The Japan Virtual Currency Exchange Association, the Japanese cryptocurrency industry’s self-regulatory organisation, has proposed a cap on the leverage offered by cryptocurrency exchanges, according to the Nikkei Asian Review.
What is leverage?
Leverage is when a broker lends money to their customers to trade with. It allows customers to potentially make more profit on their investments, but by the same token can multiply their losses.
It is widely used by foreign exchange brokers worldwide. Because high leverage rates are seen as an unscrupulous business tactic, financial regulators in most countries enforce limits – in Japan it is 1:25, in the USA and UK 1:50.
It is not so popular amongst cryptocurrency exchanges, however – the highest leverage available at a Japanese company is 1:25 at Quoinex, according to Cryptovest.
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Cryptocurrency trading is very popular in Japan – a recent survey by the Financial Services Agency, the country’s national watchdog, found that 3.5 million citizens had holdings in at least one cryptocurrency.
The JVCEA is proposing a cap of 1:4, which means that customers would be able to bet a maximum of four times the amount of money that they actually put in. The measure would take effect after a one-year grace period, and if an exchange decides to set its rate independently of the guidelines it would be obliged to report any losses beyond the amount deposited by the relevant customer.
Self-regulation in Japan
The JVCEA was created in April by an amalgamation of the Japan Blockchain Association and the Japan Cryptocurrency Business Association as a response to the theft of $530 million from an exchange called Coincheck. Its membership consists of 16 licensed cryptocurrency exchanges.
It published its guidelines in June 2018. They include a prohibition on listing anonymous cryptocurrencies like Monero and ZCash and a ban on insider trading.
Also in June, the CEOs of Bitbank and bitFlyer, Noriyuki Hiroyuki, and Yuzo Kano respectively, left the organisation after their exchanges received business improvement orders from the FSA. These are warnings which the national watchdog gave after carrying out inspections of these businesses.