It's not too late for Canada to exploit its cryptocurrency edge
Toward the end of June, the world's largest cryptocurrency exchange, Binance, suddenly stopped serving Ontario, Canada's biggest province, citing regulatory issues.
The significance of Binance's move is not just the obvious blow to cryptocurrency users.
Rather, it points to a problem that is less apparent, but bigger. Its exit from Ontario shines a light on how a homegrown talent's company was never truly in this country in the first place.
Binance's founder and chief executive, Changpeng Zhao, grew up in Vancouver and attended Montreal's Mcgill University.
But the company was founded in China and is now spread around the world, with a big presence in Singapore and other jurisdictions viewed as crypto-friendly.
Even before Binance stopped serving Ontario, it had little to no known footprint in Canada.
That's the real, deeper problem. It's the same problem that Canada has long faced. This country has no shortage of talent or innovation, but, too often and for many reasons, they are pulled or pushed away, flourishing elsewhere, with little desire to come back.
Early this year, I'd asked Zhao on Clubhouse, “Do you have any
plans to deepen your engage- ment with your home country?”
Zhao said Canada was his “favourite country” and that
“in Vancouver, specifically, the weather is super nice, people are super nice.” But he also said he had not been back in a while.
And in terms of doing more crypto business in Canada, the answer was more or less a no.
“My impression of Canada on the regulatory front is they generally follow the U.S.,” Zhao said. “We're trying to figure out what's going on, in the U.S. or other parts of the world, before we figure out Canada.”
Zhao's talk of regulation was prescient, considering what was to come. Some two weeks after, in late March, Canadian regulators
unveiled new rules for exchanges, having become more hawkish after the collapse of the Quadrigacx platform in 2019, following the death of its founder, Gerald Cotten.
Starting in late May, at least three foreign exchanges have faced enforcement from the Ontario Securities Commission.
That Binance saw all that and thus stopped serving the province is no surprise.
The issue is not, however, these new rules per se. While I did hear from parts of the industry that compliance is viewed as burdensome, it is evidently not overly so. Big domestic players have complied, and the sky hasn't fallen as a result.
The issue is that, for a world-sprawling enterprise like Binance, Canada's most populous province is just another market, a small one that does not justify the cost of compliance.
And for Zhao, this country rightfully deserves no special consideration, especially when Binance is also facing regulatory heat around the world, in more important markets.
All of this reminds me of the founding story of the blockchain platform Ethereum, the home of 2021's non-fungible-token (NFT) craze, among other things.
Not only is the main co-founder, Vitalik Buterin, Canadian, so are two others, and the early work on it was done out of Toronto. But when the idea truly took shape, the team chose Switzerland and later moved to Singapore.
Ethereum's circumstances are vastly different from Binance's, but it is not hard to see what they all point toward.
Canadians have had a disproportionally big role in building this new world of cryptocurrency and blockchain — just not in Canada, for many of them.
This is not simply a cryptocurrency issue. Pre-binance but right after Mcgill, Zhao, with his computer science degree, had made for Tokyo and New York City before ending up in Shanghai.
In a 2018 Forbes profile, the only Canadian jobs mentioned were service positions he had held as a young man.
This is the perennial issue of how Canada loses talent to bigger markets and major hubs, which has the self-perpetuating effect of limiting the domestic formation of such markets and hubs. Much of that has taken place over decades.
What is special in this situation, though, is that cryptocurrency is a new industry. The land-grab is still going on.
It may not be too late for policy-makers to try to capitalize on the inherent advantage that has gone unexploited. Canada's current scene is indeed vibrant, but it can be much more.
The answer is not simply that Canada needs less regulation.
For every Ethereum there is also a Bitconnect, a scam so notorious that it has become a meme. For every Binance there is a Quadrigacx. Rather, together with the stick of enforcement, policy-makers need to put equal effort into the carrot of enticement. Agencies other than securities regulators need to take a more active role.
Otherwise, it's quite embarrassing: A homegrown talent has founded the world's largest crypto exchange, but it doesn't serve Canada's biggest province, and when the man recounts the jobs he held in this country, he mentions only night shifts at the gas station and flipping burgers.