Wealthsimple launches cryptocurrency trading platform

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Wealthsimple Inc. is launching a cryptocurrency trading platform in a move to attract new customers to its brand and capitalize on renewed interest in the lightly regulated asset class popular with young investors.

The platform, announced Tuesday, will allow Wealthsimple clients to trade the cryptocurrencies bitcoin and ethereum using a mobile phone app. The Toronto-based financial technology company already runs a discount online brokerage for do-it-yourself traders, and is aiming to capture a broader slice of trading activity among millennial investors.

“We know that our clients trade crypto and hold crypto,” said Michael Katchen, Wealthsimple’s chief executive. “The biggest challenge that we’ve seen is in the Canadian market there haven’t been very many safe, secure, credible platforms for doing that.”

Since rocketing to prominence in 2017, the cryptocurrency industry has been troubled by a series of scandals involving manipulative trading strategies, unregulated assets and fraudulent trading platforms. Most notable was the Canadian cryptocurrency exchange QuadrigaCX, which operated like a Ponzi scheme before collapsing in 2018, leaving around 76,000 clients with $169-million in losses.

Wealthsimple is pitching its new platform – which will launch this month in “beta” form to a limited number of clients – as a more reputable alternative to other cryptocurrency trading platforms. The company is working with New York-based Gemini Trust Co. LLC to clear cryptocurrency trades and act as a custodian for the digital assets.

Wealthsimple won’t charge commission on trades, but will earn money on trading spreads – the difference between the price sellers are asking and buyers are offering – by working with liquidity providers that buy and sell from their own books. Wealthsimple Crypto, as the platform will be called, will also function as an “onboarding” tool to introduce people to the company and its suite of products.

“A lot of young investors and first-time investors are dabbling in crypto, and we want to use that opportunity to bring them in and educate them so they can be smarter, more holistic investors over time,” Mr. Katchen said.

Wealthsimple is best known for providing low-cost, exchange-traded fund portfolios designed by computer algorithms. Over the past 18 months, amid slower-than-anticipated growth in the Canadian robo-adviser space, it has expanded into discount online trading, tax software and cash management. Wealthsimple Crypto will be run by a recently launched subsidiary called Wealthsimple Digital Assets Inc.

While Wealthsimple is looking to brand its product as a safer alternative to other crypto exchanges, it will still operate in a hazy regulatory environment. Wealthsimple Digital Assets has been authorized by the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC), the company said. But the crypto platform has not been approved by the Ontario Securities Commission or any other securities regulator.

“The reality is this a very novel space and regulators haven’t entirely figured out the scope of oversight. That’s one of the challenges of the industry; as a result you’ve seen a whole bunch of unregulated firms launch without working with regulators,” Mr. Katchen said. He added that Wealthsimple has consulted with the OSC on the new crypto platform.

Bitcoin and ethereum have experienced a bull run over the past four months. Both digital assets remain well below their 2017 peak, but have nearly doubled in value since March lows, closing on Tuesday at US$9,243 and US$240, respectively.

The rise in cryptocurrency trading activity could make it an attractive moment to launch a new exchange. But it is also a moment when inexperienced retail investors are at increased risk, said Dan Hallett, director of asset management for HighView Financial Group and a critic of cryptocurrency investing.

“Anything that has strong recent performance, especially strong performance in a year like we’ve had this year, is going to lure investors in,” Mr. Hallett said.

“I can say with confidence that the more volatile the investment, the poorer the investor outcomes over time … And they don’t get much more volatile than bitcoin,” he said.

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