We are pleased to share our 2025 Canadian Crypto Outlook article with our Fintech clients and TechLex blog readers. This article was published as a chapter in McCarthy Tetrault Technology Perspectives Outlook 2025.
2024 was a lackluster year for Canadian crypto. While the price of bitcoin and other crypto assets soared against a backdrop of emerging regulatory clarity in the United States and Europe, Canada's regulatory regime – which had led the world in 2021 – imposed additional product restrictions, raised barriers to entry and did not approve any new crypto products. That being said, we are optimistic that Canada's strong regulatory foundation can support an innovative 2025, in which collaboration between industry and regulators allows Canada to reclaim its crypto leadership position.
Global Crypto Progress
To contextualize our Canadian analysis, some of crypto's key global milestones achieved in 2024 are summarized below:
- Dec. 5, 2024: Trading price of bitcoin ("BTC") hits US$100,000 for the first time.
- Jan. 10, 2024: U.S. Securities and Exchange Commission ("SEC") approves Bitcoin ETFs, which end the year with aggregate assets under management ("AUM") of over US$120 billion.1
- May 22, 2024: U.S. House of Representatives approves the Financial Innovations and Technology for the 21st Century Act ("FIT21") with broad bipartisan support, providing "robust, time-tested consumer protections and regulatory certainty necessary to allow digital asset innovation to flourish."2
- June 30, 2024: Titles III and IV of the European Union's ("EU") Markets in Crypto Assets Regulation ("MiCA") comes into force, with comprehensive regulation for asset-referenced tokens and e-money tokens, including disclosure and reserve requirements.3
- Dec. 31, 2024: Rest of MiCA comes into force, providing uniform registration requirements for crypto asset service providers ("CASPs") which can be "passported" across the EU.4
- Jan. 21, 2025: SEC forms new crypto policy reform task force to "draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously."5
- Jan. 23, 2025: U.S. Senate forms Senate Banking Subcommittee on Digital Assets to pass "bipartisan digital asset legislation that promotes responsible innovation and protects consumers" and supervise "Federal financial regulators to ensure those agencies are following the law."6
Canada Crypto Standstill
Another major development was the proliferation of payment use cases for fiat-backed stablecoins, which reached a global market capitalization of over US$200 billion.7 Similarly, 2024 saw concrete progress in real world asset ("RWA") tokenization, exemplified by the BlackRock USD Institutional Digital Liquidity Fund in March, offering Ethereum-based tokenized exposure to U.S. treasuries.
One Size Fits All: Mandatory CIRO Membership for Custodial CTPs
CIRO's stringent capital, insurance, financial reporting and proficiency requirements ensure that the crypto assets of Canadian users will be adequately protected. However, CIRO's prescriptive regime was built for securities dealers and does not contemplate crypto's 24-7 global markets, transparent on-chain settlement, and user-directed movement of assets between centralized CTP accounts and self-custody wallets. As a self-regulatory organization, CIRO does not have discretion to deviate too far from its familiar business models, which do not accommodate assets that can be used for purposes other than investment, such as payments, gaming and other Web3 functions.
After approving only one crypto asset trading platform ("CTP") for registration in 2024,8 the Canadian Securities Administrators ("CSA") announced in August that its flexible, "restricted dealer" framework is no longer available for CTPs seeking to enter the Canadian market.9 Rather, the only option for a CTP that offers custodial services is to register with the CSA as an investment dealer and become a member of the Canadian Investment Regulatory Organization ("CIRO").
Renewed flexibility from the CSA and CIRO will be necessary for Canadians to participate in crypto's new use cases while continuing to buy and store their assets with a regulated intermediary.
Only in Canada: Regulation of Fiat-Backed Stablecoins as Securities
The CSA finally implemented its interim regime for fiat-backed stablecoins (which the CSA calls "value-referenced crypto assets" or "VRCAs") when Circle Internet Financial Inc. accepted its jurisdiction over USD Coin ("USDC"), as discussed in our December 10 blog post. As a result, registered CTPs can continue to offer USDC in compliance with the "VRCA Terms & Conditions" imposed by the CSA.
