CASTING CRYPTO AS A THREAT IS MAKING FEDS MISS OUT ON A MAJOR OPPORTUNITY
Liberals' stance is short-sighted given country's oversized presence in space
Tucked into the federal budget in April was a single page committing the feds to a review of cryptocurrencies, given the “challenges” they present and how they sometimes are “used to avoid global sanctions and fund illegal activities.”
It was a framing of the sector that contrasts sharply with the American approach. U.S. President Joe Biden's executive order in March covered much of the same ground, but it also talked about “harnessing the potential benefits of digital assets and their underlying technology.”
The Liberal government saw only the threat and not the opportunity. That's a little short-sighted, given Canada's oversized presence in the growing area.
Everyone knows that Canadians founded arguably two of the industry's biggest cornerstones: the network Ethereum and the exchange Binance. But much of Canada's potential to become a leader in the space has already been squandered. Ethereum and Binance have both sought out friendlier jurisdiction.
The contrast between the approaches is ever starker when one considers that a better policy path has been staring us in the face all along.
In the same April budget, the government announced a $15-billion growth fund and a yet-to-be defined Innovation and Investment Agency. While we might debate the necessity of these pursuits given the existence of similar programs with questionable results, they clearly show the government sees tech-sector growth as important.
Another option would be to borrow from strategies in the government's Broadcasting and Telecommunications Legislative Review. There, the government is essentially adapting decades-old broadcast rules to new internet companies, with the partial goal of preventing the erosion of the domestic creative industry against American dominance.
The likes of Netflix Inc. and Binance are quite similar, after all, in that they are borderless, providing services that are largely digital. How the government deals with one could be a policy template for another.
For years, broadcasters in this country have had to set aside airtime for Canadian content and pay revenue into a pool to fund domestic productions. The success of these initiatives are debatable, but the creative industries have largely welcomed them, and in 2020, the Liberal government introduced legislation to apply those principles to global giants such as Netflix as well. For them, instead of airtime proportion, there are rules on “discoverability” — Canadian content must be given some prominence.
How might that translate into crypto? If an exchange's domestic users pass a certain threshold, it could be made to have a local office and hire local staff. And like the internet companies, their crypto counterparts could be made to devote some of their domestic profit to invest in Canadian projects — crypto startups, in this case. To offset the costs of all that, the crypto companies could be given tax breaks.
Such a program would, of course, be ideologically antithetical not just to crypto but to the entire concept of free markets. Such protectionism has its critics even in the arts, where it is sometimes derided as unnecessary and even counterintuitive. The web giants might, for example, simply abandon Canada altogether, critics have said.
Consider, though, that under the current policy landscape of all stick and no carrot, a similar departure has already happened in crypto. In June, Binance said it would stop serving Ontario after regulators unveiled more stringent rules, and it is not alone.
Some Canadian crypto firms have more or less welcomed that exit, believing that, as a result, the domestic players benefit. But those are the bigger firms saying that, as they gobble up the smaller ones in a wave of consolidation. That situation is good for them but not necessarily the industry as a whole.
Ultimately, the issue isn't specifically regulation or even the Liberal budget's goal of reviewing crypto for risks. The issue is that regulation seems to be the only policy tool the government is using. Crypto is still viewed as a problem to be solved, not a well of potential to be tapped. And that is at the risk of becoming a self-fulfilling prophecy.