Canadians have played a key role in the development of the global cryptocurrency industry. At every stage, Canadian lawmakers and regulators have been closely following developments and issuing guidance or amending laws. To my knowledge, no one has written a concise history of the developments of the last decade. This blog post is my attempt to do so, with links to the underlying guidance, staff notices, interpretation bulletins, statutory amendments, and regulations.
The First Rules: Taxes
The first regulatory guidance on cryptocurrency in Canada was likely a 2013 tax bulletin issued by the Canada Revenue Agency: http://thor.ca/blog/wp-content/uploads/2014/01/2013-0514701I7.pdf. Although only an interpretation bulletin (and not available from the CRA website), this was the first bit of solid guidance that professionals had to go on for the rapidly growing cryptocurrency industry in Canada.
2014: The First Crypto Law And Birth Of Ethereum
Canadian Parliament passed one of the first laws in the world that has to do with cryptocurrency, as part of a nearly 400 page omnibus law that amended dozens of laws at once: https://www.parl.ca/Content/Bills/412/Government/C-31/C-31_4/C-31_4.PDF. The relevant part is Division 19. This laws was passed on June 19th, 2014 and was followed by a number of regulatory changes to follow up the creation of a new category of Money Services Business (
virtual currency dealer) overseen by the anti-money laundering agency: FINTRAC.
One month after the first statute, the sale of ether began: https://web.archive.org/web/20140804235628/https://www.ethereum.org/. Being founded by a team that included Canadians, and having many Canadian participants, the creation of Ethereum and its success in Toronto cannot be understated as a part of the legal history. It is likely that the success of Ethereum is part of the reason for a particular emphasis in Canadian law on cryptocurrencies, although the ether sale itself was conducted from Zug, Switzerland.
The sale of ether was not related to anti-money laundering laws, but it did kick start a conversation about securities laws, particularly when Ethereum became the de facto platform for creating tokens in the 2015-2018 period. This conversation was accelerated by the sudden collapse of a fraudulent cryptocurrency exchange called QuadrigaCX at the end of 2018: https://www.theglobeandmail.com/business/article-quadriga-crypto-fraud-creditors-compensation/. At the time, QuadrigaCX was one of the most popular venues for buying and selling bitcoin and ether.
Securities Regulators Begin To Get Involved
In 2014, the Ontario Securities Commission published a few articles warning people about cryptocurrency scams but all of these have been deleted from their website so they only exist today as quotes on news websites (e.g. https://www.financemagnates.com/cryptocurrency/news/osc-on-bitcoin-well-take-action-if-ontario-securities-act-is-violated/). These documents were largely focused on scammers using cryptocurrency as a means to cash out frauds. But the securities regulators in Canada were largely silent publicly until the QuadrigaCX failure in 2018, when they went into overdrive with the launch of a consultation, swiftly followed by a series of staff notices laying out their rapidly evolving view on the space (more on that below).
Publicly Traded Companies Begin: HIVE Launch On TSX.V
In 2017, the first Canadian cryptocurrency mining company became listed on the Toronto Stock Exchange (TSX.V). HIVE started trading on September 18th, 2017: https://hivedigitaltechnologies.com/news/cryptocurrency-miner-hive-blockchain-technologies-commences-trading-on-the-tsxv/. This company would be followed by several others, all launched by reverse takeovers (rather than the traditional IPO).
Accounting Profession Takes Notice
In May of 2018, the accounting profession regulator issued a guidance document on cryptocurrency: https://assets.cpaontario.ca/insights/thought-leadership/pdfs/cpa-ontario-navigating-brave-new-world-cryptocurrency-icos.pdf. Although not binding, this and other statements by the accounting regulator caused accountants to become heightened concerned about auditing cryptocurrency companies. This was particularly a problem for the Canadian public companies, who are required to have auditors (which most startups do not need to have).
Securities Regulators Begin Issuing Guidance Documents And The Start Of Bitcoin ETFs
On March 14th, 2019, the Canadian provincial securities regulators began a consultation process that was part consultation and part announcement of intent to regulate: https://www.osc.ca/en/securities-law/instruments-rules-policies/2/21-402/joint-canadian-securities-administratorsinvestment-industry-regulatory-organization-canada. This consultation was done together with the securities dealer self-regulatory organization that is now called CIRO (think big banks, wealth management firms, etc.). It was followed by several more staff notices, all discussing different aspects of cryptocurrency trading, and generally focused on the trading platforms that enable Canadians to buy and sell.
