While Canada has not officially adopted a stance for or against cryptocurrencies, the nation’s regulators have periodically warned against the risks associated with them. Until then, buyers of bitcoin and its likes should be wary, whether they consider themselves investors or gamblers, according to Bank of Canada Governor Stephen Poloz.
BoC’s chief stated at a press conference in Toronto that the digital asset’s ascent has all “the ingredients of something that could be a significant disturbance to the financial system.”
Delivering his last speech of the year, Poloz said: “What their true value is may be anyone’s guess — perhaps the most one can say is that buying these things means buying risk, which makes it closer to gambling than investing. All I will say to people intending to buy a so-called cryptocurrency is that you should read the fine print and make sure you know what you are getting into.”
Bitcoin zoomed past $19,500 last week and then just as quickly dropped to $14,000, stoking concerns that a rapidly swelling bubble could be set to burst in spectacular fashion.
The central bank’s boss reiterated the concerns conveyed in the earlier warnings that came in the wake of significant spurt in the valuation of bitcoin and rapid growth in related fundraisers, or Initial Coin Offerings (ICOs). He highlighted the potential economic, financial, legal, customer protection and security related risks associated with such unregulated tender, adding he hopes the system will treat bitcoin cautiously.
Mr. Poloz pointed out to the charts plotting the price of bitcoin which, according to his discription, resemble “the left hand side of the Eiffel Tower,” comparing it to the bubble in technology stocks almost 20 years ago. “You don’t see that very often,” he added.
Canada is seen as a ripe ground for blockchain technology applications, including cryptocurrencies, partially due to its tech-savvy population. The subcontinent is also ripe for an institutional-level adoption as the country’s investors may soon get access to the burgeoning market through exchange-listed products that track the price performance of bitcoin.
Crypto regulations in Canada
In the last few months, several providers of listed products have filed preliminary prospectus with provincial authorities for the launch of an actively managed bitcoin ETF. During the process, the British Columbia Securities Commission (BCSC) has granted blockchain startup First Block Capital Inc. its official registration as an investment fund manager, which allows the firm to operate a Bitcoin investment fund.
The race to roll out crypto derivatives was heightened by the launch of bitcoin futures in the U.S. earlier this month. This approach, which essentially taps into the futures market rather than risks associated with bitcoin’s underlying markets, would help ease retail investors’ exposure, which remains a regulatory nightmare for many jurisdictions.
Nevertheless, the anticipated regulatory approvals will adopt a cautious approach where they could allow bitcoin derivatives to work under the current regulatory framework while providing the regulators with unique mechanisms to monitor the operations closely.
The Canadian Securities Administrators (CSA), comprised of the country’s thirteen key financial market regulators across their respective provinces, has also publicized plans to regulate digital token sales.
The CSA stated that this new fundraising phenomenon should be categorised as securities, at least in some cases. This implies that certain ICOs/ITOs would now need to follow Canadian securities laws, which requires assessing the economic realities of the offering to protect participating investors.