Taking Caution: Financial Consumers and the Cryptoasset Sector - June 28, 2018
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Taking Caution: Financial Consumers and the Cryptoasset Sector June 28, 2018
TABLE OF CONTENTS Executive Summary................................................... 1 Background................................................................ 7 Methodology............................................................ 12 Key findings.............................................................. 13 Conclusion................................................................ 22 Notes......................................................................... 24 Over the past 12 months, Bitcoin, digital tokens, and other cryptoassets have captured significant public attention. This report, prepared by the Investor Office of the Ontario Securities Commission (“OSC”), sheds light on financial consumers’ views on and understanding of cryptoassets (commonly referred to as “cryptocurrencies”), as well as the attitudes and behaviours of cryptoasset owners. It incorporates the results of a survey of over 2,500 Ontarians carried out by Innovative Research Group Inc. (“Innovative”) in March 2018, as well as background research by the Investor Office. For purposes of this report, “Ontarians” refers to Ontarians aged 18 and older.
EXECUTIVE SUMMARY
Ontarians are The results of this survey indicate Also of concern is that the survey
approaching that the vast majority of Ontarians found many Ontarians are confused
are approaching cryptoassets with about whether token generation
cryptoassets caution. Only a small percentage own events, initial coin offerings, and
with caution cryptoassets, and those who do own initial token offerings (referred to in
them tend not to spend substantial this report as “ICOs”) are subject to
sums of money acquiring them. regulation.
However, Ontario’s large population Most ICOs are subject to securities
means that even small percentages regulation. Securities regulatory
can collectively translate into authorities recently released new
substantial numbers—numbers regulatory guidance for businesses
sufficient to concern the OSC as a considering launching ICOs,
securities regulatory authority. discussed in this report.
Five per cent Based on recent population Past and present cryptoasset owners
estimates,1 this figure translates into cited multiple, often overlapping
of Ontarians
over 500,000 Ontarians currently reasons for acquiring cryptoassets:
currently own holding at least some cryptoassets.
Enthusiasm for technology: 46 per
cryptoassets An additional 4 per cent of
cent said they acquired cryptoassets
Ontarians owned cryptoassets in the
out of interest in new technologies,
past but no longer do.
while 18 per cent cited blockchain
Men aged 18-34 were substantially technology’s potential to prevent loss
more likely to report owning a and fraud.
cryptoasset than the general public,
Speculation: 42 per cent said they
with 14 per cent reporting that they
acquired cryptoassets in the hope of
currently own a cryptoasset.
selling them at a higher price later.
Medium of exchange: 25 per cent
said they acquired cryptoassets
because they wanted to make
payments anonymously, 23 per cent
5
said they wanted to use cryptoassets
to make payments in Canada or
the U.S., and 14 per cent said they
Currently own wanted to use cryptoassets to make
a cryptoasset international remittances.
4
Skepticism in institutions: 12 per
cent said they acquired cryptoassets
because they have low trust in banks,
Used to own and 11 per cent said they acquired
a cryptoasset
cryptoassets because of low trust in
government.
INVESTOR OFFICE 1Half of For the most part, cryptoasset owners spending $10,000 or more acquiring
cryptoasset have not spent substantial amounts cryptoassets.
of money acquiring the cryptoassets
owners spent they own, with half spending under
Most past and present cryptoasset
under $1,000 owners used cash savings to purchase
$1,000, and 90 per cent spending
cryptoassets. Of those who used a
on their under $10,000. However, 9 per cent
credit card or otherwise borrowed
cryptoassets of cryptoasset owners—translating to
money, more than 2 in 3 have paid
about 50,000 Ontarians—reported
back the money they borrowed in full.
