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The Canadian crypto sector is seeing increasing concentration.EDGAR SU/Reuters

Canada’s crypto sector is becoming like all its other sectors – concentrated.

This past week the Kevin O’Leary-backed WonderFi Technologies Inc. announced a three-way merger with CoinSmart Financial Inc. and Coinsquare Ltd.

While there’s no central body tracking the market shares of domestic exchanges – a difficult task anyway given the nature of crypto – it’s safe to say WonderFi is on its way to become very, very big.

WonderFi already bought two other exchanges last year. The Competition Bureau got involved in WonderFi’s deal-making back then, and there’s a distinct possibility it’ll try to insert itself into the process this year as well.

Meanwhile, amid imposition of tougher rules on cryptocurrency exchanges, we’ve heard whispers of an impending exit of the U.S. giant Binance, the world’s largest platform for buying and selling digital assets such as bitcoin – reported in an industry publication but officially denied by the company.

We’ve seen reports of the same for, Deribit and OKex. Others exchanges, such as Coinbase and, say they are talking to regulators in a bid to remain. But many of those said to be departing Canada once had the very same talks.

Just as in sectors such as groceries, department stores and banking, Canadian crypto investors are looking at higher fees and fewer choices if the range of competitors narrows. But that’s not always a bad thing. Like the banking sector, a concentration of crypto exchanges here could reduce risk for investors.

The reason that WonderFi keeps trying to corner the market is related to the departure of foreign players prompted by the high regulatory burden here.

The Ontario Securities Commission has been hawkishly clamping down after new rules were imposed following the implosion of the Vancouver-founded exchange QuadrigaCX. These new rules involved exchanges having to register as securities dealers, and the cost of that is high.

WonderFi had to hire more staff to deal with the effort. It told me last year that it spent $1.5-million to meet regulatory standards and continuing costs were in the “multi-millions” per year.

Not everyone can afford that. And those that can are big global companies that perhaps do not deem Canada to be a significant enough market to justify the cost. That is why the likes of Binance are reported to be leaving.

It’s much like our banking system. Our Big Six here face more stringent regulations than counterparts in the United States, with greater scrutiny on everything from capital requirements to underwriting standards. Hence the concentration.

The Bix Six control most of the domestic market, while the American Big Five control only under half of that in the United States. There are 34 domestic banks in Canada. There are 4,000 banks in the United States.

That lack of competition results in Canadians getting dinged with much higher fees. People also complain of a lack of innovation. But there’s also a bright side to that. Canada’s banking practices are a lot more conservative compared with those in the United States. For example, they’ve largely stayed away from subprime mortgage lending.

As result, the banking dominoes that fell in the United States amid the 2008 financial crisis never happened here. We still had a recession, of course, but no banks needed to be bailed out.

It’s going to be that way for crypto as well. Let’s face it: Crypto exchanges are banks in everything but name. They shouldn’t be, but that’s how users treat them. When they buy crypto on such platforms, many users never take their coins off, treating their exchange accounts like bank accounts. As such, exchanges face the same risks as banks.

Essentially, every crypto crisis that has happened, whether Celsius or FTX, was the result of a bank run. That’s when users lose faith in the platform, try to withdraw their funds en masse, and the platform does not have enough on hand to honour all the withdrawal requests. Yes, it’s the same thing that happened with Silicon Valley Bank.

But nothing really happened in Canada when Silicon Valley Bank collapsed because it doesn’t have a big presence here. That’s because some of its edgy practices would not fly in our highly regulated scene. Silicon Valley Bank’s small Canadian outpost wasn’t even allowed to take deposits.

One day a new crisis will tear through the crypto space, and we in Canada who are shielded from it might just have our concentrated industry to thank.

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