Canadian regulators aim to protect investors while allowing the crypto market to progress.istock.com
A combination of positive attention and cautionary headlines are propelling cryptocurrencies to the front of mind of industry stakeholders, regulators, investors and the general public.
This momentum has significantly expanded the interest in digital currencies from both retail and institutional investors, says Eric Richmond, chief operating officer at Coinsquare. “We have a perfect storm for rapid growth of this industry in the Canadian marketplace – and we’ve reached this point through an evolution of infrastructure, software developments and regulatory frameworks.”
From a fringe idea to mainstream adoption
In their infancy stages, blockchain and cryptocurrency were little more than ideas that only technical folks interacted with, says Mr. Richmond, who explains that this tech-centric focus soon evolved.
Efforts to increase awareness and tools for consumer participation first reached retail investors – with demand from institutional investors taking longer to materialize.
“In 2017, when we had a bull run, much of it was retail-driven. What followed was the so-called ‘crypto winter’ between 2018 and 2020, which allowed people to take a breather and continue to build out the infrastructure,” he says. “Regulation is catching up to the rapidly developing industry, and now crypto-asset trading platforms need to get registered as a marketplace or dealer to operate.”
Corporations have started to put cryptocurrency on their balance sheets, says Mr. Richmond. “You see institutions like MicroStrategy and Square investing in bitcoin, because everything from a custody, pricing and trading standpoint has been figured out.”
Entering regulations
Institutional investors’ requirements – such as the proper trading infrastructure as well as custodians that support the marketplace and provide safety and security – are increasingly being met, and Mr. Richmond refers to a recent announcement outlining securities law requirements that apply to crypto asset trading platforms by the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC).
Coinsquare has worked in close consultation with regulators since early 2018 to support efforts to understand the space and how legislation may be tailored for the crypto asset trading platform business model.
“Regulators have now put their stake into the ground,” says Mr. Richmond. “What we’ve been marching towards – and where we’ve invested a lot of money, time and resources – at Coinsquare is becoming a registered marketplace and IIROC broker dealer for digital assets by Q4 of this year. This will allow us to continue to grow and offer the best service for Canadians.”
While the regulatory framework will bring challenges – for example, for navigating the complexities that arise between equities and cryptocurrencies – it also presents opportunities for bolstering institutional adoption.
“When you have a regulated marketplace and regulated dealers, this can attract other investors as well as more registrants,” he says. “Regulators are not looking to stifle the Canadian industry. They’re looking to regulate it to protect investors – yet still allow the crypto space to progress.”
The path forward
Among the intended outcomes are providing a greater number of investment and financial options. “It would be great to get to the point where trading cryptocurrencies is no different than trading a stock of any sort,” says Mr. Richmond. “You could have the ability to see more product pairings and other types of unique structures that go beyond holding only one type of coin.”
At the other end of the spectrum, “some of the stablecoins like tether and USDC can unlock a lot of value in the payment space,” he adds. “For example, you could send money from Canada to the Philippines in a matter of minutes rather than days and for a much cheaper rate than Western Union.”
Banks and other institutions continue to share news about cryptocurrencies, and this fuels Mr. Richmond’s enthusiasm that the crypto market will catch up with – and eventually outdistance – some of the other markets. “For example, I can definitely see bitcoin overtaking the gold market,” he says. “It’s already been called ‘digital gold’ – and it is easier to store and easier to transfer.”
There is a marked difference between today’s state of affairs and the last bull run, Mr. Richmond stresses. “2017 was really just a blip on the charts that lasted a couple months, while we are now past month six, and I don’t see any signs of it slowing anytime soon.”
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