By Alex Tapscott
Canada’s crypto market is in the spotlight this week. The biggest news is the proposed merger of Canada’s three largest crypto exchanges, WonderFi, Coinsquare and Coinsmart, into a single ‘mega-exchange.’ The double whammy of US competitors plus increased regulatory costs makes this merger feel necessary at this moment. It is not totally clear that in a bear market, these businesses as standalone companies are viable.
The combined company will have over 1.65 million registered Canadian users and over $600 million in combined assets under custody. The merger offers a path to profitability and scalability for the companies amid a heightened regulatory environment with increased costs. The regulated trading business will be consolidated under Coinsquare's investment dealer registrant, Coinsquare Capital Markets Ltd., with WonderFi shareholders owning 38%, Coinsquare shareholders owning 43%, and CoinSmart shareholders owning 19% of the combined company.
Back of the envelope, the all-stock merger values the combined company at approximately $125 million (approx. 600 million fully diluted shares x $0.205 per WonderFi share, based on Tuesday, April 4th close). According to the press release, the combined company will have no debt and cash and other assets worth around $50 million. Even if most of those assets are not ‘cash’ the enterprise value is probably sub-$100 million, which feels shockingly low for a company that has an opportunity to consolidate the Canadian market. By contrast, Coinbase, which has a dominant position in the U.S. market, has a $16 billion market cap. By no means are they apples to apples, but if this new company can achieve similar success in the Canadian market, the old “divide by 10 rule” ought to apply for thinking about a future value for this company.
Of course, that assumes that the bigger US players won’t muscle in and grab market share from the Canadian leader.
On that note…
The largest cryptocurrency exchange in the United States, Coinbase, has announced its official international expansion plans in Canada, hiring Lucas Matheson as Country Director, a local tech hub of over 200 engineers, and signing a Pre-Registration Undertaking with Canadian regulators. Coinbase aims to provide Canadians access to its reputable and trusted platform to buy, sell, and trade cryptocurrencies while bringing clarity to the industry by creating a solid crypto regulatory framework. The company believes and is confident that collaboration and constructive dialogue with government officials, policymakers, and the industry are imperative in promoting the widespread understanding and adoption of the crypto asset class within Canadian borders.
We also heard that Kraken, a US-based cryptocurrency exchange, is filing pre-registration paperwork with the Ontario Securities Commission to become a registered Restricted Dealer in Canada and ensure compliance with the nation's tightened rules governing crypto exchanges. The exchange has served Canadian users for just over a decade, with a dedicated Canadian team consisting of more than 250 employees. It wants to maintain compliance to hold and build on that success.