The month before the consultation began, the OSC refused an application to create a bitcoin fund that would be tradable on the Toronto stock exchange: https://www.osc.ca/en/securities-law/orders-rulings-decisions/3iq-corp-and-bitcoin-fund. The OSC thought the idea of a bitcoin fund was too risky. The investment manager, 3iQ, appealed the ruling and on October 29th of 2019 they won the approval to make their fund: https://www.osc.ca/sites/default/files/pdfs/proceedings/rad_20191029_3iq-2.pdf. The fund launched on April 9th, 2020 and has returned 327% since inception (much better than the general stock market). This same sort of fund was just approved in America, almost four years after the Canadian funds launched.
Elections Canada Weighs In On Crypto Donations
While securities regulators were grappling with exchange-traded funds and securities law issues, Elections Canada issued an interpretation note about accepting cryptocurrencies as donations to political campaigns in Canada: https://www.elections.ca/res/gui/app/2018-10/2018-10_e.pdf.
Anti-Money Laundering Rules Expand
In 2019-2020, Canadian anti-money laundering regulations were updated to significantly expand the obligations of cryptocurrency dealers: https://fintrac-canafe.canada.ca/notices-avis/assessment-eng. The new rules had an implementation delay date built-in to allow dealers to figure out how to comply with the so-called
travel rule that was mandated by FATF, an international organization. FATF is the source of many anti-money laundering rules, and they began issuing reports on this subject in 2014: https://www.fatf-gafi.org/content/dam/fatf-gafi/reports/Virtual-currency-key-definitions-and-potential-aml-cft-risks.pdf.coredownload.pdf.
Stablecoins Come To Canada: Launch Of QCAD
On February 11th, 2020, the first Canadian dollar stablecoin (blockchain-based tokens with a value of $1 per token) was launched by Canada Stablecorp, a joint venture of 3iQ and a software company called Mavennet. On February 22nd of 2023, the Ontario Securities Commission issued a staff notice setting out their view on foreign and domestic stablecoins: https://www.osc.ca/sites/default/files/2023-02/csa_20230222_21-332_crypto-trading-platforms-pre-reg-undertakings.pdf.
Investment Dealers Approved To Start Trading Crypto
On August 7th, 2020, an investment dealer called Wealthsimple was given the first permission to a securities dealer to launch a crypto trading platform: https://www.osc.ca/en/securities-law/orders-rulings-decisions/wealthsimple-digital-assets-inc. This platform did not allow deposits or withdrawals of cryptocurrency until a regulatory approval the next year that turned it into a cryptocurrency dealer: https://www.osc.ca/sites/default/files/2021-06/ord_20210622_wealthsimple.pdf.
Following the Wealthsimple approval, securities regulators approved five more platforms by the end of 2021: https://web.archive.org/web/20220113164830/https://www.osc.ca/en/industry/registration-and-compliance/registered-crypto-asset-trading-platforms. These companies became known as
crypto asset trading platforms, with business models identical to the ones that existed before the first Canadian law was passed in 2014. Today there are fourteen registered companies, although some of them have shared ownership.
Statutory Amendments Stall: Securities Act Remains Unchanged
Although securities regulators were already issuing guidance documents and creating a regulated cryptocurrency trading sector, the actual securities laws in Canada had never been changed. The Ontario government put out a draft law that would do this in October of 2021: https://www.ontariocanada.com/registry/view.do?postingId=38527&language=en. This law would have changed the Securities Act to essentially enshrine the system already in place, but supported by statutory changes. This law was not passed.
Excise Tax Act Amendments Proposed
In February of 2022, the Department of Finance (which oversees the tax authority) issued a proposal to amend the sales tax law (Excise Tax Act) to include specific language about cryptocurrency mining: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/notice324/proposed-amendment-addressing-mining-activities-respect-cryptoassets.html. By 2022, there were several cryptocurrency mining companies trading in Canada, worth over a billion dollars (such as Hut8, HIVE, and others). The proposed amendments are not yet in force.
A Decade Of Legal Changes
Canadian crypto law is a combination of guidance (effectively law but theoretically non-binding), regulations, and statutes. As of 2024, there are laws and rules for everything from the tax treatment to dealers to exchange-traded funds. Canadian businesses are worth billions of dollars and collectively do over a billion dollars a year in business with Canadians and international customers. The legal history of the industry is far from finished, but I think the above is a decent summary of the key legal developments from 2014-2024.