As unregulated crypto players collapse around the world, Netcoins expands to the US

Vancouver-based cryptocurrency trading platform Netcoins has identified an opportunity to use its regulated Canadian crypto model in the United States (US).

After securing regulatory approval, the company launched in five US states in December, including California, Michigan, Pennsylvania, Virginia and Missouri. Earlier this month, Netcoins rolled out its platform in four more: Colorado, Utah, Kentucky and Kansas.

“A lot changed with Three Arrows Capital, and Celsius and FTX, and some of that required from users was a different way of doing things.”
-Fraser Matthews, Netcoins

Netcoins is one of the 11 crypto trading platforms currently registered with securities regulators in Canada. The company is also one of the first and only regulated Canadian crypto firms to expand into the US to date.

The Canadian company’s push into the much larger and crowded US market is taking place in the middle of a crypto winter. It comes in the wake of the collapse of a number of large, unregulated crypto firms – many headquartered in the US – from Three Arrows Capital, to Celsius and FTX.

When asked about the timing of this move in an interview with BetaKit, Netcoins president Fraser Matthews said the company saw room to offer a “compatible version of crypto” to Americans seeking a safer alternative to unregistered exchanges. “Now that things have really shifted and changed, consumers are looking for more compliant, more regulatory-focused platforms as an alternative to some of the bigger [players],” he added.

Netcoins is not the only regulated Canadian crypto firm to spot opportunities south of the border amid current market conditions. Toronto’s Newton confirmed to BetaKit that it has been servicing the US market through its US sister company Newton USA for about six months now. Meanwhile, Vancouver-based WonderFi told BetaKit that the firm still plans to bring at least one of the platforms it owns, Bitbuy, to the US market at a later date, noting that it has already started the application process to do so.

By moving beyond just Canada, Netcoins hopes to capture a piece of the massive US market, at a time when other players have bemoaned high customer acquisition costs in Canada’s crypto market. The nine US states Netcoins currently serves are home to a combined population of more than 90 million – a number that is nearly three times the size of Canada’s total population.

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Founded in 2014, Netcoins began as a virtual provider of Bitcoin ATM solutions before branching out into a crypto trading firm. Today, the company offers a platform that allows Canadian and US users to buy and sell over 30 cryptocurrencies, including Bitcoin and Ethereum.

Netcoins is a subsidiary of Bigg Digital Assets, a publicly traded company listed on the Canadian Securities Exchange as ‘BIGG.’ Bigg Digital Assets also owns digital investigative firm Blockchain Intelligence Group and has a 30 percent stake in metaverse product and service development company TerraZero.

In September 2021, Netcoins became one of the first crypto trading platforms to receive temporary regulatory approval to operate as a limited dealer in Canada, after securing the go-ahead to continue doing so from the British Columbia Securities Commission.

“With that understanding of how these rules work here, we can then take to the United States and showcase Canada’s brand of crypto asset trading, and hopefully provide a great solution for Americans as well,” Matthews said.

According to the Netcoins president, the US approach to crypto regulation differs slightly from Canada, which he described as “very centralized” relatively speaking.

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“You have a primary regulator, which is based on your location, but it scrapes across Canada to the provinces and territories, so there’s one framework, one decision document, it’s published online and [those are] the rules we operate under,” Matthews said. “In the United States, it’s different. It’s mostly done on a state-by-state basis.”

For now, Matthews noted that Netcoins is primarily focused on US states that require platforms to obtain a money transmitter license.

Matthews assumed leadership of Netcoins as president in June 2022, replacing BIGG Digital Assets CEO Mark Binns, who served as Netcoins’ interim CEO following the departure of previous president Mitchell Demeter in late 2021.

Matthews has spent the last 15 years in the financial industry, most recently with Saudi Arabia’s Banque Saudi Fransi as digital strategy leader, where he focused on banking-as-a-service, open banking and challenger banking. Prior to that, Matthews was CEO of TribalScale and worked at EY and PwC in financial services-related roles.

As Matthews noted, the crypto market began to decline around April 2022. Coin prices fell, first slowly, then drastically, and with this the value of trades also fell, affecting the business of crypto companies across the board, including Canadian firms such as Netcoins, WonderFi, Coinsquare and Ledn.

RELATED: Netcoins user walks away with estimated $1.58 million after software vulnerability

As for how the crypto winter has affected Netcoins, Matthews noted that it has forced the company to reevaluate its spending to ensure it operates as efficiently as possible, “slowly but surely” build out the team and focus efforts on revenue-generating products. and functions. Netcoins began 2022 offering six coins and ended the year with 36, with plans to roll out more this year and launch stakes on the platform by the end of Q1 2023.

According to the Netcoins president, the firm was able to avoid layoffs during the economic downturn and crypto winter after hiring “pragmatically” last year. Today, Matthews claims the company has a strong budget with many years of runway and is “fully staffed” already for 2023 with 52 employees.

In Q3 2022, Netcoins generated gross operating income of $1 million CAD, with assets under custody of around $40 million, and more than 183,000 registered users, according to Bigg’s latest earnings report.

In 2022, Netcoins experienced a significant security breach. The company claimed last year that a user fraudulently withdrew an estimated $1.58 million CAD after exploiting a software vulnerability. At the time, Netcoins noted that it had contacted the RCMP to investigate and Bigg was also attempting to trace the coins.

When asked about the status of this effort, Matthews stated to BetaKit, “Regarding the previous article that was published, there is an active investigation underway and we cannot comment at this time.”

Netcoins is one of the first and only regulated Canadian crypto firms to expand into the US to date.

Regarding how Netcoins has responded to this situation, Matthews added: “We have taken the necessary steps to secure the platform based on a full review of the unique situation. In addition, we have engaged with our technology partners to improve our security and operations. Netcoins has not had any breaches since this isolated incident.”

Last year was certainly a difficult year for the crypto industry as trillions of dollars in value evaporated and many individuals saw their crypto holdings wiped out.

“A lot changed with Three Arrows Capital, and Celsius and FTX, and some of what was required from users was a different way of doing things, and we made sure to understand what they [asks] was,” Matthews said. According to the Netcoins president, what users wanted was the most secure, stable and transparent crypto trading platforms with easy-to-understand fees. “We really embraced that,” he added.

In response, Netcoins took a number of different steps, including publishing its first proof-of-reserve report in November 2022, an exercise the company intends to complete on a quarterly basis going forward.

Speaking about the collapse of platforms like FTX and where the sector goes from here, Matthews noted: “It really shakes confidence in our industry, but there are so many great people doing great projects and trying to make sure we grow what we are. trying to do here,” Matthews said. “These things set us back, but the good people will push through.”

Feature image from Netcoins.