October 1, 2022

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Why Governments Are Cracking Down On Crypto Exchanges, 5 Things Investors Need To Know

Governments Are Making Progress The cryptocurrency industry is at the start of a huge new...

Governments Are Making Progress

The cryptocurrency industry is at the start of a huge new trend. 

Mainstream adoption is beginning to happen in many countries like Canada and the United States, accelerating the number of new investors who now look at crypto as a legitimate asset class.

This is fantastic news for the industry as a whole but will bring about immediate changes that investors need to know about.

As mainstream adoption continues to accelerate, this means that governments have been required to make progress as well. Government progress comes in the form of regulatory frameworks. Regulatory frameworks that will allow new investors to feel safe and secure as they invest in the space. 

Although it has been in the works for the past couple of years, we are now seeing the direct result of these changes, and crypto investors need to pay attention or they might find themselves on the wrong side of this change. 

Progress Means Trading Platform Crackdowns

Unfortunately for current crypto investors, a regulatory framework means that many favorite exchanges will be forced to close shop, exit countries or jurisdictions, or ban users from a specific area altogether.

This is due to regulation. As the Canadian, US, and other governments put regulations in place, all trading platforms will be required to adhere to the new standards.

Yes, decentralized platforms, centralized platforms, and everything in between will be required to follow and adhere to the government’s standards and regulations.

Trading platforms that refuse to go through the process or are unable to comply with the regulations will be sought out by the Securities Commissions in each jurisdiction. Said in another way, trading platforms that do not follow the regulatory rules will encounter large fines, lawsuits from the government, or worse.

Trading platforms have seen the writing on the wall and as a result, have already started to alter their service offerings to customers in these regulated jurisdictions.

Trading Platform Products & Offerings Will Change

Part of the new regulatory environment means that governments will also be cracking down on the products and services that exchanges are allowed to offer to their customers.

As the regulations start to become commonplace, we have to remember that one of the core mandates is to protect investors from financial ruin, and from overextending themselves to become “wealthy”. 

Crypto investors should expect to see a reduction in coins offered, DeFi products offered, leveraged trading accounts, and access to advanced trading setups like futures and options, as these are all typical areas in which new crypto investors may expose themselves to unnecessary risk.

While these changes will likely not be permanent, these changes do mean that until regulatory frameworks are implemented for these products, and new standards are set, access will be non-existent.

This could take anywhere from 6-36 months based on the progress that has been made with other regulatory frameworks.

Funding Amounts Will Vary

While this does not affect most cryptocurrency investors, there will be changes to the maximum amounts of certain crypto that one can buy.

Bitcoin and Ethereum will typically be exempt, although crypto-investors will need to answer a series of basic questions to illustrate that they understand the risks involved with buying cryptocurrency.

Where adjustments will be made is in the maximum amount of certain alt-coins that can be purchased at any one point in time. 

While the figure is quite large, estimated to be $30,000 CAD of alt-coin purchase over the course of a specific time period, going beyond this number will mean that crypto-investors will need to prove that they are accredited investors.

Again, this is not going to affect most crypto-investors, but it is a change that the government is going to be implementing.

Smart Crypto Investors Can Still Take Advantage Of The Market

As the government institutes these new regulatory frameworks and starts cracking down on exchanges and trading platforms across the country, smart crypto investors who want to continue investing in the space will have only one option.

Smart crypto-investors will seek out, register, and begin trading on fully regulated platforms.

Those who do not, may experience locked funds, seized crypto, or the inability to access their accounts altogether. This has already happened with users in the United States as Binance proceeded to exit the country.

Here are a number of critical components smart crypto-investors will need to assess trading platforms in Canada:
  1. Verify that your trading platform has undergone, or is in the process of becoming fully licensed and regulated under the new regulatory frameworks. Please remember, this process does take time, which means that if they are just starting the process, you should expect that unless they’ve figured out an expedited process, they will be forced to stop providing services to customers until they get regulated. This can take anywhere from 12-24 months.
  2. Verify that your trading platform is a registered MSB (Money Service Business) with FINTRAC (the Financial Transactions and Reports Analysis Center of Canada).
  3. Verify that your trading platform is completely set up and approved by the OSC (Ontario Securities Commission) or equivalent Securities Commission in your province or territory.

Only trading platforms that pass all of these checkpoints will be allowed to offer services to customers in regulated areas. 

Which means, unfortunately, that most cryptocurrency platforms in Canada will not pass the test. 

This is because there are only a few that have spent the better part of 2-years working together with the government to get approved. One of the trading platforms, Coinberry, has been working with the government for years, and is on track to become the first fully-regulated cryptocurrency platform in Canada.

Having experience working with Canadian municipal governments to help process tax revenue through crypto, they are more than familiar with the process required to ensure regulatory compliance.

As Canada continues to crackdown on cryptocurrency exchanges and trading platforms over the next 2-6 months, Coinberry crypto-investors will be able to continue to invest as per usual, while other trading platforms may be forced to temporarily close their doors.

Progress Is Not Perfect, But The Future Looks Good

Regulation on the onset may seem to bring about a number of setbacks to some current crypto-investors. While there are changes that will undoubtedly affect cryptocurrency products, access to trading, and more, regulation should be seen as a great step forward for the entire industry.

It means there are waves of new investors entering the market. It means mainstream adoption is beginning to happen. It means that there is more innovation that has yet to occur.

Yes, the crypto industry will need to adjust and find ways to thrive in the current regulatory environments, but smart minds in crypto will always find a way to innovate and bring the best products and services to the market.

Smart crypto-investors, who take the above points in mind, and who prepare for the shift, will find themselves right there with the innovators, able to make investments and take opportunities that will continuously present themselves in the market.

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