Thought Leaders

Are your digital assets safe? Is the crypto trading platform you use functional, viable and regulated? Are you able to access your digital assets at any time?

These are important questions Canadian investors need to be asking about the digital assets or cryptocurrencies they hold. 

The act of investing in digital assets is under intense scrutiny and has been challenged recently due to events such as the FTX exchange collapsing and Gemini’s ongoing regulatory issues in the U.S. market. There are reports of ongoing issues for companies operating in the crypto space. 

Confidence and trust in market participants around the world have been shaken in recent months. Investors and institutions have questions. This includes discussion around the security of digital assets when they are stored with a third party.

A Qualified Custodian provides Security for Crypto Investments

The value proposition for a dependable, trustworthy and properly governed qualified custodian to care for an investor’s digital assets has never been stronger. 

Digital asset custody is the process of safeguarding and storing assets such as cryptocurrencies, tokens, and other forms of digital property. The custody solution chosen by an investor or an institution is a critical aspect of their investing in digital assets, as it helps to protect against losses due to theft, fraud, or other types of cyberattacks. 

As Canada’s only qualified custodian for digital assets, Tetra Trust follows strict guidelines set out by regulators to ensure our clients’ digital assets are safe and accessible. We deliver institutional-grade custody solutions specifically built for Canadian investors and institutions. 

Given that the safety and security of digital assets are top of mind, we highlight three key issues for parties to consider and question when investing in digital assets in Canada.

#1: Know the difference Between Qualified and Non-Qualified Custodians

In Canada qualified custodians are regulated by provincial or territorial securities legislation, while non-qualified custodians are not. 

Qualified custodians are licensed to provide trust or investment services, and follow rules set out by the local regulatory body. They are subject to regular audits and reviews as part of their registration process. This is sometimes referred to as “regulated custody” due to the regulatory approvals that underpin these companies’ operations. 

Non-qualified custodians do not have to abide by the same regulations as qualified ones, but may still be subject to other rules such as anti-money laundering laws. Non-qualified custodians may offer more flexibility when it comes to fees and services provided. However, they often lack the security features, governance and insurance coverage of qualified custodians, so it is important to research any non-qualified custodian before taking on their services.

#2: Canadian Investors should keep their Digital Assets in Canada

Perhaps the single most important element from an investor protection point of view, keeping digital assets in Canada minimizes risks for Canadian investors and institutions and does so in several ways. 

Primarily, it ensures the assets are subject to the same legal and regulatory protections afforded to other forms of property within the jurisdiction. This can be especially beneficial if there are disputes or other legal issues arise with an asset. Over the years, Canadians have seen examples of domestic assets being locked in U.S. litigation so it would be a foolish assumption to think digital assets would be treated any differently. 

So while maintaining digital assets within Canada can provide some measure of comfort for investors, it can also help those who want to avoid potential delays or complications due to currency exchange fluctuations or overseas regulations. 

Bottom line, when investing domestically and relying on a Canadian custody solution like Tetra Trust, investors can have greater assurance everything will go as planned without unexpected surprises.

#3: Use Custody Diversification when investing in Digital Assets

Custody diversification is an important element of securely storing crypto currency. Diversification eliminates the risk associated with storing all of one’s assets in a single wallet or custody solution. Recent company failures in the space have highlighted the risks of holding all assets in one custody solution, as this creates one single point of failure.

By having funds held in multiple wallets with different providers, investors and institutions can reduce the risk of loss or theft due to malicious attacks, human error or technical issues. Additionally, by using different custodians and wallets investors can take advantage of the unique features that each one offers. For example, some providers may offer insured accounts with insurance against hacks, while others may offer better security features such as multi-signature setups. 

Custody diversification enables an investor to spread out the risk, giving more flexibility in case of emergencies.

Tetra Trust can help investors achieve custody diversification as we work with multiple providers such as Coinbase, Ledger, Fireblocks and Knox. These partnerships mean Tetra Trust can provide a diversified best-in-class custody solution.

Perfect Time for Investors to Evaluate Approach and Manage Risk

While the current downturn should be considered temporary, it’s also an opportunity for investors and institutions to reflect on their investment approach and risk management practices. 

We believe the issues noted above are vital ones to consider when investing in digital assets in Canada. 

Working with a qualified custodian such as Tetra Trust can ensure the custody solution an investor or institution chooses is dependable, trustworthy and won’t be subject to extraterritorial issues. The investor benefits from a robust control framework and governance model underscored by multiple checks and balances. 

The result can be something all investors are seeking with their digital assets right now – peace of mind.

Didier Lavallée is CEO of Tetra Trust Company, Canada’s only regulated digital assets custodian. He joined Calgary-based Tetra in April 2022 after a decade with RBC. Lavallée is a featured presenter at digital asset conferences and regular commentator on industry issues.