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Crypto in Canada: Where are we today, and where are we heading?
Cointelegraph | Desiree Smith | Jun 24, 2021
An exploration into the country’s crypto landscape today and what it means for the future of the digital asset industry in Canada.
Digital currencies are quickly becoming more mainstream within the Canadian financial landscape. Alongside this increased adoption, Canada has been relatively successful at creating a stable regulatory environment. In 2014, Canada established itself as a leader in the global digital asset space when the Canadian Parliament became the first government in the world to pass a national law on digital currencies. Since then, Canadian regulators have remained fairly proactive in their approach toward cryptocurrency, taking a cautious-yet-optimistic stance in an attempt to promote innovation while still protecting investor interests.
Regulatory support for digital asset innovation
Especially in comparison to other international jurisdictions, which either impose stricter policies or harbor a more laissez-faire attitude, Canada’s supportive environment to cryptocurrency is reflected in some of the options offered to startups experimenting with digital asset technology.
See: WEF Insight Report: Digital Assets, Distributed Ledger Technology, and the Future of Capital Markets
For example, the Canadian Security Association’s (CSA) sandbox initiative supports financial technology (fintech) businesses seeking to offer innovative products by carefully vetting business models in live-testing environments. Similarly, the Ontario Securities Commission (OSC) LaunchPad works with financial service businesses to keep regulation aligned with digital innovation and encourage the development of products, services and applications that meet compliance standards required by securities laws.
In addition to these services aimed at innovators looking to collaborate directly with financial authorities in the context of their specific business model, regulators have also published broad, but comprehensive, guidance on navigating applicable legislative frameworks.
Canadian regulatory trends in 2021
When it comes to the integration of crypto into traditional investing, Canada has been remarkably advanced with its sanctioning of Bitcoin (BTC) and Ether (ETH) exchange-traded funds in 2021, allowing more mainstream investors the opportunity to have digital asset exposure through their investment accounts, including tax-advantaged registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs).
Canada also surpassed the United States by allowing digital asset exchange-traded funds (ETFs), setting a precedent of wanting to be competitive in the sector. In February, Purpose Financial LP’s Bitcoin ETF accumulated over $400 million assets under management within its first two days and went on to cross the $1 billion mark within two months post-launch.
The Canada Revenue Agency has characterized cryptocurrency as a commodity and stated that the use of cryptocurrency to pay for goods or services should be treated as a barter transaction. Because cryptocurrency is treated as a commodity, it has prevented the unfavorable misreporting of taxes as a result. However, the landscape is constantly evolving, so regulators must remain ahead of the game to avoid crypto enthusiasts looking at the United States, Europe or Asia as alternative playgrounds, draining Canada of both its talent and its investment.
See: Bank of Canada to become new regulator of fintech companies doing payments processing
Finally, there is potential for Canadian digital asset companies to not just offer trading but also own and operate crypto mining facilities. Canada offers a safe haven for miners coming from politically and financially unstable environments to carry out operations within a relaxed framework, putting the country at the forefront of the digital currency revolution. Miners from previously heavy crypto quarries like China are on the lookout for favorable pastures with less hostile regulations and are now looking at Canada as a lucrative alternative.
Historically, authoritarian governments — where hostile and unstable rule-making induces a net negative to their economy — are more likely to impose stricter measures on digital assets, which could inevitably force industry participants to move to countries like Canada that offer relatively favorable conditions. Digital asset companies will continue to move to wherever they are most welcome, and the countries that facilitate these moves will be much better positioned to reap the benefits of the digital asset industry as it continues to grow and threaten traditional finance.
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