Canadian firm aims to offer “compliant” alternative to unregistered US exchanges.
Vancouver-based cryptocurrency trading platform Netcoins has identified an opportunity to apply its regulated Canadian crypto model in the United States (US).
After securing regulatory approval, the company launched in five US states in December, including California, Michigan, Pennsylvania, Virginia, and Missouri. Earlier this month, Netcoins rolled out its platform in four more: Colorado, Utah, Kentucky, and Kansas.
“A lot changed with Three Arrows Capital, and Celsius, and FTX, and part of what that called for from users was a different way of doing things.”
-Fraser Matthews, Netcoins
Netcoins is one of the 11 crypto trading platforms currently registered with securities regulators in Canada. The company is also one of the first and only regulated Canadian crypto firms to expand into the US to date.
The Canadian company’s push into the much larger and crowded US market is taking place amid a crypto winter. It comes in the wake of the collapse of numerous major, unregulated crypto firms—many US-headquartered—from Three Arrows Capital, to Celsius, and FTX.
Asked about the timing of this move in an interview with BetaKit, Netcoins president Fraser Matthews said the company saw room to offer a “compliant version of crypto” to Americans seeking a safer option than unregistered exchanges. “Now that things have really changed and shifted, consumers are looking for more compliant, more regulatory-focused platforms as an alternative to some of the larger [players],” he added.
Netcoins isn’t the only regulated Canadian crypto firm to sense opportunity south of the border amid current market conditions. Toronto’s Newton confirmed to BetaKit that it has served the US market through its American sister company Newton USA for about six months now. Meanwhile, Vancouver-based WonderFi told BetaKit that the firm still plans to bring at least one of the platforms it owns, Bitbuy, to the US market at a later date, noting that it has already initiated the application process to do so.
In moving beyond just Canada, Netcoins hopes to capture a slice of the massive US market, at a time when other players have lamented high customer acquisition costs in Canada’s crypto market. The nine US states Netcoins currently serves collectively house more than 90 million—a figure nearly three times the size of Canada’s overall population.
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Founded in 2014, Netcoins began as a virtual Bitcoin ATM solution provider before pivoting into a crypto trading firm. Today, the company offers a platform that allows Canadian and US users to buy and sell over 30 cryptocurrencies, including Bitcoin and Ethereum.
Netcoins is a subsidiary of Bigg Digital Assets, a publicly-traded firm listed on the Canadian Securities Exchange as ‘BIGG.’ Bigg Digital Assets also owns digital forensics firm Blockchain Intelligence Group and holds a 30 percent stake in metaverse product and service development company TerraZero.
In September 2021, Netcoins became one of the first crypto trading platforms to receive temporary regulatory approval to operate as a restricted dealer in Canada, after securing the go-ahead to continue doing so from the British Columbia Securities Commission.
“Having that understanding of how these rules work here, we can then take to the US and showcase Canada’s brand of crypto asset trading, and hopefully provide a great solution for Americans as well,” said Matthews.
According to the Netcoins president, the US approach to crypto regulation differs a bit compared to Canada, which he described as “very centralized” relatively speaking.
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“You have a primary regulator, which is based on your location, but it does scratch across Canada to the provinces and the territories, so it’s one framework, one decision document, it’s published online and [those are] the rules in which we operate under,” said Matthews. “In the US, it’s different. It goes on a state-by-state basis for the most part.”
For now, Matthews noted that Netcoins is focusing primarily on US states that require platforms to obtain a money transmitter license.
Matthews took over leadership of Netcoins as president in June 2022, replacing BIGG Digital Assets CEO Mark Binns, who was acting as Netcoins’ interim CEO following the departure of previous president Mitchell Demeter in late 2021.
Matthews has spent the last 15 years working in the financial services industry, most recently with Saudi Arabia’s Banque Saudi Fransi as digital strategy lead, where he focused on banking-as-a-service, open banking, and challenger banking. Prior to that, Matthews was a managing director at TribalScale and worked at EY and PwC in financial services-related roles.
As Matthews noted, the crypto market began trending downwards around April 2022. Coin prices fell, slowly at first, then drastically, and with this, the value of trades also dropped, impacting the business of crypto companies across the board, including Canadian firms like Netcoins, WonderFi, Coinsquare, and Ledn.
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In terms of how the crypto winter has impacted Netcoins, Matthews noted it has forced the company to reevaluate its spending to ensure it is operating as efficiently as possible, “slowly but surely” building out its team and focusing its efforts on revenue-generating products and features. Netcoins began 2022 by offering six coins and closed out the year with 36, with plans to roll out more this year and launch staking on its platform towards the end of Q1 2023.
According to the Netcoins president, the firm was able to avoid layoffs during the economic downturn and crypto winter after hiring “pragmatically” last year. Today, Matthews claims the company has a strong budget with years of runway and is “fully staffed” already for 2023 with 52 employees.
In Q3 2022, Netcoins generated gross operating revenue of $1 million CAD, with assets under custody of about $40 million, and more than 183,000 registered users, per Bigg’s latest earnings report.
In 2022, Netcoins experienced a sizeable security breach. The company claimed last year that a user fraudulently withdrew an estimated $1.58 million CAD after exploiting a software vulnerability. At the time, Netcoins noted that it had contacted the RCMP to investigate and Bigg was also attempting to track the coins.
Asked about the status of these efforts, Matthews stated to BetaKit, “With regard to the previous article that was published, there is an active investigation underway and we are unable to comment at this time.”
Netcoins is one of the first and only regulated Canadian crypto firms to expand into the US to date.
As for how Netcoins has responded to this situation, Matthews added, “We have taken the required steps to secure the platform based on a full review of the unique situation. Additionally, we engaged with our technology partners to enhance our Security and Operations. Netcoins has had no breaches since this isolated incident.”
Last year was certainly a difficult one for the crypto industry as trillions of dollars in value evaporated and many individuals saw their crypto holdings wiped out.
“A lot changed with Three Arrows Capital, and Celsius, and FTX, and part of what that called for from users was a different way of doing things, and we made sure to understand what those [asks] were,” said Matthews. According to the Netcoins president, what users wanted most was secure, stable, and transparent crypto trading platforms with easy-to-understand fees. “We really took that to heart,” he added.
In response, Netcoins took a number of different steps, including publishing its first proof-of-reserves report in November 2022, an exercise the company intends to complete on a quarterly basis going forward.
Speaking to the collapse of platforms like FTX and where the sector goes from here, Matthews noted, “It really shakes confidence in our industry, but there’s so many good people doing good projects, and trying to make sure that we grow what we’re trying to do here,” said Matthews. “These things, they knock us back, but the good people will push through.”
Feature image courtesy Netcoins.
