Flag of Canada with snow-covered statue. Photo by Matt Boman via flickr.com . License: Creative Commons
In Canada, new regulations have apparently come into force. This is evidenced by new rules of old, as well as the registrations of new exchanges. Particularly hairy is a regulation that massively limits the volume of crypto investments for citizens – and sets seemingly arbitrary exceptions.
The Ontario Securities Commission (OSC), which plays the role of the national securities regulator in Canada, announced on August 15 that all crypto platforms in Canada must file a pre-registration in order to continue to operate legally.
Eleven companies had already registered to trade cryptocurrencies at that time. Among them are the Bitbuy and Newton exchanges. They have already updated their terms and conditions to comply with the new rules of the OSC. Some other companies have submitted a pre-registration, such as Crypto.com and Coinsquare. These also contain the commitment to the new rules.
Thus, new rules were introduced not by decision, discussion and announcement – but through practice. The stock exchanges have to present their customers with fait accompli.
We are excited to finally announce our registration with the Ontario Securities Commission (OSC) and the securities regulatory authorities in all Canadian provinces, Yukon, and Northwest Territories. pic.twitter.com/8zx8UJy2DE
– Newton (@newton_crypto) August 16, 2022
A particularly controversial provision is “to protect investors”: ordinary investors are only allowed to invest 30,000 Canadian dollars (CAD) in “crypto-asses” annually.
Yes, that’s right: 30,000 Canadian dollars a year, i.e. a good 23,000 euros, not for EACH cryptocurrency, but for ALL cryptocurrencies combined.
Exceptions and arbitrariness
After all, there are some exceptions to the rule. Thus, investors are allowed to invest in unlimited volume in four “specified crypto assets”: Bitcoin, Ethereum, Bitcoin Cash and Litecoin.
Why exactly this, the OSC does not reveal. You could understand it with Bitcoin and Ethereum, because they are by far the largest cryptocurrencies. But Litecoin and Bitcoin Cash, ranked 21st and 29th in the ranking by market capitalization, respectively? Why exactly these? The rule acts like a massive, arbitrary market intervention that sets strange signals,.
The 30,000 CAD is the sum of the net investment after deduction of sales. So if you buy Dogecoin for 30,000 CAD, you have exhausted your annual limit. But if you sell this dogecoin a month later for 20,000 CAD, you can invest this amount again. So it will be difficult to build a strong position, but short-term speculation on the course of the price remains possible.
For “qualified” investors, the limit increases to 100,000 CAD, for accredited investors it is completely lifted. Thus, banks and other financial service providers enjoy significant advantages in investing deeply in a newly launched, hopeful coin.
Residents of the provinces of Alberta, British Columbia, Quebec and, to a limited extent, Manituba are also not affected. However, in Ontario, by far the most populous province in Canada, the limits apply.
It should also be noted that the limit does not apply per citizen, but per platform. So, residents of Ontario can invest on any of the currently at least nine registered exchanges for $ 30,000 each. That makes it a bit more bearable.
Nevertheless, a seemingly arbitrary division of the market by the legislator remains. This even upsets the Ethereum scene badly, although this in itself is protected by the rules from competitors such as Solana, BSC, Cardano or Polkadot.
“You buy $20,000 of Solana (SOL), a restricted cryptocurrency. You’ve now used $20,000 of your $30,000 annual limit. If you want to purchase more crypto, you are limited to buy a maximum of $10,000”
Canada what is u doinghttps://t.co/1sNK7w80pd https://t.co/Z5azEzCrPj
– DavidHoffman.eth 🦇🔊🏴 (@TrustlessState) August 17, 2022
Other Canadian divisions
However, the fragmentation of the market in Canada does not end with the regulation by the OSC. Around the same time, on August 18, the “Office of the Superintendent of Financial Institutions” (the Canadian banking regulator) published new rules for investing in crypto assets.
These rules oblige federally regulated financial institutions to partially limit their investment in cryptocurrencies and tokens. To do this, the supervisor divides the possible assets into two groups:
(1) Crypto assets, which represent traditional assets digitally, and are traded and transferred by regulated entities. These are, for example, “security tokens”, in English “crypto securities”. However, they do not play a relevant role in Europe or North America.
(2) All other assets. This means everything that is traded on the free crypto market: Bitcoin, Ethereum, Shitcoins, Stablecoins, utility tokens, governance tokens and so on. We call the group “cryptocurrencies” for convenience.
Assets of the two groups are to be treated differently, usually to the detriment of assets of group 2. The supervisory authority probably wants to prevent cryptocurrencies from drilling further into traditional finance.
For example, it is forbidden to take a “short position” on cryptocurrencies, i.e. to bet on a decline in the price. The assets must also not be collateralized, and assets that are collateralized by cryptocurrencies, such as the DAI stablecoins, should be considered an unsecured claim. In particular, financial service providers must inform the supervisory authority if their crypto positions exceed more than one percent of their capital.
Especially the last rule could lead to interesting consequences. If the price of cryptocurrencies explodes, banks could file a series of reports and be forced to reduce their positions. This could make them stabilizing factors for cryptocurrencies.
Digital currencies issued by a central bank, the so-called CBDCs, are of course exempt from these rules.