The volatility of digital assets is nothing new to the market or its players. Now, in an aim to reduce the risk of huge losses because of such volatility, the self-regulatory body for Japanese crypto-exchanges has chalked up new plans that would set a 4-to-1 leverage limit on margin trading.
The newly proposed rules from the Japan Virtual Currency Exchange Association will include an across-the-board cap. This move would enable traders and consumers to make use of obtained or borrowed funds to enlarge their profits or losses by several times. The scheme is due to come into effect after allowing a one-year grace period. However, the association is also in talks about allowing exceptions to certain crypto-exchanges that they should be able to come up and meet required conditions, such as the installation of automatic stop-loss machines.
As of right now, Japan is running low on limits imposed on the margin trading of digital currencies. A number of exchanges, as of now, permit a leverage of up to 25 times the deposit amount, using “regulations” to justify it and therefore setting such regulations as the rather dismal benchmark for foreign exchange trading. At such a level of leverage, a trader’s entire deposit money would be completely wiped out should there, be it just a 4% drop in price.
However, digital currencies are much more volatile and unpredictable than their traditional counterparts that are used everywhere. Back in 2017, Bitcoin saw gains of over 20 times, almost having touched the $20,000 mark in early December. It then also fell to roughly a third of its peak value within a matter of a mere six months. Bitcoin has shown price fluctuations of as much as 10% within a day. A pretty good number of highly leveraged digital asset investors have had to face enormous losses, which has led to a lot of criticism and comment from several consumer protection groups.
The JVCEA’s newly drafted rules would also impose a band of insider trading and the trade of alt-coins that are suspected to be part of some money laundering scheme.