Why Are Cryptocurrency Exchanges Fleeing from Canada?
Multiple large cryptocurrency exchanges have ceased their operations in Canada, opting instead to collaborate with jurisdictions that display a friendlier attitude toward cryptocurrencies. They attribute this decision to the harsh regulatory requirements imposed by Canada. So, what are these demanding criteria?
Cryptocurrency exchange Bybit has declared that it's discontinuing its operations in Canada due to an increasingly hostile regulatory environment, largely worsened by the intense scrutiny of local regulators. The Canadian government has set new rules for cryptocurrency companies, mandating them to get approval from Canadian Securities Administrators (CSA) for any operations involving stablecoins. Furthermore, they will not be permitted to offer margin trading services at all.
From July 31 onwards, Bybit has stopped receiving deposits and registering new users from Canada on its platform. The existing Canadian clients of the exchange will be able to withdraw their funds only until September 30.
This scenario is mirrored among other industry giants. Binance and OKX, having joined Bybit, have also found themselves compelled to exit, again due to regulatory pressures.
Binance, by far the world's largest cryptocurrency exchange across all metrics, announced its departure from Canada in early May, suspending futures and options trading in the local market. As for OKX, their Canadian users will be able to transfer assets to other trading platforms until June 22, but all other operations have already been banned.
In 2023, Canada decided to strengthen its hold over the cryptocurrency sector, intending to implement a registration process for crypto firms and ban leveraged trading. Companies wishing to operate in Canada are required to comply with stringent regulations, including the stipulation to store client assets with a local, licensed custodian. Of course, the largest CEX exchanges were unwilling to adhere to such terms and hence exited the market. With these rigorous regulatory conditions in place, it's unlikely that Canada will see any new significant players anytime soon.
What caused Canadian regulators to 'tighten the screws'?
The Ontario authorities were the first to introduce these rigorous demands on cryptocurrency exchanges. The Ontario Securities Commission (OSC) took a firm stance against cryptocurrencies as early as 2019, driven by the collapse of QuadrigaCX, Canada's largest cryptocurrency exchange at the time, which owed over $215 million to its 76,000 local customers.
Subsequently, Canadian regulators faced pushback from foreign crypto platforms, notably Binance and FTX, both of which refused to register.
Another exchange, KuCoin, faced business restrictions and a $2 million fine in June 2022. This was in response to accusations from the OSC that the company had launched an unregistered cryptocurrency trading platform and encouraged investors from Ontario to trade securities.
In November 2022, one of the largest crypto exchanges, FTX, filed for bankruptcy. Its former CEO, Sam Bankman-Fried, was accused of fraud. This series of events led all Canadian regulators to agree with the OSC's stance. As a result, a new set of strict requirements and rules for crypto exchanges were established. These measures effectively barred entry to the Canadian market for those not in compliance.
Which trading platforms and crypto companies are still operating in Canada?
At present, regulators have approved the operations of 11 cryptocurrency companies. These are Bitbuy Technologies Inc., Bitvo Inc., Coinberry Ltd., Coinsquare Capital Markets Ltd., Fidelity Clearing Canada ULC, Fidelity Digital Assets Services, Netcoins Inc., Newton Crypto Ltd., Simply Digital Technologies Inc. (CoinSmart), VirgoCX, and Wealthsimple Digital Assets Inc.
These companies are relatively small, especially compared to the crypto exchanges that have left the market. They are local trading platforms that have little choice but to remain. Their operations are primarily, if not solely, in Canada. Consequently, they had to agree to the regulators' stringent conditions to avoid exiting the market altogether.
Final words
Canada is not alone in imposing restrictions on the operations of crypto exchanges. Bybit, for instance, has also stopped servicing clients from the UK and the US due to bans on crypto derivatives. Binance has experienced regulatory issues in several countries, including Germany, Japan, Singapore, and Turkey. The list goes on.
Nevertheless, numerous other jurisdictions continue to maintain a more lenient stance toward cryptocurrencies and exchanges. These regions are likely to attract new investments, job opportunities, and the favor of companies within the digital currency industry, which may choose to establish their presence there. As the saying goes, "nature abhors a vacuum..."
