According to reports, the Japan Virtual Currency Exchange (JVCEA), which is the Japanese crypto-industry’s self-regulatory body, has suggested a limit on the leverages put forth by crypto-exchanges. ‘Leverage’ is when customers and investors are lent money by their brokers for trading purposes. It provides the potential for investors to make much more gains on their investment money. However, it also means that they stand to multiply their losses many times by using the same tokens.
Foreign exchange brokers all over the world use this procedure extensively. Since high rates of leverage are generally looked upon as an unethical business practice, there are limits levied on them in most countries by their financial regulators – 1:25 in Japan, and 1:50 in the UK and the USA.
However, the practice is not so well favoured among crypto-exchange owners. According to Cryptovest, the highest such leverage provided by a Japanese company in 1:25 at Quoinex.
Trading of digital currencies is very popular in Japan. According to a recent study conducted by the Financial Services Agency, the country’s national financial overseer, 3.5 million citizens in the country each hold at least one digital token.
The leverage cap suggested by the JVCEA is 1:4. This means that investors would be able to wager a maximum of four times the amount of money they actually invest themselves. This move is set to be put into effect after a one-year grace period. If any exchange should decide to set their own rates independently of the regulations, they would be required to make reports of all losses over the amounts actually deposited by the relevant investors.
The JVCEA was made in April by a partnership of the Japan Blockchain Association and the Japan Cryptocurrency Business Association as a retaliatory action against the theft of about $350 million from the Coincheck crypto-exchange. The membership of the organisation is made of 16 licensed crypto-exchanges. In June this year, the JVCEA published its guidelines. Listed among them is a ban on anonymous digital currencies like ZCash and Monero, and a ban on insider trading as well.
Crypto-exchanges bitFlyer and Bitbank received orders from the FSA as well, urging them to improve business practices, following which their respective CEOs Yuzo Kano and Noriyuki Hiroyuki left the organisation. The national watchdog issued these warnings after putting these exchanges through thorough inspections.