CSA Embraces Crypto Futures Market, Supports Crypto ETFs

The Canadian Securities Administrators (CSA), the country’s top financial regulator, has affirmed its confidence in the regulated futures market for cryptocurrencies, which “promotes greater price discovery.”

In addition to the United States, Canada is home to several crypto exchange-traded funds (ETFs).

The CSA issued guidance on July 6 to help fund managers comply with legal requirements for crypto-asset-holding investment funds.

A 15-page document argues for the existence of crypto ETFs in Canada, highlighting the fact that ETFs possess the necessary tools to hedge against the price fluctuations of specific crypto assets.

The CSA identified the Bitcoin and Ethereum markets as providing the best support for public crypto asset funds without compromising investor protection.

It also limits the proportion of “illiquid assets,” i.e., those assets in the funds that cannot be sold on the open market quickly and directly.

The regulator expects investment funds to conduct adequate due diligence to determine whether the crypto assets they intend to invest in are securities or derivatives.

It also reminds investment managers that lending assets, not guarantees, is prohibited.

The document also outlines “the minimum expectations” for confiscating crypto assets.

Among these are primary storage in cold wallets, asset separation, blockchain visibility, insurance for corporate crime, and reporting to fund auditors.

A second issue mentioned is cryptocurrency staking. The CSA confirms that it does not prohibit staking explicitly.

Still, it expects fund managers to be vigilant about liquid crypto assets becoming illiquid during staking, ensuring compliance with illiquidity restrictions.

In the spring of 2023, several major cryptocurrency exchanges suspended operations in Canada due to the regulatory environment.

In April, decentralized exchange dYdX announced that its services for Canadian users would be discontinued. In May, Binance and another platform, Bybit, voluntarily withdrew from the country.