Money spent acquiring
cryptoassets 13
Didn't spendmoney
Didn’t spend moneyon
onthe
the
cryptoassets theyown
cryptoassets they own
38
Spentunder
under$1,000
$1000
Spent
25
Spent$1,000
Spent $1000 toAbout 1.5 This percentage translates to about could trade or sell the coin or token
170,000 Ontarians who have being offered.
per cent of participated in an ICO. This includes
Ontarians have These results are subject to a higher
individuals who participated in an
degree of uncertainty, however,
participated in ICO but later transferred their digital
given the relatively small number
an ICO tokens to someone else. The survey
of respondents who reported
also indicates that almost 7 in 10 ICO
participating in an ICO.
participants looked into whether they
What ICO Whether
Whether thetoken
token can
can be Where the business
Where business What
What thethe token
token lets
participants
traded or
be traded orsold
sold is located
is located lets users
users do do
68% 58% 46%
researched before
acquiring digital
tokens
e business What the token Management team Business plan Whether theICO
Whether the ICOis
located lets users do The management team The business plan regulated
is regulated
58% 46% 46% 44% 29%
Don’t know (1 per cent) not shown.
Over 1 in 10 Top channels through which
individuals were approached
Ontarians
or through which they sought
(12 per cent) information on ICOs included
have been social media, friends and family,
approached online ads, and email.
about or
sought
information
30 Email
31
Online ad
about an ICO
39
Social media
33
Friend or family
INVESTOR OFFICE 3Almost half (46 per cent) of past and Where past and present cryptoasset
Cryptoasset
present cryptoasset owners reported owners acquired cryptoassets
trading acquiring cryptoassets on an online
platforms cryptoasset trading platform.
are the most Trading platform users reported using
common a variety of platforms based in North
vehicle for America, Europe, and Asia.
Online t
acquiring Many users reported having issues Mining
cryptoassets using these platforms, including: Cryptoa
Online trading platform Mining Cryptoasset ATM Given to me for free (e.g., by...)
Halt in trading: 21%
In exchange for goods or services
ICO Don’t know Other
Given to
Problems withdrawing money: 20% In excha
Problems funding account:2 16% ICO
Didn’t understand fees: 15% Don’t kn
Other
Cryptoasset tradingplatform
platform Mining Cryptoasset ATMATM Given to me for free
Online trading Mining Cryptoasset Given
(e.g., byto me for free (e.g., by...)
AirDrop) In exchange for goods or services
ICO
ICO Don’t know
Don’t know Other
Other
Don’t know (3 per cent) not shown.
Ontarians We asked Ontarians how familiar cryptoassets, we asked respondents
are aware of they were with “cryptocurrencies” to review six statements about Bitcoin
(a term commonly used to refer and select the statements they
cryptoassets, to cryptoassets), and found that believed to be true (the statements
but less while most Ontarians had heard of are listed on page 19).
familiar with them before, very few would feel
About 1 in 3 (34 per cent) Ontarians
the details comfortable explaining the details to
identified a majority of these
others.
statements correctly, though only
Respondents were most likely to 3 per cent correctly identified all
report having heard of Bitcoin (81 six statements. Current cryptoasset
per cent). Bitcoin Cash (25 per cent), owners tended to score higher,
Litecoin (13 per cent), and Ether (11 per with almost three in four (72 per
cent) rounded out the top four most cent) identifying a majority of these
recognized cryptoassets. statements correctly, though only 15
per cent correctly identified all six
As a proxy for testing Ontarians’
statements.
substantive knowledge of
Familiarity with “cryptocurrencies”
5 Very familiar and can explain the details to others
25 Somewhat familiar, but don’t know all the details
52 Heard of them, but don't know much about them
11 Have not heard of them before this survey
7 Don’t know
4 TAKING CAUTION: FINANCIAL CONSUMERS AND THE CRYPTOASSET SECTORWhere past and present cryptoasset owners would go with a complaint
16%
Financial Consumer
Agency of Canada
15%
Consumer Protection
Ontario 15%
15%
Bank of Canada
Financial Services
Commission of Ontario
15%
13 % Ontario Securities
Commission 9%
30 % Local MP or MPP
The police
Don’t know 9%
Office of the Superintendent
of Financial Services
7%
Other
Cryptoasset When given a list of organizations In addition, when asked who they
and asked where they would go believe regulates ICOs, half of past
buyers aren’t and present cryptoasset owners
with a complaint about a cryptoasset
sure where service provider, 30 per cent of past responded either that they don’t
to go with a and present cryptoasset owners said know who regulates ICOs or that
complaint or they wouldn’t know where they would they believe ICOs are not subject to
go for help, and others split evenly regulation.
