Plans for new U.S. cryptocurrency regulations are an encouraging move for Canada’s sector, experts say

A long-awaited executive order from the White House could signal more regulation on the horizon for the Canadian cryptocurrency market.

The executive order, announced March 9, calls on several U.S. government agencies, including those governing commerce, homeland security and national intelligence, to take significant steps toward developing a regime for regulating crypto. Each agency is required to submit a report assessing the implications of cryptocurrency on their operations within 180 days.

The order, which prompted a 9-per-cent jump in the price of bitcoin after a news leak of the pending announcement, also calls for the consideration of a U.S. central bank digital currency.

Industry experts say the U.S. moves to regulate the sector demonstrate a general positivity toward cryptocurrency, and the promise of legal clarity for it may, in turn, influence Canada’s legal requirements.

“Regulatory bodies act with sovereignty but do take leads from other countries,” said Phil Sham, co-founder and chief executive officer at Aquanow, a digital asset company based in Vancouver.

He expects security agencies here will follow U.S. regulators by providing more clarity that will enable greater crypto innovation and adoption.

With greater clarity, companies will feel more comfortable setting up in Canada and exploring new technologies and business models without fear of legal retribution, he said. Also important is what the United States is not doing: jumping ahead with heavy-handed regulation that could set a negative precedent in Canada.

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Canadian crypto regulation is fairly progressive when compared with some other countries. As a result, Canada has become a hub for many companies that mine crypto electronically and develop new digital technologies. In 2021, for instance, the Ontario Securities Commission approved the world’s first direct custody bitcoin ETF from Toronto-based Purpose Investments.

But Canada has also imposed restrictions that other countries have not, Mr. Sham said. As of last summer, companies holding cryptocurrency in an electronic wallet for a customer are required to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and report their transactions. Some companies offering cryptocurrency derivatives, a type of security, chose to cease operations in Canada to avoid administrative burden of regulation, he said.

But other experts say more consumer protection could mean faster adoption in Canada.

“I’m convinced that crypto can only become mainstream if there is strong regulation governing it,” said Boris Wertz, founder of Vancouver-based venture capital firm Version One Ventures LLC. “The idea that this can be the Wild West without it is just not realistic.”

Currently, Canadian crypto investors are protected by some of the rules that govern stock exchanges. But digital currencies are not covered by the Canada Deposit Insurance Corp., which protects bank deposits.

Last week, the Canadian Securities Administrators, the umbrella group for provincial and territorial securities regulators, urged prospective crypto buyers to “ask themselves a series of questions” to reduce the risk of losses and avoid crypto-investment scams.

The U.S. progress on regulating crypto could serve to diffuse some of the uncertainty surrounding the industry in recent months. The conflict in Ukraine has raised further questions about the sanctioning of cryptocurrencies.

In Canada, crypto made recent headlines earlier this year for its role in allowing donors to contribute to protests against COVID-19 restrictions in Ottawa, circumventing traditional financial roadblocks as banks froze the accounts of individuals suspected to be involved.

Yet other experts say substantial regulatory change in Canada could still be far off, despite the U.S. moves.

“I don’t think it’s going to have a dramatic and sudden effect, because the reality is at least on the securities regulatory front, our regulators have been doing some of this already,” said Lori Stein, a partner at the Bay Street law firm Osler, Hoskin & Harcourt LLP.

Ms. Stein doesn’t expect any new regulation for at least two years, given the long process of creating and passing legislation. This is made more difficult by Canada’s fragmented regulatory system, which includes separate securities regulators in each province and territory.

However, Ms. Stein said it’s time to amend existing statues to include some of the new crypto asset classes, and associated rules and requirements. Aside from anti-money-laundering rules, she hasn’t seen “any interest or acknowledgment that new laws are required.”

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