Last week, the Canadian exchange, Newton, has announced it will follow regulatory compliances with the Ontario Securities Commission (OSC) and Canadian Securities Administrators (CSA), imposing new restrictions on the buying and selling of cryptocurrencies in Canada.
The exchange will now require three new changes for Canadian investors; the filing of a risk-tolerance questionnaire for every user, the implementation of a notification system to alert users about a portfolio approaching a specific loss level, and the integration of annual Net Purchase Limits.
What's been making a lot of noise within the crypto community is the newly proposed Net Purchase Limits: Newton’s customers will be restricted to buying $30,000 CAD* per altcoin listed on Newton. There are some exceptions, Bitcoin, Bitcoin Cash, Litecoin, and Ethereum do not apply to this Net Purchase Limit meaning a Newton customer can purchase any amount they wish of the four cryptocurrencies mentioned.
*this amount can vary depending on your financial profile
While it made recent headlines, this seemingly novel Net Purchase Limit has been used by other exchanges before. Bitbuy has been implementing and displaying these regulations, which have been updated as far as 3 months ago.
Additionally, these regulations will be followed by all Canadian centralized exchanges (CEXs) in affected provinces to follow regulatory compliance.
Newton has explained that the regulation’s objective is to protect crypto investors from risk beyond their risk tolerance and “make sure investors are aware of the risks associated with investing in crypto assets”.
Some pointers on the Net Purchase Limits
Here are a quick few points to remember when considering Net Purchase Limits:
- The limit resets every 12 months from the first purchase of the restricted coins
- If you buy and sell restricted coins, the sell amount will be subtracted from the limit
- Ex: you buy 5,000 CAD of SOL today and sell $2,500CAD of SOL a month later, your limit is now at $27,500 CAD.
- The limit is PER PLATFORM and not calculated cumulatively cross-exchanges. (refer to Newton’s CEO, Dustin Walper’s tweet on the matter)
- Nothing has been said about decentralized exchanges (DEXs) such as Uniswap.
- The regulations will apply to all Canadian provinces and territories except: Quebec, British Columbia, Alberta and Manitoba
What the community has to say about the regulations
David Hoffman, from Bankless, questions the decision altogether as per his tweet: https://twitter.com/TrustlessState/status/1560048202446999552.
Vitalik Buterin, on his end, is “[g]lad to see Ethereum people pushing against regulations that privilege ETH over other legitimate cryptocurrencies”: https://twitter.com/VitalikButerin/status/1560049658457513985.
Some other community members seem to question the choice of the unrestricted coins: https://twitter.com/bradgriffin_/status/1560048826408370177 while others question the on-chain application of the purchase limits: https://twitter.com/ezezenspeed/status/1560056897453146112 .
What it means for the Canadian crypto community
While the advertised explanation of these regulations promote risk management and investor protection, the actual application of the rule can be questioned.
In order to reach mass adoption of cryptocurrencies, regulations and protection of user funds are important components to consider.
However, imposing regulations that do not consider all applications of cryptocurrency management will leave Canadian investors in the dark. What happens to individuals who trade on DEXs? What if you purchase ETH on a CEX and decide to swap for another currency on-chain?
Additionally, unrestricted coins must consider important players in DeFi, such as stablecoins that have a proven track record for maintaining their peg and acting as a trusted store of value.
The cryptocurrency ecosystem has evolved to promote different use cases and applications which should be taken into account in order to facilitate user experience, risk mitigation and healthy promotion of blockchain investments.
For more information regarding Canada and Montreal’s crypto ecosystem, subscribe to the Web3Mtl blog and stay in-the-know!
Thank you for reading.