Japanese Crypto Exchanges Propose Margin Trading Borrowing Limits

  • Japan’s Virtual Currency Exchange Association (JVCEA) recommended a borrowing limit for margin trading.
  • Adding a limit is set to protect local cryptocurrency traders.

Japan’s Virtual Currency Exchange Association (JVCEA), a self-regulatory organization formed by the nation’s cryptocurrency exchanges, has reportedly recommended a borrowing limit for crypto investors engaging in margin trading.

Local news outlet Jiji Press noted the JVCEA requested the country’s digital currency exchanges to allow traders to borrow a maximum of four times their deposit amount. According to the JVCEA, the purpose of the proposed restriction is to protect local traders, given that Japan’s cryptocurrency market does not yet have comprehensive rules in place to limit borrowing in margin trading.

Focused On Derivatives

Cryptocurrencies are still a fairly new and emerging asset class in Japan. Japan’s market regulator, the Financial Services Agency (FSA), published statistics in April showing there were only 142,000 active crypto traders focused on derivatives, just a fraction of approximately 3 million derivatives traders in total.

Despite the relatively low number of cryptocurrency investors in Japan, over 80% of local crypto trading volume consisted of derivatives trading. Japan’s derivatives trading totaled $543 billion in 2017.

Notably, crypto-related activity in Japan is expected to grow in the coming years as local authorities have acknowledged the potential benefits of cryptocurrencies, particularly of the blockchain technology that underpins them.

Due, in part, to the hack of local digital currency exchange Coincheck, in which over $500 million worth of cryptocurrency were stolen, Japan’s local crypto trading companies established the JVCEA.

Exchanges To Impose Limits

As a self-regulating organization, the JVCEA aims to contribute to the healthy and safe development of Japan’s evolving cryptocurrency market. Commenting on its newly proposed limit on borrowing for margin trading, the association noted it could discourage crypto investors from dealing with centralized exchanges.

The JVCEA explained that enforcing the rule change would be a gradual process and that each exchange would ultimately decide how to impose the borrowing limits on its platform.

The proposal comes weeks after the JVCEA announced new rules prohibiting anonymous digital currency transactions. The FSA also announced in early July that it was reevaluating how it regulates local cryptocurrency exchanges.

At present, digital currencies in Japan are considered a legal form of electronic money. Based on the latest recommendations from Japan’s regulators, cryptos may be classified as a financial product, reportedly to enhance consumer protection.