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How Fresh Loser Margin Trading Rules Help Fuel Crypto Adoption in Japan?

The FSA of Japan is currently discussing with domestic crypto exchanges regarding the possibility of increasing borrowing margins from the current 2 times to 4-10 times.

Key Points 

  • The FSA has proposed new regulations to limit crypto margin trading by capping leverage to a maximum of two times the amount.
  •  The FSA has given the green light to preliminary changes to the financial instruments and payment services laws of the country.
  •  The FSA intends to introduce limits for crypto margin trading to manage excessive speculation and potential hazards.

As crackdowns on cryptocurrencies continue to sweep the West, regulators in Asia are taking a different approach by implementing more crypto-friendly rules to attract firms to their markets. In Japan, regulators are currently considering relaxing restrictions on margin trading. According to the Japan Virtual & Crypto Assets Exchange Association, industry insiders are pushing for the ability to leverage retail players between four and ten times. Currently, borrowing only allows customers to double their exposure.

The Vice Chairman of the association, Genki Oda, stated in an interview that “reforming the leverage rule could make Japan more attractive for crypto and blockchain companies.” This move could also result in an increase in trading volume within the market. With regulators looking to shift towards more lenient rules, Japan could soon become a major player in the cryptocurrency industry.

Japan’s FSA Reaching Out

Japan’s local cryptocurrency exchanges are currently in discussion to establish a common leverage limit. Sources suggest that they plan to take this proposal to the highest financial regulatory body in the country – the Financial Services Agency (FSA). 

The FSA has stated that cryptocurrency companies must provide compelling reasons for any increase in margin trading limits. This aligns with the government’s objective of expanding blockchain-related sectors. The FSA is open to engaging in discussions with digital asset businesses regarding this matter.

Interestingly, this development comes at a time when Hong Kong is making a bigger push to become the crypto hub of Asia. Japan, however, is also considering easing some of its crypto regulations on token listing and taxation. 

Japan Facing Crypto Troubles 

In Japan, the world of cryptocurrency was once awash with high-stakes trading, with leverage of up to 25 times the initial deposit being a common feature. It was a trend that saw margin trading reach around a staggering $500 billion in 2020 and 2021. 

But the good times couldn’t last forever, and regulatory measures were implemented by the Financial Services Agency (FSA) in 2022 to curb excessive speculation and shield investors from heavy losses. As a result, the volumes of trading on these platforms fell by a massive 75%.

However, on a global scale, the rules governing spot margin trading on digital asset exchanges are just as diverse as the communities that use them. While many of these platforms will offer leverage between five and ten times the initial deposit, some are happy to provide more aggressive lending. But with such an approach comes great risk, and the potential to create waves of greed and fear within the crypto market.

According to Oda, the volatility of cryptocurrencies has significantly decreased over the last three years. This means that local crypto exchanges in Japan are now better positioned to assist investors in managing risks through margin trading. 

End Note

This situation highlights the current state of the cryptocurrency market and the competition between countries to establish themselves as leaders in the industry. The outcome of these discussions could have a significant impact on the future of cryptocurrency in Japan and beyond. As the crypto market becomes more stable, investors can confidently navigate the market with the help of these exchanges, ultimately leading to a more secure and profitable investment experience.