North of the border, he argues, Canada has a real opportunity to be a global leader in the crypto regulation space, similar to how it was the first country to launch bitcoin ETFs. “There is a regulatory regime for crypto platforms in Canada, and there is a way of dealing with digital assets and blockchain assets in a safe way,” Zagari says.
However, he adds, this isn’t the case with crypto lending platforms because such products and services are not yet subjected to a specific regulatory regime in Canada.
Green says the regulation should start with crypto exchanges, the nerve centres of all crypto activity. “Nearly all foreign exchange transactions go through banks or currency houses, and this is what needs to happen with cryptocurrencies,” he says. “When flows run through regulated exchanges, it will be much easier to tackle potential wrongdoing, such as money laundering, and make sure tax is paid.”
However, Green insists crypto is a brand new market and that new regulations must be devised and implemented for this tech-driven sector. “Older regulations, designed for other asset classes in the last century, are likely not to be adequate,” he says.
In addition, regulators must work with leading industry participants—including trading platforms, blockchain developers and consumer advocacy groups—to ensure the rules don’t limit innovation and that they work to support and protect consumers and firms, notes Green.
How do investors navigate crypto regulation?
For starters, investors should prepare for regulation, and they should expect bouts of volatility when it is rolled out.
Further, investors should acknowledge that 90% of crypto today has very little utility and could ultimately go to zero, says Zagari. He cites the dot-com craze of 1995–2001, when many internet companies rushed to go public and the bulk of them disappeared a couple of years later.
Investors should also expect an enormous amount of consolidation among crypto firms. “With regulation comes consolidation, where the best technology wins,” says Zagari. “The next few years for crypto will be extremely volatile until the consolidation process is completed.”