Canadian online brokerage Wealthsimple wants to chart a future enabling the real-world use of cryptocurrencies rather than simply facilitating trading, but is likely to face unexpected costs and uncertain regulatory terrain along the way.
Launched in 2014 as a stock-trading platform, Wealthsimple currently has C$15 billion ($11.9 billion) in assets. It added cryptocurrency trading in August 2020 with Bitcoin and Ethereum, and has since added more coins, hosted wallets and inward transfer capabilities, and has said it intends to enable withdrawals.
Wealthsimple’s first-mover advantage in crypto has helped it to break into a narrow slice of Canada’s financial industry not dominated by the ‘Big Six’ banks.
“We understand that part of the appeal of this asset class (is) to use the asset, not simply invest in them or speculate on them, so we’re going to support that,” Wealthsimple’s Chief Legal Officer Blair Wiley said in an interview. “We’re looking at … how we can become more nimble, more connected to public blockchains as a key strategic priority.”
He declined to provide a timeframe for achieving this, or the investment needed to expand the crypto capabilities of Wealthsimple, 43% owned by Power Corp of Canada.
Cryptocurrencies’ uses include as alternatives to fiat currencies; for funds transfers without intermediaries or transfer fees; and the use of smart contracts, which self-execute when stated terms are met.
Companies from Tesla Inc to PayPal Holdings have started accepting them, but speculation and trading remains by far their most popular use.
Wealthsimple would have an edge when they eventually offer real-world use as “they already have a captured market of people interested in trading,” said Anne Connelly, a lecturer at Boston University focused on cryptocurrencies and blockchain.
Canada had four other cryptocurrency companies registered with securities regulators as of Jan. 11, all focused only on the digital assets, in contrast with Wealthsimple, which is familiar to users who trade other assets. Canada has focused on regulating cryptocurrencies primarily as securities.
REGULATORY COMPLIANCE
The recent downtrend in cryptocurrencies highlights the benefits of reducing reliance on trading, said Katrin Tinn, assistant finance professor at McGill University, adding that Wealthsimple’s familiarity and ease of use is a big draw for new cryptocurrency users over other sites.
But that could challenge the addition of more complex capabilities.
For instance, “if the corporation is still holding on to (users’) private keys for them or preventing them from sending their cryptocurrency anywhere else, then they’re selling the vision of cryptocurrency without providing the true benefits,” Connelly said.
Wealthsimple’s plan to enable cryptocurrency withdrawals gets it closer to its goal, said Andreas Park, finance professor and co-founder of the University of Toronto’s blockchain research lab LedgerHub.
But as regulations evolve, Wealthsimple will “have to continue to devote considerable resources to build up their cryptocurrency presence and to deal with regulatory compliance,” said Matthew Burgoyne, cryptocurrency and blockchain-focused partner at McLeod Law.
While institutions including Commonwealth Bank of Australia and Spain’s BBVA, as well as trading platforms including U.S.-based Robinhood Markets Inc have embraced cryptocurrencies, Canadian banks have mostly prohibited the use of credit cards for cryptocurrency purchases and avoided dealing with related businesses.
While this limits the use of cryptocurrencies, it allows Wealthsimple to gain a foothold. Clients registering for Wealthsimple’s Trade product, which includes cryptocurrencies, tripled in 2021, according to company data.
“The focus should be on what crypto/blockchain can do, not whether these tokens are good investments,” Park said. That is a “much better, forward-looking strategy.”
($1 = 1.2627 Canadian dollars)
(Reporting By Nichola Saminather; Additional reporting by Tom Wilson in London; Editing by Denny Thomas and Nick Zieminski)
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
