Last March, U.S.-based cryptocurrency exchange Coinbase expanded north of the border and put up a sign in Canada.

The move is part of the largest U.S. crypto exchange’s efforts to increase its international presence, and could be indicative of the challenges and opportunities abroad.

“This is a natural extension of the spot market and an opportunity for the ecosystem to introduce products and services using efficient and reliable digital assets,” said Lucas Matheson, Coinbase Canada Country Director. ” he told CoinDesk.

In many ways, what Coinbase is doing in Canada may be ahead of what’s happening in the United States and beyond.

regulatory clarity

Canada has a lot to offer in terms of regulatory clarity, especially given that the U.S. Securities and Exchange Commission (SEC) seeks to limit the growth of the crypto asset market and decouple the crypto asset ecosystem from the broader economy. Matheson said it is ahead of the rest of the world.

But while Canada’s regulators are more streamlined, they are also arguably more conservative.

“We’re in a pretty good position to see regulators working on a framework that can become a global standard.”

Coinbase is applying for a new type of guideline called “Restricted Dealer Registration” that would require exchanges to register with the Canadian government.

This is especially important given Coinbase’s financial woes. Coinbase has significantly diversified its revenue streams in recent years, including the introduction of a prime brokerage division, the layer 2 blockchain Base, and staking and custody services, including for a number of Bitcoin ETF providers in the US. Although successful, a large portion of its profits still come from transaction fees.

In other words, Coinbase is a new company that can thrive outside of the largely unpredictable crypto price cycles that attract people when cryptos are high and force them to slim down when trading volumes drop. Unless you can develop your business, you will forever be a slave to market forces. So developments in Canada may indicate what will happen in other countries.

“Canada’s regulatory principles allow companies to introduce new products and services,” Matheson said. Coinbase, in particular, is considering launching derivatives products such as perpetual futures in Canada, and politicians and regulators like the Ontario Securities Commission (OSC) are concerned about updating policies to make that happen. I am having a dialogue with

Is it worth it to enter the market?

Coinbase recently joined the Canadian Web3 Council. The Canadian Web3 Council is a non-profit group of industry players working to ease Canada’s recent laws and regulations that have forced crypto companies out of the country.

For example, in recent months, a number of exchanges including Binance, Bybit, dYdX, OKX, Paxos, and Bittrex (Bittrex has since (declared bankruptcy) has decided to withdraw from Canada in direct response to “recent regulatory developments.”

Under Canadian securities regulators’ new “pre-registration initiative,” companies must separate crypto custody from trading platforms, limit leveraged trading, and hire compliance staff, including a chief compliance officer. Ta.

Canada also regulated stablecoins, imposing strict limits on “algorithmic” stablecoins, which include MakerDAO’s DAI.

Given its limited market (adult population: about 35 million people) and unique rules, you may wonder whether expanding into Canada is worth the effort.

When Coinbase Canada officially launched last year (the company has been in Canada for some time), an OSC study found Canada to be the third most “crypto-aware” country in the world. However, this does not necessarily lead to transaction fee income.

But for Matheson, the opportunity is not so abstract.

Canada will serve as a sandbox for trying out new products that may eventually land in the U.S. or Europe, as well as approaches to win over skeptical regulators.

“We are working with industry partners like the Web3 Council and regulators to explore pathways to offer derivatives and leverage products to both retail and institutional markets in Canada.”

History of financial innovation

And Matheson believes there’s a good chance it will happen, given Canada’s history of financial innovation.

For example, Canada not only launched the world’s first Bitcoin ETF called Purpose Bitcoin ETF in February 2021, but also went ahead of the United States by launching the first-ever ETF on the Toronto Stock Exchange in 1990. A similar ETF debuted in the U.S. three years later.

Ahead of the approval of Bitcoin ETFs in the US in January of this year, Eric Balchunas, ETF analyst at Bloomberg Intelligence, offered Bitcoin ETFs as a reference for better understanding the economic opportunity in the US. , was focused on the Canadian ETF market.

By the end of 2023, Canadian crypto ETFs will account for nearly 50% of the world’s total crypto ETF assets under management. However, while the US ETF market is 32 times larger than Canada’s, the total opportunity in Canada’s crypto market is valued at just over $1 billion.

Longtime Coinbase competitors Kraken and Gemini have also decided to expand in Canada.

Still, even in Canada, crypto adoption is an uphill battle. Matheson points out that at most only 13% of the population uses crypto assets. After all, Canada, like the United States, has a well-developed banking and financial services industry, and individual customers currently have less need for the services offered by crypto assets.

This may seem like an opportunity for mass adoption among corporate users, but even that presupposes that individual customers first recognize the need to handle crypto assets.

“What’s interesting and quite unique about Canada is that we don’t have a strong political vision for how digital assets can help the Canadian economy,” Matheson said.

“So one of the things that the industry as a whole is working hard on is how to educate government officials and debunk some of the myths and misconceptions about the digital economy.”

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Sebastian Stam/Unsplash
｜Original text: Where Coinbase Canada Goes, so Does the World