On June 28, 2018, the Ontario Securities Commission (the “OSC”) published a report entitled “Taking Caution: Financial Consumers and the Cryptoasset Sector”. The report analyses the results of a survey of over 2,500 Ontarians aged 18 or older and provides background on Ontarians investing in cryptoassets, also known as cryptocurrencies. The survey was conducted in March, 2018, approximately three months after Bitcoin hit its peak price.

Profile of Ontario Cryptoassets Investors

The survey found, amongst other things, the following:

  • 5% of Ontarians own cryptoassets – translating into approximately 500,000 Ontarians;
  • 4% of Ontarians owned cryptoassets in the past and no longer do;
  • men between 18 and 34 years of age are substantially more likely to report owning a cryptoasset than the general public;
  • cryptoasset owners do not tend to spend substantial amounts of money on cryptoassets, with half spending under $1,000 and 90% spending under $10,000; and
  • 9% of the cryptoasset owners – translating into approximately 50,000 Ontarians – reported spending $10,000 or more acquiring cryptoassets.

While most Ontarians have heard of cryptoassets, the survey found that only 5% of respondents are very familiar with what a cryptoasset is and can explain the details of it.

Past and present cryptoasset owners cited multiple, often overlapping, reasons for acquiring cryptoassets:

  • enthusiasm for new technologies (46% of such owners);
  • potential of selling the cryptoassets at a higher price in the future (42% of such owners);
  • desire to make payments anonymously (25% of such owners);
  • blockchain technology’s potential to prevent loss and fraud (18% of such owners); and
  • low trust in banks (12% of such owners) and low trust in government (11% of such owners).

The survey determined that the most common means of acquiring cryptoassets is through a cryptoasset trading platform. While most trading platform users reported holding an account with a platform based in the U.S. or Canada, a substantial number of trading platform users reported holding accounts with platforms based in Asia and Europe. Almost half of trading platform users (46%) reported holding accounts with more than one platform. In the report, the OSC cautioned that because cryptoasset purchases and sales that occur within a trading platform may not take place on a blockchain – rather, platforms typically keep internal, centralized records of their users’ cryptoasset holdings – trading platforms are an attractive target for cyber-attacks.

Participation in ICOs

The survey found that 16% of past and present cryptoasset owners, representing approximately 1.5% of Ontarians, reported having participated in an initial coin offering (an “ICO”), which is generally a new cryptoasset created by a startup or other business that is offered to investors as a way of raising capital. The OSC noted that while this percentage of Ontarians appears relatively small, it translates into approximately 170,000 Ontarians.

The survey results indicated that ICO participants were likely to research the following information before participating in an ICO:

  • whether the cryptoasset could be traded or sold (68% of ICO participants);
  • where the company offering the cryptoasset was located (58% of ICO participants);
  • what the cryptoasset allows them to do (46% of ICO participants);
  • the company’s management team (46% of ICO participants); and
  • the company’s business plan (44% of ICO participants).

Only 29% of ICO participants researched whether the ICO was regulated.

The survey also found that individuals learned about ICOs through a variety of mediums. The most common medium was social media, such as Twitter, Facebook or LinkedIn, and the second most common medium was through a friend or family member.

In addition, the survey found that more than 1 in 10 Ontarians have been approached about, or sought information about, an ICO. The OSC noted that this statistic underlines the importance of continued regulatory focus on ICOs, especially given the continuing activities of fraudsters seeking to take advantage of individuals participating in an ICO. The OSC indicated that it is conducting active surveillance of (i) cryptoasset offering activity to identify past, ongoing and potential future violations of securities laws and (ii) conduct in the capital markets that is contrary to the public interest. Accordingly, the OSC has taken, and intends to continue taking, regulatory and/or enforcement action against businesses offering cryptoassets that do not comply with securities laws.