Japanese cryptocurrency exchange calls for relaxing the leverage limit to 10 times, claiming it is beneficial for the industry's development.

Several cryptocurrency exchanges in Japan are moving to increase the leverage limit for retail investors from the original 2x to 10x, in a bid to attract more trading and foster growth in the industry. However, local regulators emphasize the need for valid justifications for such actions and have requested cryptocurrency companies to explain how loosening the regulations would contribute to the expansion of the blockchain industry.

Japanese Exchanges: 2x Leverage Not Enough

According to Bloomberg, the Japan Virtual and Crypto Assets Exchange Association (JVCEA) has indicated that several companies have expressed a desire to allow retail investors to engage in 4 to 10 times leverage margin trading to expedite the development of the crypto industry. Genki Oda, the chairman of the association, explained in an interview:

However, the local regulatory body, the Financial Services Agency (FSA), has stated that there must be valid reasons and measures in place to change leverage restrictions and is willing to negotiate with the companies. In response, Oda stated, "Several exchanges are currently deliberating on the proposed leverage ratios and related measures, and are expected to submit the proposal to the FSA next month."

Oda added that the volatility of crypto assets has gradually decreased, and Japanese exchanges have the capability to help investors manage the risks of margin trading. However, he also acknowledged:

It may not be possible to relax leverage regulations until as early as 2024.

Japan's Crypto Market with a Massive Annual Trading Volume of $500 Billion

Between 2020 and 2021, Japanese cryptocurrency exchanges offered leverage as high as 25 times, resulting in an annual margin trading volume of approximately $500 billion. However, after the Financial Services Agency set the maximum leverage to a maximum of 2 times to curb excessive speculation and protect investors, the trading volume decreased by 75% within a year. Currently, users can only increase the risk ratio by borrowing services.

It is reported that cryptocurrency exchanges in various countries typically offer 5 to 10 times leverage for spot margin trading according to Kraken and Bybit. Of course, higher leverage ratios represent more aggressive risk operations driven by greed, resulting in greater greed and panic during price fluctuations.

Balancing Innovation and Risk Management

Although there is a certain level of insistence on leverage restrictions, Japan is also moving towards gradually relaxing regulatory standards for the crypto industry, including measures such as lowering tax rates or exempting companies, expediting token listing reviews, and providing up to 5 million yen in subsidies for digital securities issuance by the Tokyo government.

Higher leverage increases capital utilization, attracting investors and promoting trading activities, driving industry development. However, higher leverage also entails greater risk exposure, posing risks for the general public entering the crypto market.

Due to robust market protection mechanisms, Japanese users were able to recover assets and initiate restart plans ahead of users from other countries in the FTX collapse incident.

Balancing innovation and developmental aspects of the crypto market while ensuring investor protection has always been a major topic under discussion by various countries.