Canada Securities Regulator Releases Crypto Asset Guidelines

Canada Securities Administrators (CSA) released new guidelines for investment funds that hold or seek to invest in crypto assets, especially on complying with securities law requirements. Unlike the US SEC, Canada admits crypto and Bitcoin have advantages and gradually easing limits to investing in crypto assets. Major crypto events including the 2023 Blockchain Futurist Conference and the ETHToronto to happen in the coming months.

Canadian public crypto asset fund issued in April 2020 resulted in the creation of a non-redeemable investment fund that invests its assets directly in Bitcoin (BTC). As of April 30, 2023, there are 22 Public Crypto Asset Funds in Canada with CAD $2.86 billion in net assets.

Canada Announces Guidance on Crypto Asset Investment Funds

The Canadian Securities Administrators (CSA) published guidelines on existing securities regulatory requirements for crypto asset investment funds. The CSA also mentioned its stance and expectations on crypto staking, crypto custodians, and investing in crypto assets other than Bitcoin (BTC) and Ethereum (ETH).

The CSA said fund managers need to find an active market for the crypto asset, presence of a regulated futures market for that crypto asset, and available indices by a regulated index provider for the crypto asset. It must have a substantial trading volume.

The CSA recommended using publicly available indices that aggregate pricing from a variety of sources to determine a spot price of a crypto asset, saying this “will help mitigate the risks of inaccurate pricing of a particular asset.”

Funds that are structured as ETFs or conventional mutual funds are classified as “alternative mutual funds.” These products have not experienced any material difficulties in meeting redemption requests since their respective inceptions in Canada.

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For funds that wish to include staking crypto asses, they can only do so for blockchains designed specifically as proof-of-stake (PoS), and only on top networks. It requires knowledge of staking crypto assets and entering into written agreements with multiple third parties to stake the fund’s crypto assets.

IFMs and custodians are required to safely custody crypto assets. The fund’s crypto assets must be in an offline or cold wallet, separate from the assets of the custodian and the custodian’s other clients, with appropriate insurance, and annual reports on it.

Institutional and retail investors are pouring money into crypto asset funds as the bull market price-in before halving. Bitcoin and Ethereum prices are increasing amid substantial demand from investors.

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