What can we learn from the Canadian Crypto Freeze as the war in Europe rages on?

Source: A video screenshot, Youtube/Forbes Breaking News
  • The Canadian Mareva injunction makes similar actions more likely in the future.
  • Other countries could use other powers or laws that are already available to them.
  • Self-custody and peer-to-peer trading services could be a way to better protect your assets.

Governments have never really been the biggest fans of Bitcoin (BTC) and cryptocurrency. Not only does crypto evade their monopoly on issuing and supplying currency, but it also helps individuals evade any monetary restrictions they might wish to apply.

However, Canada sought to deliver a blow to cryptoassets last month, following a series of protests against COVID-19 restrictions that began in January. His federal government invoked the Emergencies Act and issued a number of executive orders against financial support for protests, while the Ontario Superior Court of Justice granted a Mareva injunction specifically aimed at freezing the crypto-assets of certain protesters.

This injunction represented a rare example of a government trying to stop the flow of crypto-assets, and for industry players speaking with Cryptonews.com, this could set a precedent for other governments to follow. At the same time, the injunction will also increase the demand for self-custody and peer-to-peer (P2P) trading services among ordinary holders. And that becomes even more important as the war in Ukraine rages on and sanctions are imposed on Russia and its ally Belarus.

A dangerous precedent for Bitcoin?

More than a few analysts expect the Canadian Mareva injunction to make similar actions more likely in the future, especially when the broader context is taken into account.

“The most recent activity around crypto – particularly with major hacks and in conflict zones – and the involvement of these governments signals that governments are more interested than ever in controlling crypto-assets. undeniable to this is that cybercriminals use crypto-assets in illicit activities and can be used to fund wars and terrorist activities,” said Melody Brue, principal analyst for fintech at Moor Insights & Strategy.

Brue explains that the use of crypto-assets by criminals puts pressure on lawmakers to develop strategies to deal with hacks and asset recovery. For her, this strategic development process is already well under way, with the US Department of Justicethe recent seizure of 3.6 billion USD of stolen BTC, as well as the FBIlaunch of a unit dedicated to virtual assets, showing that governments are less and less willing to tolerate the use of crypto-assets by criminals and others persona non grata.

“Ideally, this is seen as protecting assets and weeding out bad actors while maintaining the utility value of decentralized finance platforms. Self-custody, censorship resistance and privacy are at the heart of this value, so if the decision of the Canadian government establishes priority, it is a dangerous decision, especially without legal proceedings,” she said. Cryptonews.com.

Other figures agree that what the Canadian government has done in response to the protests is dangerous for crypto and its holders. For boolean fund General partner and author Mark Jeffrey, they are “extremely disturbing”, not least because they actually saw the government freeze the accounts of people who financially supported protesters (but did not protest directly).

“And now Canadian Finance Minister Chrystia Freeland has said Canada is seeking to make ’emergency’ financial oversight powers permanent. [reference here]. It’s been little noticed since Trudeau ‘backed down’ — but what he really got was a huge new permanent power, ready to be abused,” he said. Cryptonews.com.

According to Jeffrey, Canadian Prime Minister Justin Trudeau essentially invoked the threat of “terrorism” to justify the introduction of sweeping, illiberal powers, and now other countries see his government “got away with it.”

“And there are indeed many voices applauding this because they despise truckers. So there is LOTS of encouragement – and a clear path now – for other countries to follow suit in removing cherished freedoms citizens by simply declaring peaceful dissident citizens who protest as ‘terrorists’,” he added.

However, some commentators are not entirely convinced that the extraordinary measures taken by the Canadian government will set a precedent.

“I think other countries could look at how the emergency order was implemented and then removed days after it came into effect. The short timeline may discourage the use of this as a precedent,” said Torstein Braaten, head of regulatory affairs and chief compliance officer at the Canada-based crypto exchange. bitbuy.

Braaten notes that the use of these types of measures would be unique to each country, largely because others would have different legislative requirements and would not have the same emergency law that the Canadian government had.

“Ultimately, I don’t think this will be taken as a precedent to guide their reactions to internal disruptions or blockades. They would likely use other powers or laws that are already available to them and that were highlighted after the emergency order was overturned,” he said.

Braaten also explains that the review of the emergency decree by the Canadian parliamentary committee will provide an opportunity to discuss the legitimacy of the Trudeau government’s approach, so it is possible that the recent measures will not even set a precedent in Canada. , let alone elsewhere.

