Canadian crypto firm CoinSmart is looking for cheap assets
(Bloomberg) — CoinSmart Financial Inc. is eyeing deals in Canada, Europe and the United States as turmoil in the cryptocurrency industry creates opportunities, according to CEO Justin Hartzman.
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The crypto-asset trading platform filters through distressed assets, custody services and other exchanges and payment platforms, Hartzman said in an interview.
“M&A is an interesting thing, something 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 beneficial to our growth there.”
The Toronto-based company has not been immune to the market collapse that has 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, reducing their market capitalization to just C$14 million ($11 million). It is a fraction of Coinbase Global Inc., which has also fallen under increased scrutiny from U.S. regulators.
Turbulent times give CoinSmart the opportunity to reflect on the company’s strengths and weaknesses, Hartzman said. “Across the board, over 56% of retail sales fell internationally across all platforms,” he said. “We are closer to a 30% reduction in volume.”
Listed in Toronto and Frankfurt, CoinSmart’s transactions exceeded C$1 billion last year and the firm has 250,000 registered users, according to its CEO. The company went public in November, as crypto trading increased, 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 choosing which types of tokens were allowed to be accessed early on. Platforms that facilitate the trading of securities, instruments or contracts involving digital assets are required to register as dealers and eventually become members of the Investment Industry Regulatory Organization of Canada, the OSC said in an emailed statement.
In the US, the Securities and Exchange Commission’s investigation into Coinbase raises concerns that a major blow to the rest of the industry is imminent. Regulators are still fussing about which tokens are considered securities. Claiming that for specific tokens will be problematic for the industry because such a label triggers strict investor protection requirements.
CoinSmart does not currently accept US customers because the rules are fragmented, making doing business cumbersome. Lack of uniform regulation inhibits growth and products in the United States, according to Hartzman.
“In Canada, the regulator has done a lot more work in focusing and has been more diligent, in my opinion, in being clear about what is and what is not” considered to be a security or commodity, said Som Seif, executive director of Purpose Investments Inc., which launched the first Bitcoin exchange-traded fund in North America last year.
Purpose’s crypto ETFs reported C$500 million in net inflows since the beginning of the year, and expect growth this year, Seif said in an interview.
“I think we’re seeing institutions that can effectively buy things anywhere in the world saying I don’t need a US ETF, I’ll just buy the Canadian one,” he said. “We see it in our product, but also broadly.”
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