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Japan Targets Speculative Cryptocurrency Investments in Regulatory Revamp

Coincheck, one of the largest exchange in Japan suffered a loss of $534 million after a massive attack earlier this year. Given the rise in suspicious activities since then, Japan’s Financial Services Agency (FSA) plans to implement more stringent regulations in the crypto space, as reported by The Japan Times.

Before the hack, in April of 2017, Japan had revised the Payment Services Act to foster wider adoption of cryptocurrencies among its citizens for payments and remittances. The amended Act introduced a registration system under which the dealers could exchange cryptocurrencies with Yen or other legal tenders. This meant that the exchange operators were required to obtain a license to operate in the country.

At the time of revision, regulators did not expect Bitcoin and other cryptocurrencies to soar up in value by being valued as an investment, instead of a payment method. Given the price fluctuations and frequent scams, the country’s financial watchdog is now seeking to keep a check on speculative crypto investments.

“Young users who had previously no connection (with cryptocurrencies) have increased at a breathless pace,” shared a senior official of credible exchange operator.

The rampant rise in cryptocurrency investments can be attributed to the infamous practice of margin trading. It allows traders to purchase cryptocurrencies of value significantly higher than what they can afford. Typically, these traders have little capital and borrow the rest with an intent to earn huge profits.

Digital currencies are not a part of Financial Instruments and Exchange Act, which allows risky practices like marginal trading to be carried out without any monitoring. Going beyond investment and payment modes, cryptocurrencies have also paved their way as a means of fundraising. This has further raised security concerns of the regulators in Japan.

In an attempt to curb the risks involved in speculative crypto investments, the Japan Virtual Currency Exchange Association (JVCEA), the body that represents Japan’s licensed crypto exchanges, will be proposing a four-to-one limit on margin trading. Up till now, some of the domestic exchanges have offered a threshold as high as twenty five-to-one.

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