Compliance, self-custody and peer-to-peer

The problem with the emergency orders and the Mareva injunction issued by the Canadian government is that once they have been issued, regulated crypto exchanges and other crypto-based businesses have no other choice. than to comply with it.

“We are aware of the cryptocurrency alert issued by the [Ontario Provincial Police (OPP)] and [Royal Canadian Mounted Police (RCMP)] and the Emergency Economic Measures Decree. AT CoinSmart we strongly believe in regulation, trust and transparency,” said Justin Hartzman, CEO of CoinSmart, a Toronto-based crypto trading platform.

Hartzman reports that the company is taking FINTRAC (Financial Transactions and Reports Analysis Center of Canada) very seriously and that they have a robust monitoring system for all requirements related to anti-money laundering and the financing of terrorism. On the other hand, he adds that it is “unfortunate” that the Emergency Economic Measures Ordinance indiscriminately targets the entire crypto ecosystem.

“The addresses associated with this alert have been widely circulated to the broader crypto community here in Canada and would have been flagged to blockchain monitoring software serving the industry worldwide. We will cooperate with the Ontario Provincial Police and the RCMP and fulfill our obligations, as appropriate, under the Emergency Economic Measures Order,” he said. Cryptonews.com.

Since centralized regulated exchanges must comply with this type of order if they want to remain legitimate, this leaves ordinary crypto-asset holders in a bit of a bind. Assuming they are worried about the possibility of an asset freeze, a growing number of them may turn to self-custody options as a result.

“The Canadian crypto freeze should be about crypto holders on an exchange. Non-custodial wallets can be essential for crypto holders, allowing users to manage their digital assets and preventing their accounts from being frozen by third parties or regulators,” Melody Brue said.

However, Brue goes on to suggest that it may not just be about turning to self-custody, but also peer-to-peer trading.

kraken CEO Jesse Powell said on Twitter that the company could not protect users and would be forced to comply if it was able to be told by police to freeze assets. As Kraken’s CEO suggested, perhaps the only way to balance transactional freedom with this potential reality is through P2P commerce,” she said.

Mark Jeffrey suggests that the episode will create a new awareness of the old maxim “Not your keys, not your crypto”, and that “we will definitely see more self-custody”. However, Bitbuy’s Torstein Braaten argues that there are still many advantages to using centralized exchanges.

“It is natural for some crypto users to react to government intervention; however, we believe that storing crypto-assets with crypto service providers like Bitbuy still makes a lot of sense for the benefits of having these insured and secure assets in cold wallets without storing keys that could be lost,” said he declared.

Braaten also explains that ultimately users will have to use a crypto service provider to convert back to fiat, which is currently essential given that spending bitcoin directly isn’t really a live option in a large way. part of the world.

Active lobbying

One wonders how practical and enforceable the Mareva injunction was, given that identifying a named person as the holder of a specific exchange account is not always straightforward.

However, looking to the future, the key for the crypto industry will not be to hope that more similar injunctions will be unachievable, but to play an active role in shaping regulations and regulatory actions.

As Melody Brue explains, “In the crypto crackdown, many crypto platforms have joined in on possible regulatory solutions that maintain the utility value of crypto while adhering to AML regulations and[know-your-customer (KYC)]. Getting ahead of regulation and helping to shape it is much more beneficial for platforms and users than having these regulations imposed on them without input.[know-your-customer(KYC)regulationsGettingaheadoftheregulationandhelpingtoshapeitisfarmoreadvantageoustoplatformsandusersthanhavingthoseregulationsimposedonthemwithoutinput”[know-your-customer(KYC)regulationsGettingaheadoftheregulationandhelpingtoshapeitisfarmoreadvantageoustoplatformsandusersthanhavingthoseregulationsimposedonthemwithoutinput”

Learn more:
– Canadian Regulator Reports Coinbase, Kraken CEOs’ Crypto Custody Tweets
– Government response to Canada protests brings another former Bitcoin skeptic to Crypto Fold

– Crypto community divided over Biden’s Crypto Executive Order

– EU clarifies crypto-related sanctions against Russia and Belarus, but questions remain
– Russian Sanctions Mean Countries Can Switch to Bitcoin Reserves – Pantera CEO

Mary I. Bruner