With acquisition, Coinsquare seeks a seat at the regulatory table.
Coinsquare has entered into an agreement to purchase CoinSmart, creating what it claims will be one of Canada’s largest crypto asset trading platforms.
The transaction involves Coinsquare paying Coinsmart $3 million in cash, and issuing 5.2 million Coinsquare shares to CoinSmart. CoinSmart, which trades on the Neo Exchange, saw its shares rise slightly after the deal was announced, to 26 cents per share.
Coinsquare claimed that it is in the final stages of IIROC approval.
The acquisition announcement comes at a time of consolidation within Canada’s crypto market. The Kevin O’Leary-backed crypto company WonderFi has made a number of acquisitions, a couple of which have provided it with entrance into regulation amid mounting regulatory pressure.
Coinsquare’s purchase of CoinSmart is similar in that the latter was the second crypto trading platform to receive exempt status in 2021. The deal with CoinSmart may enable Coinsquare to get its first foothold in the regulated market. CoinSmart is still seeking registration as an investment dealer and membership with the Investment Industry Regulatory Organization of Canada (IIROC), which is something Coinsquare has also been working towards following its 2020 settlement with the Ontario Securities Commission (OSC) in relation to market manipulation.
Coinsquare claimed that it is in the final stages of approval to become Canada’s first crypto asset trading platform regulated as an IIROC dealer and marketplace member.
Once the acquisition is completed, CoinSmart will hold approximately 12 percent of the issued and outstanding Coinsquare shares. Coinsquare’s largest shareholder, Mogo, which trades on both the NASDAQ and the TSX, disclosed in its most recent financials that it valued Coinsquare’s shares at approximately $5.02 as of June 30, 2022.
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CoinSmart co-founders Justin Hartzman, Jeremy Koven, and Michael Koral, among other employees, will join Coinsquare. Hartzman will join the Coinsquare executive team and CoinSmart will be entitled to a nominee to the Coinsquare board of directors upon completion of the transaction.
The two companies claim crypto transactions of over $10 billion on the combined platforms since January 2018, and over $350 million in assets under custody with a combined user base in excess of one million.
In contrast, WonderFi claims to have carried out $343 billion USD ($464 billion CAD) in transactions, while figures aren’t immediately available for Wealthsimple’s crypto product, which is a major presence in Canadian crypto trading.
The acquisition announcement follows news in July that Coinsquare had laid off about 24 percent of its employees, including contract workers. Coinsquare has seen its headcount reduced from 125 employees prior to the layoffs to approximately 95 workers. The company also introduced a pay cut for its executives, though declined to disclose any further details.
Founded in 2014, Coinsquare’s crypto trading platform allows users to buy, sell, and trade cryptocurrencies like Bitcoin and Ethereum through its QuickTrade mobile app with no commissions.
Founded in 2018, CoinSmart is an exchange for cryptocurrencies, including Bitcoin, Ethereum, Stellar, and Dogecoin. It claims to be the first Canadian exchange to be regulated by the Financial Transactions and Report Analysis Centre of Canada (FINTRAC).
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Coinsmart announced its Q1 2022 results in May, posting gross revenue of $4.2 million, growing 15 percent year over year, with a $1.7 million loss. The crypto trading platform claimed it acquired 33,700 new users, expanded its retail and over-the-counter trading to additional European countries, and launched new mobile apps.
The purchase agreement sets out terms related to revenue-based, earn-out targets related to CoinSmart’s SmartPay and over-the-counter (OTC) trading businesses. Up to an additional $20 million in cash could be paid over a period of three years following the closing of the transaction, and up to an additional 1.1 million in Coinsquare shares could be issued pursuant to the OTC earn-out (over a period of one year following the closing of the transaction).
Coinsquare’s purchase of CoinSmart follows WonderFi having bought Blockchain Foundry in a $12.6 million CAD deal, Coinberry for approximately $38.5 million CAD, and BitBuy for $206 million CAD.
“This acquisition represents a monumental and exciting milestone for both companies and brings together two industry leading management teams,” said Coinsquare CEO Martin Piszel. “We are excited to work together to shape how the crypto industry in Canada grows and evolves.”
Feature image courtesy Coinsquare.