Japan’s Virtual & Crypto Assets Exchange Association has revealed that the country’s crypto exchanges are advocating for increased leverage for retail investors, from the current two-fold to a range of four to ten times.
Before the Financial Service Agency’s (FSA) imposed limit, margin trading leverage was as high as 25x, leading to a booming annual trading volume of $500 billion in 2020 and 2021. However, these figures have since plummeted by 75%.
In a Bloomberg interview, Genki Oda, Vice Chairman of Japan’s Virtual & Crypto Assets Exchange Association, expressed the potential of reforming leverage rules to draw in more crypto and blockchain companies to Japan. Oda believes this could encourage industry growth while still protecting investors.
The local crypto exchanges are aiming to reach an agreement on the leverage limit and present their proposal to the FSA by next month. Nevertheless, this endeavor will be a difficult task, as Japan has a long-standing reputation for stringent crypto regulations that prioritize investor safety. Yet an FSA official has expressed a desire to discuss the issue with crypto exchanges. If the exchanges can demonstrate how increased leverage on margin trading can aid the government’s goal of attracting blockchain companies to Japan, they may stand a chance.
Earlier in May, Japan implemented fresh anti-money laundering rules that included the FATF’s controversial Travel Rule for crypto exchanges. This requires that exchanges share transaction information with one another when the transactions exceed a certain threshold, as well as put restrictions on transactions from the exchange to platforms that have not adopted the Travel Rule Universal Solution Technology rule.
Presently, many crypto exchanges in the country are struggling to comply with the new regulations. It will be interesting to see how they cope with the challenge of persuading the FSA to relax regulations that could potentially put retail investors at risk, considering Japan’s attitude towards cryptocurrency regulations.
