Japan’s Financial Watchdog to Further Reduce Maximum Leverage to 2x on Crypto Margin Trading
- FSA will cut down the leverage on crypto margin trading to twice the deposits of traders, lower than the industry's self-imposed cap of 4x
- The revised Financial Instruments and Exchange Act to go into effect this spring
- Investors to lose interest and volume to plummet, just like last year Bitflyer suffered the consequences
The Financial Services Agency (FSA) is planning to limit the leverage in cryptocurrency margin trading to twice the deposits of traders, reported Japan Times on Saturday.
This new rule will be included in the Cabinet Office, which FSA will revise in the Financial Instruments and Exchange Act that will go into effect in spring.
This regulation is stricter than the industry's self-imposed cap which is four times, but japan’s financial watchdog wants to further reduce losses that multiply due to volatile fluctuations in digital asset prices. The new large-cap is also based on the crypto regulations in the US and Europe.
The leveraged regulation has been discussed by FSA with an industry body, the Japan Virtual Currency Exchange Association after the revised law was passed in May last year by Diet.
The new regulation is expected to drive the investors away as they could lose interest in crypto margin trading. It is likely to happen as last year when the FSA reduced the maximum leverage from 15x to 4x on May 28th, Bitflyer’s volumes declined dramatically.
As Skew, a crypto derivatives research company notes, “Volumes are mostly a function of leverage.”
And with the crypto market still dominated by speculators, the volume can further plunge as happened with Bitflyer.