who regulates
between the various organizations This belief is incorrect. The OSC
ICOs listed. This may indicate that, to regulates ICOs that constitute
the extent cryptoasset buyers have securities offerings. As part of its
complaints about their experiences mandate, in June 2018, the Canadian
with different cryptoasset service Securities Administrators (CSA),
providers, these complaints may be of which the OSC is a member,
diffused among different agencies. published CSA Staff Notice 46-
INVESTOR OFFICE 5Who respondents believe regulates ICOs
Ontarians overall Current/past cryptoasset owners Ontarians overall
3% 7%
% 3% 12% 67%
3% 29%
4% 14%
11% 18%
3%21%
12% 1% 4%
3%
3%14%
11% 4% 10%
18%3%
21%12% 1%3%3%
4%
10%
3%14%
11%4% 10%
18%
2% 3%
7%
21
Don’t know ICOs are Ontario Securities Financial Services Consumer Protection
unregulated
Ontarians overall
Commission
Current/past cryptoasset owners
Commission of Ontario
Ontarians
Ontariansoverall
overall Current/past
Current/pastcryptoasset
cryptoassetowners
owners Ontario Ontarians
All respondents
Ontarians overall who had
Current/past cryptoasset owners
heard of cryptoassets
before taking this survey
overall Current/pastcryptoasset
Current/past cryptoassetowners
owners
% 14%
4%
4% 18% 18%
18% 21% 21%
21% 1% 1% 3%
1% 3%
3% 3% 11%
4% 4% 10%3% 12% 3%
4% 10%
10% 3%4%10%
3% 10%
10% 14% 2% 2% 21%
2% 18%
7%
7% 7% 1% 3%3% 3%4%
3% 7%
7% 7% 10
Bank of Financial Consumer Office of the Other
Canada Agency of Superintendant
Canada of Financial
Instititions
308, Securities Law Implications for to how securities regulation may
Offerings of Tokens,3 which provides apply to an ICO. The Staff Notice also
businesses that are considering encourages businesses to consult
4% 10% 3%
offering digital 10%
tokens to the public 2% 7%
with qualified securities legal counsel 3% 7%
with additional guidance on when before launching an ICO.
securities may be involved and as
0% 3% 10% 2% 7% 3% 7%
6 TAKING CAUTION: FINANCIAL CONSUMERS AND THE CRYPTOASSET SECTORBACKGROUND
Cryptoasset Cryptoassets are designed to serve the transaction is valid. A subset of
a variety of purposes. They may be these computer systems (commonly
basics used as, among other things, a store referred to as “miners”) seek to add
of value, a medium of exchange, or a validated transactions to the ledger,
right that lets you access a product or called a “blockchain.” Miners typically
service. Cryptoassets that are primar- receive rewards for successfully add-
ily designed to be a store of value or ing transactions to the blockchain.
medium of exchange (e.g., Bitcoin) Blockchain transaction records are
are often referred to as “digital coins.” secured using cryptography—this,
The term “digital tokens” commonly together with maintaining duplicate
refers to cryptoassets created by a records on multiple systems, is intend-
business, often to raise capital and ed to make transaction records more
often to allow users to access a service difficult to tamper with.
that the business plans to provide in
the future. What’s more, it generally means that
people should not have to place trust
What ties digital coins, digital tokens, in any single entity, such as a bank or
and other cryptoassets together, and clearinghouse, to maintain accurate
the reason they have captured the at- records of their transactions.4
tention of many in the financial sector,
is their novel way of recording trans- In addition, cryptoassets often are de-
actions. Instead of maintaining a sin- signed so that individuals do not need
gle set of records on a single system, to trust a central authority, such as a
duplicate records are kept and main- central bank, to control their supply.
tained by volunteers (more accurately, For example, the maximum supply of
their computers) around the world. Bitcoin is subject to a fixed cap, and
This means that, before a transaction its rate of growth is determined by a
can settle, a critical mass of systems publicly available algorithm.
