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A growing concern among capital market regulators around the
world is the surge in market capitalization after a company
announces a change to its name or a change of business to anything
relating to blockchain or cryptocurrency, while not actually
conducting substantial business in the blockchain or cryptocurrency
industry.
The Canadian Securities Administrators (the "CSA")
has raised concerns over the blockchain and cryptocurrency
craze. The CSA issued a
press release on December 18, 2017, reminding investors of the
"inherent risks associated with products linked to
cryptocurrencies." The CSA is concerned with issues around
volatility, transparency, valuation, custody, and liquidity, as
well as the buying and trading that is taking place on unregulated
exchanges with few controls and no investor protection. To date, no
cryptocurrency exchange has been recognized in any jurisdiction
in Canada.
In 2015, the medical cannabis sector went through a similar
trend when Canadian issuers disclosed their intention to enter the
medical cannabis industry. These issuers had an immediate increase
in their share price, even in cases where little, or any,
substantive information was provided to the public about their
plans. The Ontario Securities Commission (the "OSC") was
concerned about the quick inflation in market cap so they, as part
of the CSA, released a
Staff Notice outlining disclosure requirements for issuers
announcing their plans to enter the medical cannabis sector.
It is still unclear how or if the regulators will address
this growing concern, but one can look to the disclosure-based
approach the CSA took for when issuers announce prospective
business plans of entering into a "trendy" sector. As we
continue to see more companies changing their names or announcing
prospective business plans related to blockchain or cryptocurrency,
we will provide further updates on any regulatory responses.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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