Crypto in Canada – Law of Code Crypto in Canada – Law of Code

The regulation of the Canadian crypto industry has required some trade-offs with consumer product choices, says Matt Burgoyne, partner and Chair of the Digital Assets and Blockchain practice, in an appearance on the Law of Code podcast.

“The trade-off is we have severely narrowed the kind of crypto activity that’s permitted in this country,” says Matt. “Consumers of crypto products have considerably fewer options than consumers in other countries.

“I’ve had several major international trading platforms quit the application process because it was simply taking too long to register. They had already invested thousands of dollars but decided they couldn’t wait any longer. This has also represented a loss for consumers.”

Canadian securities regulators have applied the concept of an investment contract to catch new crypto arrangements that function like an investment. “This concept is most often being applied to token issuances in Canada,” says Matt. “The investment contract is an agreement. The agreement itself, which is an arrangement between the buyer and seller, is the security. It’s not the asset itself.

“We have a Supreme Court of Canada case from the late ‘70s that sets out this country’s version of the investment contract test, and it is an investment of money in a common enterprise with the expectation of profit to come significantly from the efforts of others. The Supreme Court emphasized ‘significantly’ in its definition of the contract.”

Securities regulators have also wanted to ensure that anyone moving money value on behalf of others is registered and monitored. “The regulations are as broad as possible and cover everything from crypto ATMs to in-person storefronts to crypto dealers and crypto asset trading platforms,” says Matt.

With the advances made in crypto asset trading platforms, Canada is in a strong position to lead in tokenized securities. “It’s legal to offer a tokenized security in Canada,” says Matt. “I’ve helped a client from start to finish build a legal entity that was the token issuer right through to having that token security listed on a platform in Canada for trading — and it’s still there.

“The real issue with tokenized securities in Canada is liquidity and a lack of investor interest. Neither institutional nor retail investors have shown much interest in the past. But this seems to be changing, particularly with institutional investors, and hopefully we’ll see more retail interest soon.”  

Watch the entire podcast hosted by Jacob Robinson.