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Goodbye 100x: Japanese Gov’t to Limit Bitcoin Margin Trading Leverage to Just 2x

Avatar Cole Petersen 2 months ago

Margin trading has arguably been one of the most popular features of the crypto markets that has drawn in floods of traders over the past few years. These traders are lured by the ability to trade the already volatile assets like Bitcoin with leverage as high as 125x on some platforms.

Analysts have noted that the massive amounts of margin readily available to traders is one factor that has been driving the market’s volatility, as it allows users to magnify their positions without having to risk a significant amount of capital.

Naturally, margin trading is filled with significant risk, and the Japanese government is now taking actions to bar traders from using large amounts of leverage, which could be a growing trend that impacts Bitcoin and the nascent crypto markets.

Japanese FSA Looks to Limit Margin Trading Maximum Leverage to 2x

In a recent report from the Japan Times, the newspaper explains that the country’s Financial Services Agency (FSA) is currently moving to limit the maximum leverage available to users to a mere 2x, which is a far cry from the 25x, 50x, and even 125x that many traders are used to using.

Essentially, leverage allows users to significantly increase their trading capital without having to risk a sizeable amount of their personal funds.

For instance, if a user looking to trade with $100 worth of Bitcoin opens a 100x leveraged position, they will essentially be trading with $10,000 worth of Bitcoin.

This can expose them to massive upside should the asset’s trend favor their position, but high amounts of leverage also come with liquidation prices incredibly close to the trader’s entry price, meaning that tiny price fluctuations can lead the trader to lose all the funds they used to open the position.

Will This New Rule Impact Bitcoin and the Crypto Markets?

It’s no secret that a large amount of the cryptocurrency markets trading volume stems from active investors who are tapping into margin, but it is important to note that most countries have already regulated these financial instruments, with investors finding simple ways to bypass these restrictions.

Bitcoin margin trading with significant leverage is actually banned in many countries, including the United States, due to the platforms not adhering to those specific country’s regulations.

Traders, however, bypass these bans by using Virtual Private Networks to create trading accounts with the appearance that they are in a country that allows crypto margin trading.

Furthermore, many of these platforms do not require users to undergo Know Your Customer (KYC) proceedings, which means that users don’t have to verify their nationality or country of residence.

That being said, it is unlikely that this new bout of regulations by Japan’s FSA will have any major impact on traders, as they can easily utilize VPNs to access platforms that offer up to 125x leverage.

Featured image from Shutterstock.
Cole Petersen

Cole is a cryptocurrency analyst based in Los Angeles. He studied at the University of California Irvine and has covered bitcoin and the crypto markets since 2017.

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