Canada and Cryptocurrencies: Slow Burn

The country of Canada is generally quite welcoming of new and unconventional enterprises, and the cryptocurrency business was no exception, enjoying significant freedoms in the Great White North. However, the “excessive financial freedom” it creates concerns the Canadian authorities no less than it does their American neighbors.

You may have missed it, but Canada, over the past decade, has become the absolute world leader in the marijuana (i.e., medical cannabis) business – all it took was being the first to remove legislative restrictions on weed.

The same story happened with cryptocurrencies. Looking at Coincub’s Global Crypto Ranking of countries with a developed crypto industry over Q4 2021, we see Singapore, Australia, the USA, Germany, Canada, Sweden, Portugal, Switzerland, El Salvador, and Japan in the top ten. The list is based on things like government cryptocurrency policy, tax regulations, public awareness, accessibility of exchanges and wallets, DeFi adoption, etc.

Canada’s placing among the leaders is not accidental. A study conducted in the summer of 2021 showed that 28% of Canadians have cryptocurrency in their investment portfolio – mainly Bitcoin and Ethereum, owned by 85% and 75% of respondents, respectively. 13.3% said they hold so-called meme tokens. But despite such prevalence of crypto, less than 5% of those surveyed consider bitcoin a safe investment. For comparison, the figure was 21% for stocks and 65% for government bonds.

The first version of the crypto regulation in Canada was introduced all the way back in 2014. Today, the country has a number of available digital money ATMs, with its central bank working to create a blockchain-based digital Canadian dollar.

Under current legislation, all cryptocurrency companies’ operations are supervised by the relevant financial authorities. A crypto exchange in Canada must comply with requirements to prevent the illegal circulation of funds, and any transaction with cryptocurrency is taxed as a barter commodity transaction.

Within this framework, several bitcoin exchange-traded funds have long been successfully operating inside the country, most notably Purpose Investments ETF and CI Galaxy Bitcoin ETF. Additionally, in the spring of 2021, three Ethereum-based ETFs got approved at once: Purpose Investments’ Purpose Ether ETF, CI Global Asset Management’s CI Galaxy Ethereum ETF, and Evolve Funds’ Evolves Ether ETF.

Other remarkable facts include the fact that more than a third of all Chinese miners moved to Canada following the complete shutdown of the blockchain business in China in the summer of 2021. Furthermore, two Canadian companies – Link Global Technologies and Neptune Digital Assets – spearheaded the “green mining” of bitcoin by creating a mining farm that runs exclusively on sustainable energy sources.

Overall, the country’s public and businesses seem rather open to cryptocurrencies and actively use them, at least as an investment tool. However, it’s not all smooth sailing from here – there is still no unity over the issue among politicians.

On the one hand, there is the opposition – Canada’s Conservative Prime Ministerial hopeful Pierre Poilievre – who believes citizens should be allowed to use bitcoin as legal tender. The right-wing party high-up called for more financial freedom for citizens, announcing that if he becomes the country’s leader, the state will fully authorize bitcoin payments.

 “We need to give people the freedom to choose other money. If the government is going to abuse our cash, we should have the right to opt to use other, higher-quality cash,” the politician reasoned recently.

On the other, the current Prime Minister of Canada, Justin Trudeau, is a member of the ruling Liberal Party. In 2021, they took a hard stance on crypto, exacerbated by the Freedom Convoy drivers in Ontario using cryptocurrencies to back their massive protest.

Still, the government remains comparatively liberal towards digital money, especially considering the situation in the rest of the world – not only China, but also the United States, which only recently licensed the first bitcoin ETFs.

Unlike their American and British counterparts, Canadian regulators maintain a more tolerant approach to innovations in financial technology. In June 2020, they included cryptocurrencies and Web 3.0 to fit the country’s financial legislation.

As a result, Canada now has a fairly straightforward regulatory framework and working laws for holders and traders of cryptocurrencies, allowing citizens to declare their income and even pay taxes in cryptocurrency. It also covers the work of crypto payment operators that are officially classified as financial service providers.

In practice, it means that all cryptocurrency exchanges must be registered with the Financial Transactions and Reports Analysis Centre of Canada. Among the requirements for them is informing the government about their customers’ crypto transactions over CAD 10,000.

It is still difficult to say how cryptocurrency regulation and, consequently, the crypto business in Canada will develop going forward. In the meantime, the country appears to serve as a kind of “liberal testing ground” for the neighboring United States. They look at Canadians allowing different cryptocurrency business models and assessing their compatibility with the US market.