Japan’s Crypto Exchanges Push for 10x Margin Trading to Boost the Industry

As it turns out, following the Reddit Blackout, the majority of /r/wallstreetbets users have relocated to Japan and are now lobbying for more relaxed Crypto Trading regulations.

Jokes aside — Japan is one of the most regulated markets for cryptocurrency trading in the world. However, some of the local crypto exchanges are pushing for a relaxation of the rules on margin trading, hoping to boost the growth of the sector and attract more investors.

Margin trading allows traders to borrow money from exchanges or brokers to increase their exposure to an asset. For example, if a trader has $1,000 and uses 10x leverage, they can trade with $10,000 worth of crypto. This can amplify both profits and losses, depending on the price movements of the asset. Currently, Japan’s Financial Services Agency (FSA) limits the leverage for retail investors to 2x, meaning they can only double their initial deposit. This rule was introduced in 2020 to curb excessive speculation and protect investors from the risk of amplified losses.

However, many people in the industry want the FSA to allow leverage of 4x to 10x, which is more common in other countries. According to the Japan Virtual & Crypto Assets Exchange Association (JVCEA), a self-regulatory body of crypto exchanges, reforming the leverage rule could make Japan more attractive for crypto and blockchain companies.

The JVCEA’s Vice Chairman Genki Oda said in an interview with Bloomberg that the association is in talks to reach a consensus on a recommended leverage limit and may take their proposal to the FSA as soon as next month. Oda said that digital-asset volatility has cooled since 2020 and that Japanese exchanges are well-equipped to help investors manage the risks that come with margin trading positions.

The FSA official said that crypto firms must present convincing reasons why loosening margin trading caps will help the government achieve its goal of expanding blockchain-based industries. The agency is open to discussing the issue with digital-asset businesses, but also stressed the importance of investor protection.

Japan has moved toward easing some crypto rules, such as on token listing and taxation, but overall is viewed as having strict regulations. That focus on investor protection enabled the Japanese arm of failed exchange FTX to return money to clients earlier this year even as the group’s US bankruptcy drags on. Margin trading was one of the main drivers of crypto trading volumes in Japan in 2020 and 2021, when exchanges offered as much as 25x leverage. However, those volumes shrank 75% by 2022 after the FSA rolled out the 2x limit.

Depending on local rules, digital-asset exchanges elsewhere in the world often offer spot margin trading of between 5x and 10x initial deposits. Some platforms provide more aggressive lending, emblematic of the avaricious speculation that can send waves of greed and fear across crypto.

It remains to be seen whether Japan’s crypto exchanges will succeed in persuading the regulators to ease margin trading restrictions and whether that will have a positive impact on the sector’s growth and innovation.

That’s all I have for you for today. Good luck!