However, CSA guidance10 suggests any new stablecoin issuer that seeks to do business in Canada must file a prospectus and submit to a disclosure-based regime. In contrast, MiCA and all other emerging global regimes will regulate stablecoins as payment instruments pursuant to prudential standards. The Canadian Web3 Council articulated industry's concerns with the CSA's approach in its December 20 comment letter11 on the Ontario Securities Commission's ("OSC") 2025-26 Statement of Priorities:
- "Businesses using stablecoins to pay employees or vendors face uncertainty over whether their transactions involve securities and the implications from both a tax and regulatory perspective.
- Consumers must worry about tax implications when using stablecoins for everyday payments.
- Payment service providers accepting stablecoins must consider whether they are effectively dealing in securities and need to register as securities dealers.
- New VRCA issuers face hurdles to list their stablecoins ... The restriction discourages new product innovation particularly for a CAD denominated stablecoin, and undermines the development and adoption of new payment networks, applications and products in Canada."12
Fiat-backed stablecoins are an essential part of global crypto asset markets and are of increasing importance in global payments and finance. If Canada's regulatory approach does not reflect the predominant global use case for stablecoins as digital money, we risk isolating both our crypto asset markets and our Fintech payment rails from the rest of the world.
Canadian Public Crypto Fund Outflows
Canada was the first country in the world to approve public crypto asset funds, with closed-end funds for Bitcoin and Ether launching on the Toronto Stock Exchange in 2020, followed by ETFs for both assets in 2021, and the first Ether staking fund and ETF approvals in 2023. Canada's innovative crypto asset funds attracted significant global investment, with over C$3 billion in aggregate AUM as of June 30, 2023.13
Not surprisingly, following the SEC's approval of Bitcoin ETFs in January 2024 and Ether ETFs in May, Canadian crypto ETFs experienced outflows of approximately C$1.4 billion as U.S. and other international investors shifted their exposure.14 Only one new Canadian crypto ETF was launched in 2024 when small-cap issuer Ether Capital Corp. converted into Purpose Ether Staking Corp. ETF in June 2024 (CBOE:ETHC.B).
DeFi on the Horizon: Focus on Automated Market Makers (AMMs)
In July 2024, staff of the OSC and Bank of Canada published The Ecology of Automated Market Makers (the "AMM Paper")15, a discussion paper about AMMs as a potential source of investor harm, risk to market integrity and channel for systemic risk. The AMM Paper was produced by authors from both the OSC and the Bank of Canada as a staff research study relevant to policy. The OSC and Bank of Canada explicitly disclaim responsibility for the views expressed in the paper.16
The AMM Paper describes potential investor harms arising from information asymmetries amongst users of AMMs and other Decentralized Finance ("DeFi") protocols that could give rise to losses due to misconduct or market failures, and identifies "a limited set of AMM activities that may already be captured within existing regulatory frameworks." The paper notes how AMMs appear to: (i) "issue and engage with a variety of crypto assets that may be considered securities or derivatives"; (ii) "perform some key functions comparable with centralized market structures"; and (iii) "encourage participation by retail and institutional users in trading activities and liquidity pool."17
Overall, the AMM Paper conveys that the OSC and Bank of Canada are still in the initial stages of considering when and how to regulate DeFi activities, and recognize that the decentralized, autonomous nature of AMMs raises regulatory challenges. However, it also demonstrates that the OSC, following the lead of the International Organization of Securities Commission, is deepening its understanding of DeFi, and has identified investor protection and market integrity concerns associated with DeFi.
The tone suggests that the OSC is examining the issue closely and is likely to issue guidance prior to exerting jurisdiction over AMMs or other DeFi projects. However, taking into account the widespread use of stablecoins in DeFi, which the CSA is already proposing to regulate as securities, regulatory risk is heightened in Canada and may deter crypto innovators from allowing Canadian users to access decentralized markets and services.
