Where are we today and where are we going?

Digital currencies are fast becoming mainstream in the Canadian financial landscape. Coupled with this increased adoption, Canada has been relatively successful in creating a stable regulatory environment. Canada established itself as a leader in the global digital asset space in 2014 when the Canadian Parliament became the first government in the world to pass national digital currency laws. Since then, Canadian regulators have remained fairly proactive in their approach to cryptocurrencies, taking a cautious but optimistic stance to encourage innovation while protecting investor interests.

Regulatory support for digital asset innovation

Particularly when compared to other international jurisdictions that impose stricter guidelines or take a more liberal stance, Canada’s supportive environment for cryptocurrencies is reflected in a range of options offered to startups experimenting with digital asset technology.

For example, the Canadian Security Association (CSA) sandbox initiative supports financial technology (fintech) companies that want to offer innovative products by carefully reviewing business models in a live test environment. Similarly, the Ontario Securities Commission’s (OSC) LaunchPad works with financial services companies to comply with regulations that are focused on digital innovation and encourage the development of new products, services, and applications.

In addition to these services, which are aimed at innovators who want to work directly with tax authorities in the context of their particular business model, regulators have also published comprehensive but comprehensive guidance on navigating the existing legal framework.

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The dichotomy of digital asset regulation

The need for regulation has polarized the crypto industry since its inception. Investors and companies are hungry for processes that require a regulatory framework. On the flip side, an over-regulated economy could isolate Canadians from integration into the broader digital asset industry and force investment overseas. So what’s a good balance between the two?

Early blockchain proponents argued that its non-middle-head characteristics made regulations confusing, arguing that cryptocurrency was created as a solution to tight public scrutiny in financial markets. Under this assumption, before mid-2017, many token issuers largely ignored the registration requirements of securities law in order to protect investors and promote fair markets.

However, credible remedies are necessary to protect individual rights and are part of an accountable judiciary. Particularly in the financial sector, where individuals are extremely risk-prone, regulation minimizes the risk of consumer harm and is paramount to maintaining market integrity.

For example, it is now clear that Canadian companies that trade in cryptocurrencies (such as cryptocurrency exchanges) must register with the Financial Transactions and Reports Analysis Center of Canada (FINTRAC) as a money services company (MSB). Registration means that these companies are subject to official monitoring and reporting obligations. Because of these regulatory obligations, it is more likely that scammers will be removed from the field to give way to legitimate gamblers who can offer a higher level of investor protection. This legalization of the digital asset industry is mainly why trading platforms embrace progressive regulations. to work together constructively to increase security and transparency without stifling an industry that is still in its infancy.

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Politics therefore plays an essential role in developing the necessary conditions to create a suitable framework for the secure operation of cryptocurrencies. The CSA jurisdiction, along with the Investment Industry Regulatory Organization of Canada (IIROC), has expressed an interest in working closely with companies that trade digital assets to understand their views.

Regulations on this scale cannot be rushed, and regulators have considered a number of factors to ensure that any new legislation only encourages the boom in the digital asset industry. Enabling Canada to act as a successful crypto hub while protecting investment security and preventing fraud are some of the key elements of the proposed regulatory framework. The good points for regulation are somewhere – strict enough to protect investment and fraud, and permissive enough to allow private and international companies to thrive in the digital asset space.

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Canadian Regulatory Trends in 2021

When it comes to integrating cryptocurrencies with traditional investments, Canada made significant strides in 2021 in penalizing Bitcoin (BTC) and Ether (ETH) exchange-traded funds, allowing more investors to invest – beneficial Registered Pension Plans (RRSPs) and tax-exempt savings accounts (TFSAs).

Canada also overtook the United States in approving exchange traded funds (ETFs) for digital assets, setting a precedent for wanting to compete in this space. In February, Purpose Financial LP’s Bitcoin ETF amassed over $ 400 million in assets under management in the first two days and exceeded the $ 1 billion mark within two months of its launch.

With an ever-growing portfolio, one might expect tax concerns to arise. However, the Canadian tax authorities have been fairly clear on tax matters and have given investors adequate guidance throughout the process. Currently, Canadian tax laws and regulations, including the Income Tax Act, also apply to cryptocurrency transactions.

The Canada Revenue Agency has described cryptocurrencies as a commodity and stated that using cryptocurrencies to pay for goods or services should be treated as a barter. Because cryptocurrency is treated like a commodity, it prevents tax errors. The landscape is constantly evolving, however, so regulators need to stay one step ahead to avoid crypto enthusiasts viewing the US, Europe or Asia as alternative, consumable playing fields for both Canadian talent and investment.

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Canada always leads as a miner’s paradise

Canada is the number one choice for cryptocurrency miners because of its climate, power supply, and lighting conditions. The hardware used by cryptocurrency miners generates a significant amount of heat and needs to be cooled to avoid overheating, and being in a relatively cool climate like Canada helps reduce the cost of cooling the machine. In addition, Quebec electricity prices are among the lowest in North America. For industrial consumers, the charge is approximately $ 0.05 per kilowatt hour. Energy use is the main cost of crypto miners and is understandably the main reason Canada attracts them.

After all, there is the potential for Canadian digital asset companies not only to offer trading, but also to own and operate crypto mining facilities. Canada provides a safe haven for miners from politically and financially unstable environments to conduct operations in a comfortable setting and put the country at the forefront of the cryptocurrency revolution. Miners from former heavy crypto mining pools like China are looking for cheap pastures with less hostile regulations and are now viewing Canada as a lucrative alternative.

Think long-term, you also have a sustainability mentality, and while the traditional financial industry relies on carbon-based energy sources, digital assets are conveniently moving towards green energy. This is also borne out by Square’s report on the Bitcoin Clean Energy Initiative – a unique energy model that could enable the installation and capacity building of solar and wind power generation methods. Canada is a world leader in the search for renewable energy, and a flexible regulatory framework for cryptocurrencies could lead a large number of international players to venture into the ‘real north’. “

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What does the future hold for crypto regulation?

With the internet-native digital asset space, fintech platforms can be set up anywhere in the world. This globalization of the financial industry means that Canada cannot simply wait for a regulatory framework to become available or it will fall behind in the innovation race. Regulators need to encourage digital asset investment and project development in their country.

Getting to know the Canadian digital asset trading market with the advent of more crypto asset trading platforms is a step …