Battered Bitcoin Devotees Begin to Contemplate a Market Bottom
CoinSmart Financial Inc. is looking for deals in Canada, Europe and the US as turmoil in the cryptocurrency industry creates opportunities, according to Chief Executive Officer Justin Hartzman.
The crypto-asset trading platform is sifting through distressed assets, custodial-services firms and other exchanges and payment platforms, Hartzman said in an interview.
“M&A is an interesting thing, something that I spend a lot of time on,” he said. The high cost of regulation -- or lack of regulation -- gives the firm an “opportunity to jump in and find some properties or some targets that are really advantageous to our growth there.”
The Toronto-based company hasn’t been immune to the market collapse that’s pushed some lenders and hedge funds, such as Three Arrows Capital, into bankruptcy. CoinSmart’s shares have lost about three-quarters of their value this year, shrinking its market capitalization to just CUS$14 million (US$11 million). That’s a fraction of Coinbase Global Inc., which has also tumbled on increased scrutiny from US regulators.
Tumultuous times give CoinSmart the opportunity to reflect on the company’s strengths and weaknesses, Hartzman said. “Across the board, over 56 per cent of volume retail dropped internationally across all platforms,” he said. “We’re closer to a 30 per cent reduction in volume.”
Listed in Toronto and Frankfurt, CoinSmart’s transactions exceeded CUS$1 billion last year, and the firm has 250,000 registered users, according to the CEO. The company went public in November, when crypto trading was surging, after obtaining licenses from the Ontario Securities Commission.
Canada has pushed further than the US in regulating the crypto market, classifying Bitcoin and Ethereum as commodities and selecting the types of tokens that were allowed to be accessed early on. Platforms facilitating trading in securities, instruments or contracts involving digital assets are required to register as a dealer and eventually become a member of the Investment Industry Regulatory Organization of Canada, OSC said in an emailed statement.
In the US, the Securities and Exchange Commission’s scrutiny of Coinbase is igniting concerns that a major crackdown for the rest of the industry is imminent. Regulators are still jostling over which tokens are considered securities. Asserting that for specific tokens would be problematic for the industry because such a label triggers strict investor-protection requirements.
CoinSmart doesn’t currently accept US customers because the rules are fragmented, making doing business cumbersome. Lack of unified regulation is hampering growth and products in the US, according to Hartzman.
“In Canada, the regulator has done a lot more work of focusing and has been more diligent, in my opinion, on being clear about what is and what isn’t” considered to be a security or commodity, said Som Seif, CEO of Purpose Investments Inc., which launched the first Bitcoin exchange-traded fund in North America last year.
Purpose’s crypto ETFs reported CUS$500 million in net inflows since the beginning of the year, and anticipates growth this year, Seif said in an interview.
“I think we’re seeing that institutions who can effectively buy things anywhere in the world are saying I don’t need a US ETF, I’ll just buy the Canadian,” he said. “We’re seeing that in our product, but also broadly.”