Reasons for Optimism
Restraint in Enforcement
Although Canada's regulatory framework for CTPs is strict, the CSA have not used their enforcement powers to establish new rules for the crypto asset industry. To the contrary, to date, all enforcement actions commenced by CSA members against crypto market participants have been preceded by public staff notices18 that seek to articulate CSA staff's views of how existing securities legislation applies to crypto asset activities.
The first wave of OSC enforcement actions came in 2022, a year after the publication of CSA Staff Notice 21-329, which clarified the CSA's view that the custodial accounts offered by centralized CTPs are securities or derivatives and, therefore, engage securities dealer and marketplace regulation. The OSC brought proceedings against four foreign CTPs that served Canadian users, all of which offered derivatives and highly leveraged products in addition to spot crypto contracts, as discussed in our 2023 article. In response, many foreign CTPs withdrew their services from Canada.
In 2023 and 2024, the OSC and other CSA members prosecuted a total of 14 CTPs and issuers (many of which were discussed in our 2024 article) for distributing and/or trading in crypto assets that are securities or derivatives without complying with the prospectus and/or dealer registration requirements. Generally, the respondents in these actions made false or misleading statements in promotional materials, were reckless or negligent when providing crypto asset services, or at a minimum, provided custodial services that are widely recognized to engage securities laws. To date, no CSA member has brought a public enforcement proceeding against a crypto asset developer in connection with non-custodial services.
In addition, the Ontario Capital Markets Tribunal ("OCMT") seems to be taking a measured approach toward the application of securities legislation to crypto assets. In the 2024 case Re Hogg,19 the OCMT rejected the OSC's position that the crypto assets promoted and sold by the respondents were, in and of themselves, securities, and endorsed the investment contract analysis in the U.S. decision in SEC v. Ripple Labs20:
We were not convinced by the Commission's assertion that the Tokens here are a "smart contract," "contract," "equivalent of a written document," or that they have "terms" embedded within them. The Commission relied on a single line in the Cryptobontix White Paper indicating that the Tokens are "based on the Ethereum Smart Contract technology, otherwise known as ERC20 tokens". The Commission did not satisfactorily explain why this was significant. There was no evidence supporting these assertions of the Commission...We were also not satisfied that the Tokens here are an investment instrument like a share certificate. It was not established that there is anything inherent in them that gives investors any interest in Cryptobontix or a business.
Although the Tokens are the subject of the transaction or scheme in this case, we find that the Tokens (like the bags of silver coins in Pacific Coast Coin and the citrus groves in Howey, involving contracts in which investors bought citrus groves and essentially leased them back to a service provider to harvest, pool and market the produce), in and of themselves, do not embody the elements of an investment contract.21
Silver Lining: Maturation of Canadian Crypto Asset Industry
A benefit of the CSA's heavy regulatory approach is that Canada now has five CTPs that are full investment dealers and CIRO members, six CTPs that are restricted dealers and a handful of others expected to complete registration in the first half of 2025. All of these CTPs are required to maintain robust financial, operational, compliance, and risk management programs in order to meet regulatory standards. As a result, Canadian CTPs are supervised by qualified professionals, many with traditional capital markets experience.
In addition, CSA and CIRO staff have developed expertise in crypto asset trading and markets. For example, each of the CSA and CIRO have developed terms and conditions under which CTPs are permitted to offer staking services to their users, as well as minimum standards for hot wallet controls, security audits and insurance.
The combination of professionalized CTPs and sophisticated regulators should facilitate collaboration that will allow regulated platforms to offer new products to Canadian users. The CSA and CIRO should be receptive to proposals by CTPs to offer margin, derivatives and advice related to crypto assets built upon existing capital markets regulatory principles, while recognizing that many crypto assets are not securities. As a result, clients may seek to trade and hold crypto assets for purposes other than investment, and therefore flexible approaches to product due diligence, suitability and custody may be appropriate.
