Last month, the massive cryptocurrency exchange known as FTX imploded, filing for bankruptcy and sending a ripple through the digital economy — especially in Alberta, a province that had posited itself as a possible leader in the space.
It’s likely few companies were watching FTX’s collapse with more interest than the Calgary-based trading platform Bitvo Inc., which FTX announced it was planning to acquire in June.
In light of the collapse, Bitvo announced last month the deal had been terminated, adding it had no material exposure to FTX and was not party to the bankruptcy proceedings.
“There’s no impact on Bitvo’s operations, or the security of our customers’ funds, as a result of the FTX failure,” said Pamela Draper, president and CEO of Bitvo.
But the domino effect of the collapse of FTX, once valued at $32 billion US, has put the cryptocurrency industry on its heels for the year ahead and has posed some existential questions for an emerging space that the Alberta government has hailed as a big opportunity for diversification.
It was the moves the province took to position itself as a potential leader in the cryptocurrency space that attracted FTX to start building its Canadian presence in Alberta in the first place, according to the founder of the Bahamas-headquartered exchange, Sam Bankman-Fried.
“We’ve had some fantastic conversations with the Government of Alberta, which has been really constructive and is trying to take the lead in Canada and around the world for crypto policy and frameworks,” Bankman-Fried said in an interview with the Globe and Mail in June.
Bankman-Fried was charged earlier this month with eight criminal violations and could face decades in prison.
Proponents of the technology, including those who run businesses based in Alberta, argue the market has been through cycles such as this one before, and say FTX’s collapse presents an opportunity to turn the page and further develop the underlying blockchain technology.
Critics, meanwhile, say its implosion presents more evidence that blockchain technology has again failed in a significant way, and that more difficult challenges are coming in the year ahead.
Where from here?
Hut 8, based in Medicine Hat, Alta., bills itself as being one of Canada’s oldest and largest miners, and says it isn’t concerned about the latest downtrend in the space.
“This is not our first bear market,” said Sue Ennis, head of investor relations at Hut 8. “In the last bull market of 2021, we were one of the only guys who were actually setting ourselves up and setting up our balance sheet so that we could weather any sort of storm.”
Ennis said the company plans to hang on to its 8,925 bitcoins, believing in its future upside as an asset class and the ability to build businesses on top of the asset.
Koleya Karringten is executive director of the Canadian Blockchain Consortium, a Calgary-based national industry group that advocates for regulation around cryptocurrency.
She said though most news around the blockchain industry has been negative in recent months, in her view it failed to recognize developments in its underlying technology, including in Canada.
“[The industry is] developing out technology that’s capable of being exported internationally and supporting everything from remittance payments to better transparency and a more secure supply chain for everything from pharmaceuticals to our energy industry to agriculture,” Karringten said.
The Alberta government, meanwhile, isn’t planning on making any changes to a bill it passed in the spring, when the price of bitcoin was relatively stable.
That bill temporarily lets cryptocurrency and other financial technology companies be temporarily exempted from some financial laws as they test products in Alberta, as long as they meet certain terms. Beyond cryptocurrency, the so-called “fintech” ecosystem includes businesses like credit unions and loan and trust corporations.
The province is the first in Canada to test out such a regulatory sandbox.
Others are less optimistic about the year to come and argue that FTX’s collapse is just the latest in a long line of bad news for the crypto space in 2022.
Paris Marx, host of the Tech Won’t Save Us podcast, said the past year has shown that big claims being made about the cryptocurrency industry were “very much overblown.”
“I think we need to stop being distracted by these delusions of what cryptocurrency can offer, and actually be real about what it takes to build an economy for the future that is going to be beneficial to people, rather than just getting excited about the next kind of tech bubble,” Marx said.
The downturn in the crypto space has led to layoffs over the past year, including at the Canada-based Wealthsimple, which laid off 13 per cent of its staff earlier this year.
Marx said FTX’s implosion further destabilizes trust in the cryptocurrency ecosystem.
“People started to withdraw their crypto or tried to cash out, effectively creating like a bank run on these cryptocurrencies,” Marx said. “That shows that the fundamentals, the foundations of this industry, were flawed from the very beginning.”
Meanwhile, the advent of blockchain technology has led to an upsurge of work for some outside the traditional space.
Matthew Burgoyne is a Calgary-based corporate and securities lawyer at Osler, Hoskin & Harcourt LLP who advises in regulator matters, anti-money laundering, counter-terrorist financing and other areas geared toward the cryptocurrency and blockchain Web3 space.
“I think it’s a booming business for lawyers because there’s still a lot of regulatory uncertainty in the market,” Burgoyne said. “There could very well be new legislation passed in the coming years that directly affects cryptocurrency businesses. So that is a big area of growth for lawyers.”