Bitcoin ETFs, strict licensing and the digital dollar

Bitcoin ETFs, strict licensing and the digital dollar

In October, Toronto-based Coinsquare became the first cryptocurrency trading firm to obtain broker registration with the Investment Industry Regulatory Organization of Canada (IIROC). This means a lot because now Coinsquare investor funds benefit from the security of the Canadian Investment Protection Fund in case of insolvency, although the exchange is required to report its financial position regularly.

This news reminds us of the characteristics of Canadian regulations regarding cryptocurrencies. Although the country maintains a relatively tight licensing process for virtual asset providers, it surpasses the neighboring United States in its experience with exchange-traded funds (ETFs), pension fund investments, and central bank digital currency (CBDC) efforts.

Age of Restricted Broker

Coinsquare, which happens to be Canada’s oldest cryptocurrency trading platform, benefits from its new legal status, as none of its competitors currently have the same legal basis. By the time of publication, all other local players will be required to have “restricted dealer” status, meaning they have applied for registration and are now awaiting the IIROC’s decision.

IIROC and the Canadian Securities Administrators (CSA) introduced the Cryptocurrency Trading Platforms Guidelines in 2021. It requires cryptocurrency firms dealing in security tokens or crypto contracts to register as “securities brokers” or “regulated markets”.

All local businesses have been given a two-year transition period, during which they must begin the registration process and, in some cases, obtain temporary “restricted broker” registration.

The list of “restricted brokers” granted a two-year exemption period to operate under the ongoing registration process is quite short, and includes mainly local companies, such as Coinberry, BitBuy, Netcoins, Virgo CX and others. These companies still have the right to facilitate the buying, selling and holding of cryptocurrencies, but what awaits them is the strict compliance process necessary to continue their activities after 2023. For example, Coinsquare had to have an insurance policy get that includes the loss of crypto assets. endorse, and fund a trust account maintained in a Canadian bank.

Prosecutors closely monitored any non-compliance. In June 2022, the Ontario Securities Commission (OSC) issued financial penalties against Bybit and KuCoin, citing violations of securities laws and unrecorded operation of cryptocurrency trading platforms. She won orders barring KuCoin from participating in the province’s financial markets, and the exchange was fined more than $1.6 million.

The land of experience

At the same time, there are adoption cases in Canada that seem radical in the United States. For example, there are many crypto ETFs to invest in the country, and Grayscale still has to fight the legal battle with the United States Securities and Exchange Commission (SEC) to win the right to launch its first ETF.

The OSC for Objective Investments approved the world’s first Bitcoin ETF (BTC) for retail investors in 2021. The Bitcoin ETF Objective accumulates about 23,434 BTC, which is actually a significant symptom of the bear market. As of May 2022, he had about 41,620 BTC. The main outflow of the Bitcoin Purpose ETF occurred in June, when investors withdrew about 24,510 BTC, or about 51% of its assets under management, in one week.

Also Read: FTX Reduction Could Revolutionize Crypto Industry Governance Standards!

Another breakthrough in cryptocurrency adoption in Canada came when the country’s largest pension funds began investing in digital assets. In 2021, Caisse depot etlocation du Québec, one of the largest pension funds in the French-speaking province of Quebec, invested $150 million in Celsius Network.

That same month, the Ontario Teachers’ Pension Plan announced its $95 million investment in FTX. Unfortunately, this news did not last long as both companies have since collapsed, and both pension funds were forced to write off their investments. Perhaps, in light of this, the US Department of Labor’s warning to employers not to use pension funds that include bitcoin or other cryptocurrencies is a prudent precaution.

Due to its cold climate, cheap electricity supply and light regulations, Canada is among the best destinations in the world for cryptocurrency mining. In May 2022, it accounted for 6.5% of the global BTC hashrate. However, this fall, the company that manages electricity throughout the Canadian province of Quebec, Hydro-Québec, asked the government to release it from its obligation to provide power to cryptocurrency miners in the province. The reasoning is as follows: the demand for electricity in Quebec should increase to the point that the supply of cryptocurrencies would put pressure on the energy supplier.

Another initiative is the development of the CBDC where Canada has moved faster than its neighbor to the south. In March 2022, the Bank of Canada launched a 12-month research project focused on the design of Canada’s digital dollar, in collaboration with the Massachusetts Institute of Technology.

In October, the Bank of Canada released a research report and suggested several CBDC archetypes that would be useful for organizing “potential CBDC designs”. Although no decision was made last March regarding the introduction of CBDC in Canada, there is a small section in the country’s recent budget amendment on “digitizing currency”. In the statement, the government indicated that stakeholder consultations on digital currencies, stablecoins and CBDCs will be launched on November 3, although it is unclear which stakeholders will be engaged.

The partisan divide

The debate over what could become Canada’s official legal framework for cryptocurrencies, Bill C-249, revealed a strong partisan divide on the matter. Conservative Party member and former minister Michelle Garner introduced a bill in the House of Commons in February 2022 to “encourage the growth of the cryptocurrency industry”. The legislator proposed that Canada’s finance minister consult with industry experts, to develop a regulatory framework to encourage innovation around cryptocurrencies three years after the passage of the bill.

Despite the support shown by the local crypto community, the bill did not go down well with fellow lawmakers. During the second reading, from 21-23 November, members of other political parties, including the ruling Liberal Party, criticized the proposal and accused the Conservative Party of introducing a “dirty money system” heads, Ponzi scheme and retirees from office. business, and as a result, Bill C-249 has now been officially tabled.

Although Michelle Garner introduced the bill, it was the leader of the Conservative Party Pierre Poilievre who made the biggest criticism. Poilievre is a former Minister of Jobs and Social Development and advocates greater financial freedom through tokens, smart contracts and decentralized finance. Earlier this year, he urged the Canadian public to vote for him as leader to “make Canada the blockchain capital of the world”.

The next Canadian general election is scheduled for 2025, and given the failure of C-249 and the general state of the market, it is unlikely that Poilievre and the Conservatives will find widespread support in Parliament for their pro-crypto cause before then. Currently, the Conservative Party has only 16 of the 105 seats in the Senate and 119 of the 338 seats in the House of Commons.

The future

From a trading platform perspective, there are specific challenges the industry is trying to address, said Julia Baranovskaya, Calgary-based chief compliance officer and co-founding team member at Cointelegraph.

Most industry players would like to see “clear guidelines and a risk-based approach”. Currently, the majority of regulators in Canada have chosen to apply existing rules and regulations designed and implemented for the traditional financial industry.

However, Baranovskaya pointed out that in recent years regulators have been engaging in closer dialogue with the crypto industry. The Securities Commission has created a regulatory framework and encouraged cryptocurrency trading platforms and innovative types of companies that offer alternative financial instruments to join. IIROC has also engaged in dialogue with industry participants to better understand business models, and to identify how the current framework can be applied to them.

However, the challenges of the fragmented regulatory framework and the lack of specific regulations for cryptocurrencies remain. Most of the current regulations are product-based, but with the ever-evolving crypto space, the product-based approach would “always be a few steps behind.” In the words of Baranovskaya:

“Understanding the technology underlying cryptocurrencies and DeFi products is critical to building a flexible yet robust regulatory regime that can adapt to the ever-changing crypto space. »

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