Gemini is exiting the Canadian market, plus more crypto news

Regulators sound a wake-up call to crypto exchanges

Gone are the days of unregulated crypto investments in Canada—at least, that’s what investment regulators would like. On Aug. 6, 2024, the Canadian Securities Administrators (CSA)—the umbrella organization of securities regulators in Canada—issued its strongest guidance on crypto trading platform (CTP) registration to date. In this notice, the CSA reminded CTPs of their obligation to prioritize their applications for registration as investment dealers and membership with the Canadian Investment Regulatory Organization (CIRO).

How did we get here? 

In March 2021, the CSA and the Investment Industry Regulatory Organization of Canada (now CIRO) spelled out the requirements for crypto trading platforms—commonly known as crypto exchanges—to become fully recognized, legitimate securities dealers in Canada. 

At that time, certain CTPs were permitted to operate as restricted dealers while working on their CIRO membership applications. The regulators estimated this process would take about two years. But it seems that some CTPs may be dragging their feet on this. 

Here’s the CSA’s position on the matter, carefully worded to be a bit vague on its precise intent: “Moving forward, CSA members do not intend to continue with the interim approach for time-limited restricted dealer registration for CTPs as described in the staff notice.”

What about CTPs that don’t intend to meet regulators’ requirements? 

Some have exited the Canadian market. The latest reported departure: On Sept. 30, 2024, U.S.-based crypto exchange Gemini emailed its Canadian customers, asking them to withdraw their crypto assets from the exchange by Dec. 31, 2024.

As a Canadian investor, how do you ensure that your crypto exchange is complying (or attempting to comply) with securities regulators? 

The CSA lists three categories of CTPs: those authorized to do business with Canadians, those that have filed pre-registration undertakings and those that are banned. You can also refer to MoneySense’s ranking of the best crypto platforms and apps in Canada—all of the CTPs listed there are registered or working towards registration.

More institutions are adopting crypto

Whether you’re a HODLer or a crypto skeptic, one thing’s for certain: the more financial institutions that adopt crypto, the more likely it is that crypto will find its way into your portfolio—directly or indirectly. 

Based on a study conducted by KPMG and the Canadian Association of Alternative Assets and Strategies (CAASA), 39% of institutional investors surveyed between June and December 2023 reported having invested in crypto assets. That’s up from 31% in 2021.

What does that mean? Are institutions buying crypto directly and sharing HODL memes with each other? Not quite. 

The table below shows how institutional investors got their crypto exposure:

Why is this important for individual investors today? 

There are two reasons. 

Firstly, because rising institutional adoption is a bullish sign for crypto—more institutional investors means more investment money chasing crypto investments, and that means more demand for a scarce asset (at least in the case of bitcoin). In short, higher prices (over the long run). Secondly—but just as important—rising institutional adoption is a sign of a maturing market: greater liquidity, better regulation, more choices and (hopefully) less crypto fraud, all of which are positives for smaller investors.

Is ethereum being left behind?

As this chart shows, ethereum (ETH)—the second-largest cryptocurrency in terms of market cap—has lagged bitcoin (BTC) in investment returns over the past year. The blue line is BTC and the red line is ETH. (As of 12 p.m. EST on Oct. 1, 2024.)

Over the past year, BTC has gained about 122%, whereas ETH has gained only about 45%. Hang on—both are amazing one-year gains. However, ETH has been left behind comparatively. Here are two reasons why:

1. New bull market: Usually, in a new crypto bull market—like the one that began in January 2024—BTC leads the way, in much the same way that large blue-chip stocks lead the charge in a new bull market for stocks. So, BTC’s outperformance is to be expected right now. There’s no obvious reason for ETH investors to panic (at least, not yet).
2. BTC spot ETFs: In January 2024, the U.S. Securities and Exchange Commission (SEC) approved spot BTC exchange-traded funds (ETFs) for the first time. This opened the floodgates for institutional investors and large individual investors in the U.S. to gain exposure to crypto without buying it directly. True, Canada was the first country to approve BTC and ETH spot ETFs, starting in 2021 but the big market-moving money comes from the U.S. Since BTC ETFs got the nod from the SEC first—followed by ETH ETFs six months later—BTC saw more money flowing in, and earlier, compared to ETH.

How will rate cuts affect crypto?

The U.S. Federal Reserve (Fed) lowered interest rates by 50 basis points in September. And more cuts are likely to come. This is significant for bitcoin and crypto. 

TLDR: when the U.S. Fed lowers interest rates, it’s essentially adding dollars into the system by reducing the cost of borrowing. The more dollars there are sloshing around in the economy, the less each of those dollars is worth. Consequently, asset prices rise—including stocks, real estate and crypto. 

Think of it this way: if the number of Gucci bags in the world doubled tomorrow, each of those bags would be worth less than they are today. In other words, each Gucci bag would have been devalued. It’s the same with money. 

When there’s a lot of money in the economy, people don’t want to hold cash, because of its devaluation. Instead, they’d rather hold growth assets such as stocks, real estate, gold and—yes, you guessed it—cryptocurrencies. In fact, the devaluation of the U.S. dollar is one of the strongest narratives in support of investing in bitcoin.

The chart below was shared on x.com (formerly Twitter) on Sept. 16, 2024, by Raoul Pal—author of the investment newsletter “Global Macro Investor.” It shows the close relationship between the anticipated global money supply (Global M2 10-week lead) and the price of BTC. 

Federal Reserve rate cuts often lead to a rise in the money supply. So, the market is anticipating a rise in M2. If the price of BTC continues to resemble the moves in Global M2, we could be in for a sharp rise in BTC. That’s a big “if,” though. No chart can predict the future, so investors should not make decisions solely based on this (or any other) chart.

1/ Close, very close.

1/ Global M2 vs BTC pic.twitter.com/VWxHHYk0ki

— Raoul Pal (@RaoulGMI) September 16, 2024

The evolving regulatory landscape and increased institutional adoption are positive signs for crypto in Canada. Sure, some exchanges may exit due to tighter regulation, but many more are aligning themselves with securities laws. This makes crypto investing safer for Canadians. 

As with any growth asset, crypto has its boom and bust cycles. Yes, it’s in a bull market right now—and future rate cuts by the U.S. Fed could take it even higher. However, investors should exercise caution. Investing in cryptocurrencies could be risky, so invest only as much money as you’re willing to lose. 

More about crypto:

• Should you consider ETFs that include crypto?
• 10 common crypto scams and how to avoid them
• Mission digital: How Coinbase is reshaping Canada’s crypto landscape
• How to protect your crypto from hacks

About Aditya Nain

Aditya Nain is an author, speaker and educator who writes about Canadian investments, personal finance and crypto. He has co-authored two books and taught at universities for 12 years.

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