on the network need to agree that
What do we Prior research in Canada and the U.S., cal asset with no intrinsic value, found
including a short survey published by that the asset’s price tended to follow
know about the OSC Investor Office in December a more extreme boom-bust pattern
the people 2017, indicates that cryptoasset own- when all of the “traders” were men.6
who own ers tend to be young and male. One Stories about individuals reaping
U.S. study found that men are more
cryptoassets? than twice as likely as women to own
outsized returns from speculating in
cryptoassets dominated headlines in
cryptoassets.5 late 2017, but speculation is not the
It has been suggested that the fact only reason why individuals purchase
that cryptoasset owners tend to be and use cryptoassets. Some are skep-
male may help explain significant tical of traditional financial services
fluctuations in cryptoasset prices. Re- and seeking an alternative, and others
searchers carrying out “bubble exper- are using them to pay for goods and
iments,” in which participants play a services. Many start-ups and other
game in which they trade a hypotheti- businesses are using cryptoassets to
raise capital.
INVESTOR OFFICE 7Alternative to traditional study found that 97 per cent of all
bitcoins are held by 4 per cent of dig-
financial services ital wallet addresses, noting that this
Cryptoassets began to emerge in the concentration of ownership impedes
wake of the global financial crisis, with their use as a payment mechanism by
Bitcoin launching in 2009, and vari- restricting their flow and availability.9
ous “Altcoins” (digital coins meant as Some entities stopped accepting dig-
alternatives to Bitcoin) emerging be- ital coins as a form of payment in 2017
ginning in 2011. Early adopters, who because of their price volatility.10
tended to be younger, tech-savvy
users alienated by traditional financial Speculation
services, were attracted to the notion Media headlines, coupled with indi-
of having a store of value not gov- cations that the financial sector was
erned by any central authority. As one beginning to regard cryptoassets as
early adopter put it: a legitimate asset class, including the
launch of Bitcoin futures on two U.S.
As a millennial, I personally put
derivatives exchanges in December
much greater faith in scarce digi- 2017, likely amplified individuals’
tal assets that are determined by interest in speculating in cryptoassets
math and auditable code, rather over the course of late 2017.11
than a group of bankers at the Cryptoasset trading platforms fa-
[U.S.] Federal Reserve.7 cilitate speculation by allowing for
cryptoassets’ rapid purchase and sale.
Payment mechanism But because purchases and sales that
While Bitcoin and other digital coins occur within a trading platform do not
are often associated with “dark web” take place on a blockchain—rather,
networks and ransomware, the num- platforms typically keep internal, cen-
ber of legitimate payment uses for tralized records of their users’ cryp-
digital coins is growing. As of the toasset holdings—trading platforms
date of this report, Canadians could are an attractive target for hackers.
use them to pay online for flights For example, the Japan-based Mt.
and hotel bookings, as well as for Gox was the world’s leading Bitcoin
furniture, movies, music, games, and trading platform until it filed for bank-
apps, among other items. A small, but ruptcy in 2014, reporting that it had
growing, number of Canadian stores, lost almost 750,000 of its customers’
largely in urban areas, also allow for bitcoins due to hacking.12
payment in digital coins on premises. In 2017, trading platforms also strug-
Some charities also accept donations gled to deal with a massive influx of
in digital coins.8 customers hoping to make money
That being said, the holding and trad- by trading cryptoassets, with many
ing of digital coins as a speculative customers reporting significant delays
asset has undermined their usefulness setting up accounts and withdrawing
as a payment mechanism. A 2017 cash from these platforms.13
8 TAKING CAUTION: FINANCIAL CONSUMERS AND THE CRYPTOASSET SECTORRaise capital and access In 2017, the CSA granted two start-up
companies relief from certain secu-
services rities regulations so that they could
Many startups and other business- raise money via an ICO, subject to the
es began creating new cryptoas- companies’ compliance with condi-
sets—“digital tokens”—and offering tions intended to protect token pur-
them to investors as a way of raising chasers.16
capital. Digital tokens often are de- Consumer protection is especially
signed to provide access to a service important for ICOs given their, at best,
that a business plans to offer in the mixed outcomes for token purchasers.
