Calgary-based Bitvo talks strength of regulations after FTX collapse

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It is business as usual for Calgary-based crypto platform Bitvo in the wake of the collapse of global leader FTX Trading.

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FTX had reached an agreement to purchase Bitvo this summer, but the deal was held up by a regulation process and had not yet closed.

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Bitvo CEO and president Pamela Draper said it is unclear how FTX filing for bankruptcy will affect the acquisition, but the fall of FTX was a surprise.

“We were absolutely shocked,” she said. “I think every player in the industry and people who have been following the FTX story around the globe were surprised, and we were no different in that regard.”

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Bitvo has not paused trading operations, withdrawals or deposits, Draper said.

FTX, based in the Bahamas, fell victim to an unregulated market. Much of FTX’s $14.8 billion in assets had reportedly been invested in its crypto token called FTT. The company’s biggest rival, Binance, sold off its $580-million stake in FTT last week and sparked a selloff by investors.

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Over the course of a few days, the Ontario Teachers Pension Plan reportedly lost its entire $95-million investment in FTX’s international and U.S. arms.

The Alberta Investment Management Corp. said in an emailed statement that it does not hold any direct investment in FTX or any other cryptocurrency or crypto-related company.

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“Cryptocurrencies are not an asset class nor an investment that we believe to be a prudent fit for our client’s portfolios,” it said.

These platforms in, many ways, operate like a bank, except a traditional bank in Canada is guaranteed by the Bank of Canada and the federal government and are tightly regulated when it comes to investments. These are designed to ensure customers have access to their funds. Globally, the cryptocurrency world is a Wild West.

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When Binance instigated the selloff of FTT, others also attempted to get their money out but the funds largely are not there.

This is a hit to investor confidence in cryptocurrency, which was already battling these concerns due to volatility and a lack of global regulation.

Canada is an outlier in this, having instituted regulations to operate in the country following the collapse of Ontario-based platform QaudrigaCX in 2018. Bitvo is in compliance with those regulations, including holding more than 90 per cent of investments in cold storage, preventing hacking and ensuring customer access to those investments.

Draper said this level of regulation is something that attracted FTX to Bitvo.

However, FTX was not in compliance with Canadian regulations and could face a raft of disciplinary actions from jurisdictions around the world.

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The fallout on regulation may be more impactful to investors to rebuild future confidence in the sector.

“I think one of the things the industry needs to do going forward is prove more use cases, not just speculative trading,” said Ryan Clements, assistant professor and chair of business law regulation at the University of Calgary. “This is kind of a moment where if you want to get the industry confidence back up, we need functions of crypto more than just trading, because we think coins are gonna go up or down.”

Clements advised the Public Order Emergency Commission on cryptocurrency for the trucker convoy hearings with an expert report in September.

The ripple effect is being felt across the sector, with a number of crypto coins dropping in value since the collapse of the platform.

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Bitcoin, for example, lost almost 26 per cent of its value between Nov. 5, when it was worth $28,712.95 CAD, to Nov. 12, when it dropped to $21,081.85. It had rallied to $21,913.30 as of noon on Monday.

Clements said it is unclear how many Canadian investors have been caught in the collapse, but he said he knows a number of people who are unable to get their money out of FTX.

He said he expects regulatory policy to be formed out of this crisis in the U.S. and other countries to better protect the sector.

“We actually have quite good regulation (in Canada). What we need is Canadians to stop using unregulated platforms,” he said. “That could be a scenario of better education in terms of who’s regulated, who’s not, and also maybe some increase in enforcement.”

— With files from The Canadian Press and The Associated Press

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Twitter: @JoshAldrich03