Japan Issues Warning to Crypto Derivatives Exchange Bybit

Their FSA has trained its eyes on the platform shortly after their Central Bank’s Governor criticized Bitcoin for its volatility.

By
Chung Yee
on
June 1, 2021
Category:
Blockchain News

Regulators Stepping up Regulations

Bybit Fintech Limited has attracted the attention of the Financial Services Agency (FSA) for allowing Japanese traders to leverage trade on their platform without being registered with the regulator. Bybit is a platform that allows for crypto derivative trading, operating from Singapore with more than 2 million registered users. In 2018, Binance received a similar warning from the Japanese FSA, insisting on formal compliance before the exchange can continue operation. 

Japan is following the footsteps of regulators around the world, who are stepping in to increase regulatory scrutiny citing volatility and investors’ protection. This recent spate of regulatory attention came after Bitcoin hit an all time high of $63,000 causing many retail investors rushing in for the fear of missing out. After the rise came a drastic tumble down over 50% at its lowest, and it is this volatility that concerns many regulators.


Leverage Trading, a Risky Venture

Bybit is no stranger to those who trade frequently, particularly using leverage. Leverage trading means an account, depending on the size of its collateral, can open positions up to 100x the collateral pledged. This would mean an increase of 1% in the asset price, which will translate into 100% gains in a 100x leverage trade. The user can enter into a long (buy) or short (sell) position. 

Many social media influencers have been roped in as Bybit’s affiliate to promote the company’s product in return for commission. The influencers in trying to encourage more signups may not educate their audience on the potential risks, instead simply focusing on increasing user base. The result of a squeeze will cause liquidation of many traders’ assets who have over-leveraged themselves. One such incident is the infamous GameStop incident that caused massive losses to the institutions that took over-leveraged short positions. The ordinary man on the street cheered and hailed the success as a modern day’s version of David against Goliath. However, the converse is more often true, and even in the GME incident it was institutions who ended up with the most profit. These firms saw an opportunity in the over-leveraged positions, and took advantage by causing a squeeze. This would result in massive price movement and lead to a cascading liquidation. 

Some may see this as part and parcel of the market’s cycle in rebalancing itself, while others are left suffering massive losses and remain angry at how the scenario played out. These people are often those that need the most protection, as they are usually traders with less experience in the market, having been attracted by a get-rich-quick potential.  


Bybit is Restricted in Many Countries

Japan is not the first country to take precautionary measures. On the 5th March, 2021, Bybit on its official blog announced that it will cease operation in the United Kingdom in compliance with the Financial Conduct Authority’s (FCA) ban. Its users were allowed till 31st March, 2021 to close their positions and withdraw their balances. The Governor of the Central Bank of the UK has also warned traders against the volatility of cryptocurrency.

Source 


Regulators may soon adopt the same position in respect of the countries that have banned the use of leverage platforms. It is likely that the list of countries will increase in the future due to the incredible risk that leverage trading holds.


Japan’s Crypto Outlook

The enthusiasm in crypto assets may not be shared by all. Hurahiko Kuroda, the lead in Bank of Japan is critical of Bitcoin, the leading cryptocurrency in terms of market capitalization. He said in a statement:

“Most of the trading is speculative and volatility is extraordinarily high,”

Japan was one of the more progressive countries that has recognized Bitcoin and other cryptocurrencies through Payment Services Act in 2017. This came after the regulators recognized the need to have a proper regulatory framework after the infamous Mt. Gox hack. 


Closing Thoughts

The entire exercise by regulators should not be seen as an attempt to prevent and deny mainstream adoption but it is a recognition that governments around the world are starting to take crypto assets seriously, and it always starts with what is lawful and what is not. The regulators also need to keep in mind that not every trader understands the intricacies of the market, and they must protect those individuals from portfolio catastrophe, while still maintaining a free and balanced market.

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Chung Yee

Chung Yee has a legal background and has been involved in research works for the legal and compliance industry. Writing is his passion, centered on topics such as the blockchain and finance.

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