future. One study found that nearly half (46
These offerings are variously referred per cent) of the 902 digital tokens
to as “initial coin offerings,” “initial launched in 2017 had already failed
token offerings,” or “token generation by February 2018, including 276
events” (this report refers to these tokens that failed post-ICO, “either
events as “ICOs”). Businesses raised due to [the business team’s] taking
an estimated US$5.6 billion in 2017 the money and running, or [the busi-
(including over US$200 million re- ness’] slowly fading into obscurity.”17
portedly raised by Canadian business- Another 113 tokens (12 per cent)
es) selling digital tokens.14 Total token were showing signs of failure by this
sales for 2018 have already surpassed time, “either because their team has
this total, with businesses selling an stopped communicating on social
estimated US$9.7 billion in digital media, or because their community is
tokens in the first five months of 2018 so small as to mean the project has no
alone.15 chance of success.”18 Overall, returns
from digital tokens have been trend-
ing downward since early 2017.19
Digital tokens launched in 2017
Total 908
Failed at Showing signs
ICO stage of failure
Failed or showing
signs of failure 142 276 113
Failed post-ICO
INVESTOR OFFICE 9Cryptoassets Regulators’ focus on cryptoassets in- cryptoasset fraudsters in the first two
tensified in 2017. In August 2017, the months of 2018 alone—approximately
and consumer CSA issued a Staff Notice highlighting US$9 million a day.23 A recent inves-
protection that many ICOs, digital tokens, and tigation by the Wall Street Journal of
cryptoasset trading platforms may be 1,450 purported ICOs found that 271
subject to securities laws, and that the of these offerings—nearly 1 in 5—dis-
cryptoasset sector raises investor pro- played red flags of fraud, including
tection concerns relating to “volatility, “plagiarized investor documents,
transparency, valuation, custody and promises of guaranteed returns and
liquidity,” the risk of harm from “un- missing or fake executive teams.”24
ethical practices or illegal schemes,” This period also saw a series of cyber-
and the risk that purchasers may not attacks and other problems affecting
understand the nature of the products different players in the cryptoasset
they are purchasing.20 Regulators in market. One report found that more
other jurisdictions, including the U.S. than 10 per cent of total ICO proceeds
Securities and Exchange Commission are lost as a result of cyberattacks.25
(“SEC”), issued similar warnings.21 The day after Bitcoin hit its peak price
(December 18, 2017),26 the owners of
Alleged cryptoasset fraud,
a major South Korean trading platform
January-February 2018
filed for bankruptcy, disclosing that a
cyberattack resulted in the loss of 17
US$1.4 billion per cent of its assets.27 Early 2018 saw
(equivalent to allegations of price manipulation on
US$9 million a day) major trading platforms, as well as the
theft of over US$500 million from a
Late 2017 and early 2018 also saw Japanese trading platform.28
countless fraudsters enter the cryp-
Shortly after Bitcoin futures contracts
toasset market, selling unsuspecting
began trading in the United States
individuals a variety of worthless
in December 2017, the CSA issued
“crypto”-branded products tied to
an investor alert reminding investors
fake businesses or fake assets, includ-
of the inherent risks associated with
ing real estate, gold, and diamonds.22
cryptoasset futures contracts due to,
This trend has continued into 2018,
among other factors, volatility in un-
with US$1.4 billion worth of various
derlying cryptoasset markets.29
cryptoassets allegedly having been
stolen by digital token and other
1,450 digital token offerings reviewed
271 displayed red flags of fraud
Wall Street Journal, 2018
10 TAKING CAUTION: FINANCIAL CONSUMERS AND THE CRYPTOASSET SECTORThe CSA also issued an investor alert will expose clients to debt levels they
on cryptoasset trading platforms in cannot repay.33
June 2018, emphasizing the key in- And by the end of March 2018, Goo-
vestor protections that may be absent gle, Facebook, and Twitter had all
from such platforms.30 announced new restrictions or bans
Regulators in other jurisdictions, as on cryptoasset-related advertising,
well as banks and social media com- each amid reports of widespread use
panies, also responded to concerns of social media advertising by fraud-
