[NEWS] JCBA requests revision of leverage ratio to increase ratio

On the 17th, the Japan Cryptocurrency Business Association (JCBA) submitted a request to the Japan Cryptocurrency Exchange Association (JVCEA) to amend the leverage ratio for cryptocurrency margin trading.

This will amend the ratio to a format calculated based on the past volatility of each individual stock. The ratio is currently set at 2x across the board, but is expected to be substantially higher.

The use cases for cryptocurrency are gradually expanding, including payment methods for digital content such as NFTs and community membership, as well as the creation of new economic spheres through incentive mechanisms.

The market size of tokenized non-financial assets is predicted to expand to 4.8 trillion yen by 2030, and payments using cryptocurrency are expected to increase further in the future.

While the need for risk hedging against price fluctuations when holding is increasing, the revised Financial Instruments and Exchange Act (revised FIEA) came into effect in Japan in May 2020, limiting the leverage ratio for cryptocurrency trading to a flat 2x.

Until then, the volume of Bitcoin (BTC) trading against the yen in Japan's cryptocurrency market accounted for 50% of the world's total, but with the enforcement of the revised Financial Instruments and Exchange Act, this figure has fallen to 1-3% in April.

The request was prepared primarily by the JCBA's Financial Affairs Committee. JCBA states that low leverage rates are a major obstacle to improving the liquidity of Japan's cryptocurrency market, and that the revision of the leverage rate will be an important part of the environmental improvement that is essential to realizing a Web 3.0 society.

In addition, in light of the above background, JCBA will derive an appropriate leverage rate by conducting research on the expansion of use cases for cryptocurrencies, the market's reaction since the enforcement of the revised Financial Instruments and Exchange Act, and comparisons with other financial products.

Currently, JVCEA calculates leverage rates for six stocks, but will change the scope of the calculation to include a wider range of stocks in the future.

There have been voices calling for the current leverage regulations to be excessively protective, with a rate of twice the cryptocurrency rate compared to other financial products being too low.

Reference:Announcement
Image: Quoted from the announcement