Four years ago, “cryptocurrency” or “blockchain” would have been met with investor suspicion or confusion.
The tables have since turned, however, and the increasing eagerness of businesses to cash in or raise capital through digital currencies is pushing Canadian regulators to act.
“Bitcoin was essentially a dirty word until recently,” said Axiom Zen CEO Roham Gharegozlou, whose Vancouver-based innovation studio offers support to early-stage companies, similar to an incubator. “It was associated mostly with money laundering and drug deals.”
That reputation has dissipated in tech circles, and Gharegozlou now frequently fields requests from clients wishing to develop innovations that harness digital currencies and blockchain, which is an electronic ledger.
But late last month, the Canadian Securities Administrators (CSA) signalled to startups and financial technology companies that they would have to be diligent about not running afoul of securities laws when pursuing initial coin offerings (ICOs) or initial token offerings (ITOs).
Like an initial public offering (IPO), an ICO’s goal is to raise capital. Instead of selling shares in exchange for capital, a company offers new cryptocurrencies in exchange for capital.
While IPOs require vetting from regulators, part of the appeal of ICOs is that they are not regulated.
“Investors may be harmed by unethical practices or illegal schemes, and may not understand the properties of the investment products that they are purchasing,” the CSA wrote in a notice published August 24.
“To date, no business has used a prospectus to complete an ICO/ITO in Canada.”
The People’s Bank of China even went so far as to declare ICOs illegal on September 4, after which Bitcoin’s value dropped 11%.
Lawyer Christine Duhaime, executive director of the Digital Finance Institute in Vancouver, said that compared with their U.S. counterparts, Canadian regulators have been more conciliatory when working with startups looking to raise money through ICOs.
“They want to be innovation-friendly, and they want to be seen as a place where they encourage this type of technology to take root here and grow,” she told Business in Vancouver on Roundhouse Radio 98.3.
“The discussion in British Columbia is going to be super positive in a way that says, ‘I’ll help you to develop the technology further and let’s work together.’”
This month the BC Securities Commission (BCSC) became the first regulator in Canada to grant registration to a Bitcoin investment fund manager.
Vancouver-based First Block Capital Inc. specializes in providing investors with access to cryptocurrency-based investments. And on September 6 the BCSC announced that it had worked with First Block Capital to craft conditions of registration to give it flexibility to operate within the province’s regulatory framework.
The green light for First Block Capital comes after the BCSC launched a dedicated “tech team” in January that has been working with local financial technology (fintech) firms to ensure they are operating within the province’s regulatory framework.
There were five fintechs operating in B.C. in 2010, but as of February that number had grown to 29, according to BC Tech Association figures provided to BIV.
With the proliferation of fintechs, Gharegozlou said the industry is hoping for further guidance from regulators.
“As industry, we welcome regulation. We want [cryptocurrencies] to be clarified. As companies in Canada, we don’t want to have to go to Switzerland or Gibraltar or Panama to do what we do. We’d rather have the flexibility to be able to do it here, whether it’s jumping through regulatory hoops or not,” he said.
“But really the regulations have not been clear, yet.”
@reporton