about fraud, cyberattacks, and market sters promoting fake digital tokens
manipulation in cryptoasset markets. and other products.34
South Korea, a country that served As noted above, in June 2018, the
as a major cryptoasset trading hub, CSA issued additional guidance for
applied new restrictions to cryptoas- businesses considering raising capital
set trading; China, another major trad- through ICOs. In response to many
ing hub, banned cryptoasset trading taking the position that securities laws
altogether.31 In the United States, do not apply to ICOs, the CSA provid-
companies seeking to launch Bitcoin ed guidance on the potential appli-
ETFs withdrew their applications in cation of, and possible approaches
response to investor protection con- required to comply with, securities
cerns raised by the SEC.32 legislation. The CSA highlighted that
Several major Canadian and foreign the risk of loss to investors can be
banks announced that they would be high when it comes to these types of
blocking credit (and in some cases offerings and encouraged businesses
debit) card purchases of cryptoassets, to contact their local securities reg-
citing cryptoassets’ volatility and, in ulatory authority to discuss possible
the case of bans on credit card trans- approaches to complying with securi-
actions, the potential that purchases ties laws.35
The OSC wanted to better understand Ontarians’ views on
and understanding of cryptoassets, as well as the attitudes
and behaviours of cryptoasset owners in Ontario. Gather-
ing this type of information helps us better understand the
needs of Ontarians and identify potential investor protection
concerns. To this end, the OSC Investor Office engaged
Innovative to carry out a survey of Ontarians focused on
cryptoassets. The sections of this report that follow discuss
the results of this survey.
INVESTOR OFFICE 11METHODOLOGY
Survey Innovative conducted the survey The survey sample has been weight-
background online among a sample of 2,667 On- ed down to n=1,000 by age, gender
tarians aged 18 or older, including an and region using the latest Statistics
oversample of 1,506 men aged 18-34. Canada Census data to reflect the ac-
This group was oversampled because tual demographic composition of the
of its higher expected propensity, adult population residing in Ontario.
based on prior research, to own cryp-
toassets compared to the rest of the Since the online survey was not a ran-
public. The oversample was intended dom probability-based sample, a mar-
to capture a better understanding of gin of error cannot be calculated. The
the characteristics and motivations of Marketing Research and Intelligence
cryptoasset owners. The survey was in Association prohibits statements
field between March 14 and 22, 2018. about margins of sampling error or
population estimates with regard to
Because “cryptocurrency” is a more most online panels.
widely recognized term than “cryp-
toasset,” the survey questions asked Note: Graphs may not always total
respondents about “cryptocurren- 100 per cent due to rounding values
cies” rather than “cryptoassets.” This rather than any error in data. Sums are
report, however, uses the term “cryp- added before rounding numbers.
toassets,” because it more accurately
reflects the variety of ways in which
people use cryptoassets, including for
speculation and to access products or
services offered by a business.
12 TAKING CAUTION: FINANCIAL CONSUMERS AND THE CRYPTOASSET SECTORKEY FINDINGS
Cryptoasset About 1 in 10 Ontarians own or used
to own cryptoassets, with 5 per cent
ownership reporting that they currently own
cryptoassets, and 4 per cent report- 5%
ing that they owned cryptoassets in
the past. Based on recent estimates
of Ontario’s adult population,36 this
translates into over 500,000 Ontari- Ontarians
ans currently owning cryptoassets.
Men 18-34 are more likely to own
a cryptoasset than any other de-
mographic group, with 14 per cent 14%
reporting that they currently own a
cryptoasset. Ownership levels were
also slightly higher among Toronto
residents. Men 18-34
Current cryptoasset owners were
most likely to report owning Bitcoin,
with Ether, Litecoin, Bitcoin Cash and
Ripple rounding out the top five.
8%
Those who own cryptoassets tend not
to have spent substantial amounts of
money on them, with half reporting
having spent less than $1,000 on the Torontonians
cryptoassets they own.
