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Even in a crypto winter, the Canadian cryptocurrency landscape remains in flux. On May 12, Binance, the worlds largest crypto exchange, announced it was pulling out of the country because it didnt agree with new regulations put in place by the Canadian Securities Administrators. That came just days after the Bank of Canada said it was pushing ahead with an investigation of whether to create a purely digital version of the Canadian dollar. The Financial Posts Barbara Shecter unpacks what the moves mean for Canadians and the crypto industry and what comes next.

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Cryptocurrency advocates around the world have resisted rules set by authorities, and criticized Canadas regulators from the get-go for what they saw as a stifling of innovation. They argued that the whole point of cryptocurrencies such as bitcoin is to remove the middleman whether thats a banker or a regulator. Thats because the backbone of these digital currencies, known as the blockchain, is supposedly a self-policing technology. In its purest form, everyone on the blockchain can see every transaction. Its been compared to millions of cameras pointed at the same tree in the forest when it falls, all those cameras see it and it cant be changed after the fact.

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Regulators have authorized 11 so far: Bitbuy Technologies Inc., Bitvo Inc., Coinberry Ltd., Coinsquare Capital Markets Ltd., Fidelity Clearing Canada ULC, Fidelity Digital Assets Services, Netcoins Inc., Newton Crypto Ltd. Simply Digital Technologies Inc. (CoinSmart), VirgoCX and Wealthsimple Digital Assets Inc.

Coinbase, the largest crypto exchange in the United States, says it signed a pre-registration undertaking, or PRU, with Canadian regulators. Photo by Leon Neal/Getty Images

In addition, San-Francisco-headquartered Coinbase, the largest crypto exchange in the United States, says it signed a pre-registration undertaking, or PRU, with Canadian regulators on March 24, and is committed to working with Canadian regulators to comply with a regime that protects consumers while embracing innovation. Kraken, another large San Francisco-based crypto exchange, is also understood to be working with Canadian regulators with an eye to becoming authorized to do business with Canadians.

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The Bank of Canada building in Ottawa. Photo by Sean Kilpatrick/The Canadian Press

There couldnt be many in Ontario as both Binance and FTX were forced to wind down accounts after tangling with the OSC in 2021 and 2022. However, there are some Binance clients in other provinces that were slower to regulate. Binance isnt saying much about whats happening with them, other than that they have received emailed information directly from the company, which it declined to share. Regulatory sources say these accounts are to be wound down and that this will be tracked by the watchdogs. There may also be some clients in Canada whose accounts cant be traced to this country because they are using something called geo-blocking technology to disguise where they live. The same VPN technology is used by some people to watch television services that arent available in their home country. FTX is no longer operating after a run on assets held by the platform revealed a shortfall of funds and the company entered bankruptcy proceedings in the United States.

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Platforms that are willing to register with regulators across the country, including signing pre-registration undertakings before they are even given the nod by regulators such as the OSC or Alberta Securities Commission, will be able to operate. But they will have to comply with a raft of added rules to ensure safe custody of crypto assets and the segregation of customer assets from those held or managed by the platforms. They may also have to comply with existing rules for securities that arent traditionally associated with cryptocurrencies, such as derivatives. The only way around this would be to get an exemption from a provincial regulator, and that doesnt seem to be in the cards at the moment.

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Binance's exit and Bank of Canada's digital loonie discussions: How they impact Canadian crypto - Financial Post