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Cryptocurrency exchange Coinsquare Ltd. has surprised CoinSmart Financial Inc. SMRT-NE by walking away from an acquisition deal that would have put two of Canada’s biggest crypto companies under the same roof, as the nascent sector for digital assets faces significant volatility.

Toronto-based Coinsquare was recently registered as a dealer and marketplace member by the Investment Industry Regulatory Organization of Canada – the first crypto exchange in the country to do so. In late September last year, Coinsquare announced it was going to buy its Toronto-based competitor CoinSmart, which is listed on the NEO Exchange, for about $29-million in cash and shares.

The deal was expected to be finalized roughly by the end of 2022. But on Tuesday, CoinSmart chief executive officer Justin Hartzman said Coinsquare has decided to back out of their agreement.

“The notice of termination took the CoinSmart board and management by surprise,” Mr. Hartzman said, claiming that Coinsquare had been giving “assurances” to his company until this week “that the final regulatory approvals” for their deal would soon be obtained.

Mr. Hartzman said CoinSmart is “considering all options as it has been in a position to complete the transaction for many weeks already,” but he would not clarify if those options include legal recourse against Coinsquare.

However, Coinsquare disagrees with Mr. Hartzman’s assessment of the situation.

In a statement to The Globe and Mail, chief operating officer Eric Richmond said Coinsquare, which is privately held, had conducted “standard due diligence and worked with the regulators to approve the transaction” over the past few months. But in the end, Coinsquare believed the deal wasn’t worth the high costs of acquiring a public company, Mr. Richmond said.

“Coinsquare concluded there were unacceptable costs and risks associated with the public disclosure obligations the regulators were requiring of Coinsquare while remaining a private company, without the benefits of being a publicly listed company,” Mr. Richmond said.

“We cannot comment on whether CoinSmart was taken by surprise,” he added. “CoinSmart understood Coinsquare’s concerns that had to be addressed.”

Several crypto companies merged their operations last year, as the high cost of regulation collided with a global tailspin for cryptocurrencies. Since then, however, crypto as a whole has been left dilapidated by scandals that have led to high-profile bankruptcies and collapses of key players in the sector, such as FTX Trading Ltd. and Celsius Network LLC.

Nearly US$2-trillion in value were wiped out from the crypto sector by the end of 2022, according to industry estimates. And cryptocurrency prices, including for bitcoin and ether, continue to fall to multiyear lows.

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