Most commonly owned cryptoassets
Bitcoin 63%
Ether 35%
Litecoin 18%
Bitcoin Cash 17%
Ripple 13%
Dogecoin 10%
Dash 7%
Stellar 3%
Other 7%
INVESTOR OFFICE 13Money spent acquiring cryptoassets
Didn’t spend money on $10K to
the cryptoassets they ownWhen owners first purchased cryptoassets
Within the past 3 months Within the past year Over a year ago
35% 37% 27%
Don’t know (1 per cent) not shown.
Reasons Past and present cryptoasset owners to use them as a medium of exchange.
reported acquiring cryptoassets for a One in four said they acquired cryp-
for owning variety of reasons. toassets so that they can make pay-
cryptoassets ments anonymously, 23 per cent said
Enthusiasm for technology they acquired cryptoassets to make
payments in Canada or the U.S., and
The top reason past and present own- 14 per cent acquired them to make in-
ers reported for holding a cryptoasset ternational payments or remittances.
was interest in new technologies (46
per cent); 18 per cent cited blockchain Many also reported using cryptoas-
technology’s potential to prevent loss sets to pay for goods or services, with
and fraud. 23 per cent describing types of goods
or services that they paid for using
Speculation cryptoassets.38 Respondents report-
The second most common reason ed purchasing consumer products,
given was to sell at a higher price later collectables, consumption goods,
(42 per cent). Many current cryptoas- digital and online services, and com-
set owners closely track the prices puter equipment and software using
of cryptoassets on various trading cryptoassets.
platforms, with 36 per cent reporting
that they traded cryptoassets daily or Low trust in institutions
weekly over the 12 months prior to A minority (12 per cent) said they
being surveyed. acquired cryptoassets because they
don’t trust banks, with 11 per cent also
Medium of exchange reporting that they own cryptoassets
because they don’t trust the govern-
Many past and present cryptoasset ment.
owners reported buying cryptoassets
Frequency of cryptoasset trading
(over the 12 months prior to being surveyed)
Daily Weekly Monthly Less than once a month Never
10% 26% 17% 27% 19%
Don’t know (1 per cent) not shown.
INVESTOR OFFICE 15Reasons for Most Ontarians who have never owned cryptoassets reported that they don’t own
not owning a cryptoassets because they don’t understand or know enough about them.
cryptoasset I don’t understand/know enough about them. 58%
My current payment methods 41%
meet all of my needs.
The prices of cryptoassets are too volatile. 36%
They are not guaranteed by the Canadian gov’t or any official
gov’t. 30%
I’m concerned about cybertheft. 23%
They are not easy to acquire or use. 19%
Other 2%
Don’t know (8 per cent) not shown.
Acquisition Past and present cryptoasset owners a substantial number reported hold-
report acquiring cryptoassets through ing accounts with platforms based in
channels a variety of channels. The most com- Asia and Europe, reflected in the chart
mon means of acquiring cryptoassets below.39 Almost half (46 per cent)
is through a cryptoasset trading plat- of trading platform users reported
form, though a substantial number holding accounts with more than one
also acquired cryptoassets through platform.
mining. Sixteen per cent reported
acquiring digital tokens in an ICO. Many trading platform users reported
encountering an issue with using at
Cryptoasset trading least one of the platforms they use,
with a halt in trading and inability to
platforms withdraw money when they wanted it
Most trading platform users reported being the most common issues re-
holding an account with a platform ported.
based in the U.S. or Canada, though
Acquisition channels Trading platforms used
Cryptoasset (by country of origin)
trading platform 46%
48% United States
Mining 28%
32% Canada
Cryptoasset ATM 19% 29% United Kingdom
Received for free
(e.g., by AirDrop) 18% 26% Hong Kong
In exchange for 11% Luxembourg
18%
goods or services
11% Singapore
ICO 16%
9% Israel
Other 2% 7% Japan
Don’t know (3 per cent) not shown. 1% Other
16 TAKING CAUTION: FINANCIAL CONSUMERS AND THE CRYPTOASSET SECTORIssues reported by cryptoasset trading platform users
21% 20% 16%
Trading was halted. I couldn’t withdraw I couldn’t fund my
money when I wanted it. account with cryptoas-
sets when I wanted to.3
16% 15% 13%
I couldn’t fund my I didn’t understand the I couldn’t withdraw
account with money fees I was paying. cryptoassets when I
when I wanted to.3 wanted to.
