Japan is reported to be tightening regulations on Cryptocurrency Margin Trading, as early as next year. According to the media reports surfaced on Tuesday, the Japanese Cabinet has approved a proposed draft on the amendments in regulations related to financial instruments and payment services which include two changes related to cryptocurrencies.
The term Margin Trading means using an amount borrowed from a broker or an exchange for trading an asset. The two changes proposed for Cryptocurrency Margin Trading are:
- Cryptocurrency Margin Trading shall be capped at two-to-four times the initial deposit, similar to the cap on forex trading.
- All the cryptocurrency exchanges which are engaged in margin trading will now be required mandatorily to register with the government, within 18 months from the date when these rules come into force.
The aforementioned amendments are expected to come in force from 1st April 2020.
Japan is not the only country which is working on regulating the cryptocurrency markets at large. The recent incidents in the crypto space of fraud and manipulation, by crypto exchanges and other elements of the market, have forced governments across the globe to take concrete steps to put appropriate regulations in place for the industry. Countries like Canada which held back regulating the crypto space now inviting inputs from market analysts and experts to formulate a formidable framework of regulations.
The digital currency market has been at a slump after it reached its peak in December 2017. Ever since the majority of the cryptocurrencies have been bleeding, many of which lost almost 90% in value during 2018. The largest cryptocurrency, Bitcoin, was on a six-month-long losing spree, which finally ended in February earlier this year.
During the bearish market trends last year, several manipulations and fraudulent activities by crypto exchanges came to light. One such incident was the QuadrigaCX Exchange Scandal in Canada which resulted in a hundred and ten thousand people losing about $190 million. This forced the Canadian government to change. It stands on crypto regulations.
Japan had been one of the first countries in the world to lay downregulation framework for the cryptocurrency market. However, the government feels that the law must be tightened even further to avoid any major incident. The new registration scheme will be open to new applications, apart from the current requirements, which means that newer cryptocurrencies can also be registered directly. All of these registrations will be under the Payment Services Law introduced in the country, back in April 2017.
Cryptocurrencies came into being with the sole vision of creating a substitute for traditional banking and payment solutions. However, the rise of speculation in the market made the vision absolutely redundant as a digital token became more of an investment asset rather than anything else. Bitcoin reached at a mind-boggling price of over $19,700 apiece in late 2017, which makes it absolutely redundant in terms of acting as a payment solution.
The cryptocurrency margin trading has been one of the biggest contributors towards speculation of digital tokens. As per a data released by Japan Virtual Currency Exchange Association, Crypto Margin Trading in Japan was valued over ¥8.42 trillion ($75.6 billion) in December 2018, which was about 11 times higher than crypto/cash conversions of ¥777.4 billion ($6.9 billion).
Earlier this year in January, Japan’s Financial Services Agency revealed its plans to bring back unregistered investment firms in the country, which solicit funds in cryptocurrencies instead of cash, under the Financial Instruments and Exchange Act.
One of the major issues in the crypto space has been Ponzi schemes. To tackle this and protect investors, the new registration scheme will separate cryptocurrency exchanges that issue tokens through initial coin offerings (ICOs) from those who provide margin trading.