Amid surge in retail demand, cryptocurrency firms urged to improve disclosures for investors


Canadian securities regulators are urging companies in the cryptocurrency industry to improve the quality of their disclosures to investors, amidst a wave of retail interest in the space and an uptick in public listings and capital raises on domestic stock exchanges.

A recent bulletin from the Canadian Securities Administrators (CSA), the umbrella group for provincial and territorial securities commissions, said crypto trading platforms and companies in the crypto mining sector have “novel issues” with regards to compliance because of the “emerging nature” of this class.

“Crypto issuers considering filing a prospectus or entering into a restructuring transaction to enter the Canadian public markets should carefully consider what disclosure to provide about their business model in order to meet their regulatory requirements,” the bulletin said.

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Bitcoin prices have surged to levels never seen before over the past few months, fuelled in part by demand catalysts such as Tesla Inc.’s purchase of US$1.5-billion in bitcoin and PayPal Holdings Inc. enabling the purchase and sale of crypto tokens for its 377 million global users.

The nine-page document is the most detailed guidance on disclosure for publicly listed crypto companies ever released by Canadian regulators, and derives most of its observations from the performance of crypto companies that went public in 2017 and 2018, when bitcoin was in the middle of a previous bull run.

The March 11 bulletin, for example, urges companies that used a third-party entity or “custodian” to hold their crypto assets, to provide more details to investors on who those third-party custodians are and where they are located, to guard against a scenario of missing tokens. Crypto miners, which use a massive amount of electricity to maintain operations, are encouraged to disclose to investors the availability and cost of electricity. In addition, the CSA asks companies to increase their risk disclosure pertaining to potential drops in the price of crypto assets.

Many of these companies that went public in 2017 and 2018 did so through reverse takeover and weren’t obligated to file a prospectus with sufficient detail on their operations and risks, according to Lori Stein, a partner at the Bay Street law firm Osler, Hoskin & Harcourt LLP.

“Crypto companies that are currently public and raising money are going to be held to a higher disclosure standard than what we have seen historically,” she said.

Ms. Stein added she has observed a significant uptick in the number of crypto companies interested in going public, especially crypto asset trading platforms. “There seems to be a recognition, even by regulators, that crypto companies are here to stay. It makes sense that they are issuing very specific guidance in an area where there’s an uptick in listing activity to make sure investors understand the risks at hand,” she added.

As of Dec. 31, 2020, according to the CSA, there were 49 publicly listed crypto companies in Canada consisting of crypto miners, crypto trading platforms, crypto investment entities such as closed-end funds and companies developing blockchain technology. Most of these companies are listed on the Canadian Securities Exchange and the TSX Venture Exchange and more than half held bitcoin as their primary asset.

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The bull run has prompted a wave of capital raising in Canada.

Last week, Hut 8 Mining Corp. , one of the earliest and largest bitcoin miners in the country, filed documents with regulators in Canada and the United States to complete a $500-million raise on the TSX-V. The company’s stock has jumped a whopping 500 per cent since December, 2020, in tandem with the rise in the price of bitcoin.

Ether Capital Corp. , a company co-founded by ETF pioneer Som Seif that invests in ethereum technology, raised almost $30-million this week in a deal led by Canaccord Genuity and CIBC World Markets. Ether Capital’s stock has risen roughly 200 per cent since December.

At least two other crypto companies –, a Toronto-based tech company that facilitates digital asset transactions, and INX Ltd., a Gibraltar-based blockchain trading exchange – have completed pre-IPO raises topping $20-million and plan to go public in Canada this spring.

“Capital markets started getting involved very aggressively in crypto companies last fall,” said Patrick Burke, president of Canaccord’s capital markets division and the bank’s lead dealer in the blockchain and digital asset industry. “Three years ago, the markets were not ready for crypto companies, so we saw a lot of companies flame out. What is different today is there [is] a wider net of investors that are more credible and thoughtful like Fidelity [Investments Inc.] and some of the large U.S. banks,” he added.

Mr. Burke also said the recent guidance put out by regulators was “welcome” because the more regulated a nascent industry gets the more it will tend to attract better-quality investors.

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Andrew Kiguel, the chief executive officer and founder of, said that even last March, not a single large investor was interested in entertaining his ideas about cryptocurrency or blockchain. “Right now, though, there’s a lot of money being thrown at any kind of crypto idea and in a way I struggle to make sense of what is happening in the space,” he said.

A former investment banker who worked at Stifel Canada (formerly GMP Securities) for almost two decades, Mr. Kiguel remarked that regulators were indeed moving in the right direction and seemed to be issuing guidance that was realistic and enforceable.

“There’s always been a magnifying glass in the crypto space by regulators. But I’m glad they are consulting with us and working within the sector to find out what is realistic and possible.”

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