‘Starting gun for consolidation’: Kevin O’Leary-backed WonderFi strikes deal to buy crypto exchange Bitbuy after lengthy regulatory hurdles

From left to right: Kevin O’Leary, Josh Richards, an investor for WonderFi, and Ben Samaroo, co-founder and CEO of WonderFi.Handout

Vancouver-based WonderFi Technologies Inc., WNDR-NE is set to close its deal to buy Toronto-based cryptocurrency exchange platform Bitbuy Technologies Inc. after months of regulatory scrutiny that prompted provincial and territorial authorities across Canada to shape new policy on mergers and acquisitions in the controversial digital asset and blockchain sector.

Operating under parent company First Ledger Corp., Bitbuy became the country’s first regulated crypto market when it received approval from the Ontario Securities Commission late last year.

Kevin O’Leary, of The dragon’s lair and shark tank fame, is a strategic investor in WonderFi and often the public face of the company. The Bitbuy acquisition is worth $206 million in cash and stock and was announced in early January. But since then, executives from both companies said they had encountered numerous hurdles before a deal could be finalized this week.

Much of the delay stems from the fact that there is no precedent or established policy that regulators can look to when making decisions about the sector. This is the first time securities regulators in all 10 provinces and three territories have been asked to approve a change of control in which a publicly traded company acquires a regulated crypto exchange, both of which already operate in multiple jurisdictions. before the transaction.

Regulators have also had to assess fintech which has yet to be formally reviewed in this country. So-called decentralized finance (DeFi) has become extremely popular around the world due to the lowest interest rates and the aspiration for the more substantial returns that crypto can provide. DeFi is also popular because it is based on secure distributed ledgers (blockchains), which remove the control banks and other traditional institutions have over money, products, and services.

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On the other hand, there is also centralized finance (CeFi), which offers some of the ease of use and security offered by traditional financial products. CeFi users with e-wallets for their crypto can earn interest on their savings and borrow or spend money much like a debit card. CeFi is usually run by a company or a consortium of companies and organizations.

Both types of technology manage cryptocurrencies, although through different mechanisms and applications.

Kevin O’Leary, of Dragon’s Den and Shark Tank fame, is a strategic investor in WonderFi and often the public face of the company.Chris Young/The Canadian Press

O’Leary said the WonderFi-Bitbuy deal brings CeFi and DeFi together under one roof, along with financial instruments for blockchain gaming and non-fungible tokens.

“That’s the real reason why I found this investment so attractive,” O’Leary said in an interview. “The metric that matters most to me is the cost of customer acquisition. What I don’t want to see happen is losing someone who has come to our platform because of the merits of decentralization , then suddenly walked away because he decided he would like to have a centralized wallet. Why would I want that? I spent all that money to acquire this client.

Michael Arbus, CEO of Bitbuy, said the acquisition paves the way for the company’s long-term plans, allowing it to grow at a faster rate and expand “aggressively” into countries such as the United States and Australia.

Arbus believes crypto companies will soon have to deal with a global toll, in which a few big players will increasingly buy out many smaller ones who struggle to meet the high costs and obligations of regulatory registration.

“People have been talking about it for a while, but I think it’s finally here. This deal will be a kickstart for consolidation in the crypto space,” Arbus said.

WonderFi is financing the acquisition by issuing 70 million new shares, paying $20 million upfront, and pledging $30 million in deferred cash via seller financing.

The deal gives the Vancouver-based company access to Bitbuy’s list of more than 375,000 Canadian customers who buy and sell 16 different cryptocurrencies. The exchange has processed $4.4 billion in trades since 2018.

“It was certainly not easy to get here. Our industry is moving at the speed of light and regulators are not,” said Ben Samaroo, co-founder and CEO of WonderFi. “The biggest challenge was really getting regulators up to speed on exactly what we’re doing here and educating them about DeFi.”

Ultimately, all provincial and territorial regulators approved the acquisition of Bitbuy through the Canadian Securities Administrators. With the exception of Alberta and British Columbia, however, all other jurisdictions have said they will continue to review WonderFi’s DeFi technology before allowing full access in their jurisdictions.

Erica Pimentel, a professor at Queen’s University’s Smith School of Business who studies blockchain technologies, said cultural and institutional differences between provinces and territories could explain why Alberta and Columbia Brits chose not to limit WonderFi while others did. But she said jumping through regulatory hoops could actually be a good thing for the crypto industry.

“Arguably the bar is set too high for the crypto space. Certainly some smaller players will never be able to enter the market because of this. And yet there are good reasons for that,” said Professor Pimentel said, “Regulators find the right balance between facilitating innovation and making sure we don’t all get ripped off. Things like this have happened before.”

Despite these hurdles, O’Leary said he still believes Canada’s regulators are “the most enlightened compared to other geographies with the potential to be a global leader in this space.” “. He said the acquisition of Bitbuy also provides a “stronger national defense against unregulated foreign exchanges”, such as Coinbase, Crypto.com, FTX and Binance.

In total, Bitbuy and WonderFi have raised $100 million in the past 12 months – the largest amount of capital raised by any crypto platform in Canada.

Shares of WonderFi closed at $1.47 on the NEO exchange on Thursday, up 4.3%.

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