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JAPAN: Financial Services Agency (FSA) to Limit Crypto Margin; Seeks Larger Deposits

January 13, 2020


JAPAN: Financial Services Agency (FSA) to Limit Crypto Margin; Seeks Larger Deposits

According to the Japan Times, the Financial Services Agency (FSA) is looking for a way to convince traders to deposit larger amounts of money when leveraging cryptocurrencies. The FSA plans to achieve that by introducing financial mechanisms that will limit the crypto margin in order to maintain relative stability in the still unregulated market. 

The regulatory ‘fix’ aims to reduce the growing risks of losses during unpredictable and volatile price fluctuations, basically by limiting how much one can earn, and therefore how much is subject to a possible loss in case things go sideways. 

The new rule will be an extension of the revised Financial Instruments and Exchange Act that goes into effect in Q2 2020, and it will be imposed by a Cabinet Office order, says JapanTimes’ source.

Furthermore, the Asian outlet suggests that anything between 80 to 90 percent of transactions made in cryptocurrency exchanges in the country of the rising sun is speculative margin trading and it does not reflect the cryptocurrency adoption everyone is talking about.

Sure, cryptocurrencies have a lot of benefits when compared to traditional monetary systems, but lower fees, and/or transaction times are not exactly the reasons why most of these people use cryptocurrencies. 

Read More: Bitcoin Set For 2020 Growth Based On Scarcity And Increasing Demand

As a matter of fact, most of the crypto-traders would use normally their traditional banking account, PayPal, and fiat currencies for everyday tasks, and will use crypto only as a method of margin based on timing and speculation.

It is not clear how the proposed limits would work, but if they manage to deal with extreme fluctuations, without eliminating the opportunity for a healthy margin I think this could be a beneficial regulation, one that aims at investors’ protection.

The only thing that’s discussed outside the Cabinet Office, was FSA’s explanation to Japan’s Virtual Currency Exchange Association, who was subject to the revised law that passed earlier last year.

“The agency has decided on the leverage cap of two times based on past price fluctuations and cryptocurrency regulations in Europe and the United States”, Japan Today sources said.

That would be in opposition to the four-times organic cap margin observed in the broader crypto industry and besides the VCEA, cryptocurrency exchanges operating in the country are urged to alter their business models as the new regulations are putting pressure on high-volatility crypto trading. 

It seems that while most countries are trying to figure out how to include cryptocurrencies in the already-established financial network, Japan, and France are focusing on investor protection, with the latter also recently announcing a tailored procedure which will evaluate in-house ICOs and grant what they call a “non-obligatory visa” to startups that manage to provide all the details required by the regulator.