryptocurrency exchanges are appealing to regulators for a reconsideration of the currency restrictions on margin trading for widely traded cryptocurrencies like Bitcoin (BTC).
In the country, exchanges previously provided leverage up to 25 times the principal capital, resulting in a substantial trading volume of approximately $500 billion per year in both 2022 and 2021, as reported by media outlet Bloomberg.
However, in early 2022, regulatory authorities in Japan implemented stricter measures, capping leverage at a maximum of twice the principal capital. Consequently, the trading volumes experienced a significant decline throughout the past year.
The Japan Virtual and Crypto Asset Exchange Association (JVCEA), an organization that self-regulates local exchanges, is currently advocating against these restrictions, claiming that they impede market expansion and discourage new entrants. One of their key requests is to raise the leverage limits to a minimum of 10 times the principal.
An official from Financial Services Agency (FSA) stated that cryptocurrency firms must provide a compelling justification for the relaxation of margin trading caps. These reasons should demonstrate how such measures would contribute to the government’s objective of fostering the growth of the blockchain-based industry.
Genki Oda, the Vice Chairman of JVCEA, emphasized in an interview with Bloomberg that revising the leverage rule could increase Japan’s appeal to crypto and blockchain companies, ultimately fostering more trading activity.
According to Oda, the volatility of digital assets has decreased since 2020, and he believes that Japanese exchanges are capable of assisting investors in mitigating the risks associated with margin trading positions. However, he also mentioned that it is unlikely for any relaxation of leverage rules to occur before 2024, at the earliest.
The proposed changes will be carefully evaluated by regulators, taking into consideration market risks and the protection of investors. Any modifications to margin trading limits will undergo comprehensive reviews and consultations with industry stakeholders.
The objective behind the push for revised margin trading caps is to attract a broader range of traders, including institutional investors, while also enhancing market liquidity. JVCEA contends that allowing higher leverage would empower traders to manage their positions more efficiently.
Also Read: Binance Spot Introduces Spot DCA to Enhance Trading
