Canada’s regulatory situation is both clear and more conservative than in the U.S. (Sebastiaan Stam/Unsplash)
Last March, U.S.-based cryptocurrency exchange Coinbase expanded its footprint north of the border, hanging its shingle in Canada. The move, part of the largest U.S. crypto exchange’s efforts to increase its international presence, could be a signal of its challenges and opportunities abroad.
“It’s a natural extension of the spot market and an opportunity for the ecosystem to introduce products and services using digital assets that are efficient and trusted,” Lucas Matheson, Coinbase Canada’s country director, told CoinDesk in an interview.
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Coinbase’s actions in Canada could potentially predict future activities in the U.S. and other regions. Matheson suggests that Canada is ahead in providing regulatory clarity, especially considering the U.S. Securities and Exchange Commission’s (SEC) efforts to limit crypto market expansion and separate the digital asset industry from the broader economy.
However, while Canada’s regulatory system is more straightforward, it can also be perceived as more cautious.
Matheson expresses that they have been quite fortunate to observe regulators constructing a framework that can be established as a worldwide standard. Coinbase is currently seeking to obtain its restricted dealer registration, guidelines requiring exchanges to formally register with the Canadian government.
This holds considerable significance, particularly considering Coinbase’s financial situation. While Coinbase has successfully diversified revenue sources in recent years — such as launching a prime brokerage division, the Base layer 2 blockchain, and staking and custody services, including for numerous bitcoin exchange-traded fund (ETF) providers in the U.S. — the enormous bulk of its earnings still come from trading fees.
See also: Coinbase Shares Surge After It Crushes Wall Street Estimates
Unless Coinbase manages to nurture new business domains capable of thriving beyond the typically fluctuant crypto price cycles that attract crowds during boom periods and induce the exchange to cut back during slump phases, it will perpetually be susceptible to market dynamics. Therefore, its maneuvers in Canada might just hint at what’s in the offing in other regions.
Regulatory principles in Canada permit companies to roll out new offerings and services, according to Matheson. Coinbase specifically aims to introduce perpetual futures contracts and other derivatives products in Canada, liaising closely with policymakers and authoritative bodies such as the Ontario Securities Commission (OSC) on the possibility of remodeling the nation’s policies to accommodate this initiative.
In line with this, Coinbase has recently become part of the Canadian Web3 Council, an encompassing non-profit conglomerate striving to push back recent legal and regulatory procedures in Canada currently making the country inhospitable for crypto companies. For instance, several exchanges like Binance, Bybit, dYdX, OKX, Paxos and Bittrex (which has since gone bankrupt) elected to exit Canada recently, citing the new regulatory landscape as the catalyst.
Under the “pre-registration undertakings” recently implemented by the Canadian Securities Administrators, firms are now obligated to separate crypto custody from trading platforms, restrict leveraged trading and employ compliance staff, including a chief compliance officer. The country has also introduced strict regulations on “algorithmic” stablecoins, which include assets such as Maker’s dai (DAI).
Canada’s potential market size (about 35 million adults) and specific regulations might make you wonder if it is worth the effort. When Coinbase Canada officially launched last year, they noted that Canada was the third most “crypto aware” country globally, according to an OSC survey. However, this does not necessarily equate to substantial trading fee revenues.
For Matheson, the opportunities in Canada are less theoretical. He views Canada as a testing ground to launch new products that might later be introduced in the U.S. or EU. He also acknowledges the significance of finding ways to convince skeptical regulators.”We’re collaborating with industry partners including the Web3 Council and regulators to explore a way forward for bringing derivatives and leverage products to both the retail and institutional markets in Canada,” he said.
See also: Coinbase (COIN) Is Discussing With Canadian Banking Giants
Matheson anticipates a high chance of fruition taking into account the country’s financial innovation track record. As an example, Canada led the U.S. by launching not only the first spot market bitcoin ETF in the world, the Purpose Bitcoin ETF in February 2021, but also the first-ever ETF on the Toronto Stock Exchange in 1990, three years ahead of a similar U.S. product.
Prior to the U.S. ETF approvals in January this year, Eric Balchunas, a foremost ETF analyst with Bloomberg Intelligence, analyzed the Canadian ETF market to gain insight into the economic possibilities in the U.S. By the end of 2023, nearly 50% of the global spot crypto ETFs’ total assets under management were accounted for by Canada’s crypto ETFs. However, the U.S. ETF market is 32 times that of Canada, with Canada’s total crypto market value barely over $1 billion.
Coinbase’s rivals of long standing Kraken and Gemini have also chosen to reinforce their commitment to Canada.
However, even in Canada, the road to crypto adoption is challenging. Matheson points out that at the most, only 13% of the populace utilizes crypto. After all, similar to the U.S., Canada boasts a mature banking and financial services industry implying that retail customers aren’t in need of some of the services currently offered by crypto. This may be perceived as a potential for greater institutional inclusion, but this is contingent upon customers recognizing the necessity to handle crypto first and foremost.
“What’s interesting and fairly unique about Canada is that we don’t have a strong political vision for how digital assets are going to help our economy in Canada,” Matheson, a true-blue crypto believer said. “And so one of the things that our whole industry has been working really hard on is how do we educate our government officials and demystify some of the myths and misunderstandings about the digital economy.”
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Daniel Kuhn is a deputy managing editor for Consensus Magazine.
He owns minor amounts of BTC and ETH.
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