Regulation in crypto world

custodianship is important because under the rules, only a financial institution can be a custodian and no Canadian institution offers such a service for cryptocurrencies. (VersaBank recently announced that is launching a digital vault.)

As a result of those concerns, no cryptocurrency ETF has been approved for distribution in the public markets. Instead, capital raisings for cryptocurrencies get completed in the exempt market. But they are not a slam-dunk in that market as, contrary to the normal situation, the regulators have been involved.

Recently 3iQ Corp., which is in the process of raising capital from accredited investors to invest in multiple crypto assets, agreed to terms and conditions with the Ontario Securities Commission and the umbrella regulator (Canadian Securities Administrators) to act as a portfolio manager and investment fund manager. Normally the regulators don’t get involved in such matters.

3iQ’s Global Cryptoasset Fund will invest directly in bitcoin, ethereum and litecoin. Another manager, Calgary-based Ross Smith Asset Management, which launched an exempt market crypto fund last summer, stopped raising new capital last fall pending the introduction of new regulations governing custodianship and suitable exchanges. XAPO, which only deals in bitcoin, is the fund’s custodian; a set-up limits the ability of the fund to expand into other cryptocurrencies.

While cryptocurrency offerings have moved to the exempt market, some retail investors still aren’t shut out: they can open a digital wallet and trade away.

As well, investors have been attracted to the slew of public companies in the blockchain world. For example, Hive Blockchain Technologies (which emerged from Leeta Gold Corp. last year) has raised more than $150 million in the last few months. It claims that it “bridges blockchain and cryptocurrencies to traditional capital markets.”

Given those alternative investment opportunities, some have argued the solution is to bring everything into the public market, a move that would put the spotlight on the sector and the participants.