Similarly, Canadian crypto asset ETFs have operated since 2021, and three Canadian public Ether funds engage in staking activities to enhance returns for their holders, while managing liquidity.[22] The CSA has proposed regulatory amendments which will expressly include crypto asset funds within Canada's public investment fund regime.[23] Late January 2025 saw prospectus filings by two Canadian fund managers for Solana (SOL) ETFs that will engage in staking strategies,[24] as well as one Ripple (XRP) ETF.[25] The CSA now has the opportunity to apply its established framework and regulatory expertise to these new products.
Public Consultation and Regulatory Collaboration
The CSA introduced a capital markets regulatory framework for crypto assets in 2021,[26] bringing high standards of proficiency, solvency, and integrity to the Canadian crypto industry. Rather than proposing new rules specifically designed for crypto assets (which would likely have required legislative amendments), the CSA applied existing legislation to custodial CTPs, tailored through exemptive relief to provide flexibility.
The CSA implemented its framework by publishing nine staff notices, as well as bespoke terms and conditions of registration for each CTP that achieved dealer registration. Four years later, close to 20 CTPs are registered as dealers, or operate under pre-registration undertakings, under Canadian securities legislation. The CSA's initiative has provided regulatory clarity and strong consumer protection, which has benefited many Canadian crypto investors and users.
However, because the CSA's approach applies existing securities laws to crypto, rather than creating new rules based on capital markets principles, it is inherently limited and increasingly rigid. By and large, all Canadian CTPs offer only one product: self-directed spot crypto asset trading and custody, in some cases with staking. Similarly, the CSA's initiative to regulate fiat-backed stablecoins as securities has left USDC as the only fiat-backed stablecoin listed on Canadian CTPs, with significant regulatory burden impeding the offering of a CAD token or any other stablecoins in Canada.
Meanwhile, MiCA, FIT21, and other fit-for-purpose crypto asset regulatory regimes reflect the novelty of crypto assets, many of which have both investment and utility characteristics. Importantly, most global regimes also distinguish between fiat-backed stablecoins (generally regulated prudentially as digital money) and other types of crypto assets. In order for Canada to be able to continue to regulate crypto without stifling innovation, public consultation with industry and other stakeholders is imperative.
In addition, now that a critical mass of CTPs are registered, the CSA and CIRO should be open to hearing industry proposals for expanding crypto asset products and services for the benefit of Canadian clients and users. Together, industry and regulators can build upon their successful history of collaboration and forge an innovative path forward for crypto in Canada.
Footnotes
2 House Committee on Financial Services, "House Passes Financial Innovation and Technology for the 21st Century Act with Overwhelming Bipartisan Support (22 May 2024). FIT21 would require U.S. Senate approval prior to becoming legally effective.
4 Ibid.
6 Cynthia Lummis, "Lummis to Chair Historic Senate Panel on Digital Assets" (23 January 2025).
8 Coinbase Canada, Inc. was registered as a restricted dealer on April 3, 2024: OSC, In the Matter of Coinbase Canada Inc. and Coinbase, Inc. (3 April 2024).
12 Ibid, page 2.
15 Annetta Ho (Bank of Canada), Cosmin Cazan (OSC), and Andrew Schrumm (OSC), "The Ecology of Automated Market Makers" (11 July 2024) ["AMM Paper"].
16 AMM Paper, page 32.
17 AMM Paper, page 38.
18 The CSA Financial Innovation Hub maintains an up-to-date list of all CSA publications relating to crypto assets here: CSA Publications.
19 2024 ONCMT 15 (Hogg).
21 Hogg, paras 104–105.
22 Purpose Ether Staking Corp. ETF (SEDAR+ Profile number 000104893); 3iQ Ether Staking ETF (SEDAR+ Profile number 000051756); The Ether Fund (SEDAR+ Profile number 000060045).
24 Purpose Solana ETF (SEDAR+ Profile number 000107576) and 3iQ Solana Staking ETF (SEDAR+ Profile number 000107593); documents filed at www.sedarplus.ca.
25 3iQ XRP ETF (SEDAR+ Profile number 000107597).
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