The crypto space has evolved at a breakneck pace over the past few years, and much of it is due to the fact that cryptocurrencies became a much more popular investment as well as a trading vehicle all over the world. While trading was always a big thing, the introduction of margin trading changed the game altogether, and many exchanges all over the world started providing the service.
Some of the best traders in the crypto space are now engaged in margin trading. That being said, it was always going to come under regulatory scrutiny. In a new development, Japanese cryptocurrency exchange Coincheck announced that it was going to reducing transaction size in such trades by 20% due to regulatory requirements.
Prior to this announcement, margin traders had the freedom to borrow five times their total holdings, but following this move, they will only be able to borrow four times their total holdings. The crypto ecosystem has grown quite quickly in Japan, and the rules are quite stringent. The sector is overseen by the Japan Virtual Currency Exchange Association (JVCEA), and the move is a direct consequence of the rules made by the association. Coincheck announced the new update in a blog post, and it stated that in order to be in compliance with the rules and regulations, it had to reduce the margin trading limit.
Moreover, the exchange also stated in its post that if a customer places new leveraged trades, then those trades would be canceled. Coincheck went on to state that customers could also stand to make losses if the margin maintenance rate drops below 50%.
The larger point about this development is that it remains to be seen whether this leads to a reduction of leveraged trades on the platform or not. In the initial period, something of that nature might happen, and it would be interesting to see how the exchange manages that period.
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