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Japan crypto asset association proposes revised domestic leverage ratio review



The Japan Crypto Asset Business Association (JCBA) has sent a revised proposal on the review of the leverage ratio for crypto asset margin trading, an Asian media outlet reported. The body submitted the document to the Japan Crypto Asset Exchange Association (JVCEA) pointing out that the current leverage ratio is highly regulated compared to other derivatives markets.

The proposed change to the calculation method according to JCBA was based on past price volatility. Further, JCBA requested that JVCEA cooperate in realizing the revised proposal.

In October 2019, the highest leverage for cryptocurrency margin trading for individuals was reduced from 25x to 4x and further reduced to 2x in May 2020. For FX trading, the current leverage is set at 25x and its domestic trading volume reached 1,020,074 trillion yen in 2022.

However, different calculation methods were employed for corporations. The method introduced calculates leverage based on weekly (past) price fluctuations per individual stock. JCBA’s current argument seeks that the calculation method for corporations which is between 4x to 9x should be adopted for individuals.

Specifically, JCBA thinks that “For crypto assets to be recognized as an official asset class, it is necessary to develop a derivatives market next to the development of the spot market.”

Data from JCBA unveils a decline in crypto asset transactions since 2018, while it peaked in 2020 has however continued to fall. “Since the law was revised trading volumes and open interest balances have fallen sharply, with the decline in crypto asset margin trading being particularly noticeable compared to spot trading,” the Asian media outlet stated.

This however has led to increased outflow of individual investors looking for high-leverage exchanges. Additionally, the stability and management of domestic exchanges have been impacted. JCBA also aims at bringing back users who moved to exchanges outside Japan for higher leverage.

JVCEA is a certified self-regulatory organization within the “Certified Fund Settlement Business Association” and “Certified Financial Instruments Business Association.” JCBA’s suggestion is to be considered by JVCEA and other related bodies.

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