A Third Method for Post-Trade Bitcoin Custody  

An increasing number of Canadians are buying bitcoin through various trading platform, exchanging dollars for bitcoin which they wish to keep. Following some high-profile incidents involving such trading platforms, regulators have begun to worry about how the funds of retail clients are kept safe. In CSA Staff Notice 21-327, Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets, CSA Staff outlined some of their views.

This guidance highlighted two very common arrangements between trading platforms and their end customers:

1. A customer exchanges dollars for bitcoin. Following this, the customer keeps their bitcoin with the trading platform. They may elect to withdraw it later.
2. A customer exchanges dollars for bitcoin. Following this, the bitcoin is sent to the purchaser.

In the guidance, CSA Staff appear to recommend that all trading platforms transform themselves into platforms that look like (2) above. That is, the customer should find themselves holding the bitcoin following their purchase. It should not be the case that bitcoin continues to be held by the platforms.

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