9% 4% 20%
I couldn’t reach anyone Other No issues/don’t know
when I had a question or
complaint.
ICOs ing tokens was located (58 per cent),
what the coin or token offered allows
Sixteen per cent of past and present them to do (46 per cent), the compa-
cryptoasset owners, representing ny’s management team (46 per cent),
about 1.5 per cent of Ontarians over- and the company’s business plan (44
all, report having participated in an per cent). Only 29 per cent reported
ICO. While this percentage appears researching whether the ICO was
relatively small, it translates into about regulated.
170,000 Ontarians. This total includes
individuals who participated in an ICO In contrast to the relatively low per-
but later sold their digital tokens to centage of Ontarians who have partic-
someone else. ipated in an ICO, 12 per cent of Ontar-
ians report having been approached
ICO participants were asked what about or having sought information
information they researched before about an ICO. Men aged 18-54 and
participating in an ICO. While the Torontonians were more likely to so
results are subject to a higher degree report.
of uncertainty given the relatively
small number of respondents who Individuals learned about ICOs
participated in an ICO, the results through a variety of mediums: the
indicate that ICO participants were most common medium was social
most likely to research whether they media, such as Twitter, Facebook,
could trade or sell the digital token or LinkedIn, but the second most
being offered (68 per cent) before common way was through a friend or
participating in an ICO. Other matters family member.
participants reported researching
included where the company offer-
INVESTOR OFFICE 17Ontarians who were How Ontarians were approached
approached or sought about/sought information about ICOs
information about an ICO
Social media (e.g., Twitter, 39%
Facebook, LinkedIn)
Friend or family 33%
Online ad 31%
12% 25%
Email 30%
Online message boards
(e.g., Slack, Reddit) 26%
Overall Men 18-34
Conference or trade show 10%
Instant messaging 10%
(e.g., WhatsApp, Telegram)
Radio ad 8%
21% 18%
Phone 7%
Other 2%
Men 35-54 Torontonians Don’t know (2 per cent) not shown.
Information We asked past and present cryptoas- Only 31 per cent reported having to
set owners what personal information provide their home address, and 29
requested by they had to provide to their cryptoas- per cent reported having to show
cryptoasset set issuer(s) or platform(s), and the re- government-issued identification.
sponses indicate that the information
providers and collection processes used by different The sample proved too small for any
platforms issuers and platforms are less than reliable segmentation of responses
consistent. based on the cryptoasset issuers or
platforms respondents used.
A majority of past and present cryp-
toasset owners reported having to
provide their email address (56 per
cent) or full name (52 per cent).
18 TAKING CAUTION: FINANCIAL CONSUMERS AND THE CRYPTOASSET SECTORCryptoasset Somewhat familiar, but Heard of them, but don’t know
knowledge 5% don’t know all the details much about them
11%
and 25% 52%
awareness Very familiar and can explain Haven’t heard of them
the details to others before this survey
Don’t know (7 per cent) not shown.
About 4 in 5 (82 per cent) respon- Bitcoin was by far the most recog-
dents reported having some familiar- nized cryptoasset, with 81 per cent of
ity with “cryptocurrencies,” though respondents reporting having heard
only 5 per cent identified themselves of it. Rounding out the top four most
as familiar enough to explain the de- recognized cryptoassets were Bitcoin
tails to others. Cash, Litecoin, and Ether.
As a proxy for testing Ontarians’ sub-
Cryptoasset name recognition stantive knolwedge of cryptoassets,
we asked respondents to review six
Bitcoin 81%
statements about Bitcoin and select
Bitcoin Cash 25% the statements they believed to be
Litecoin 13% true. The statements draw from a
Ether 11% similar test carried out by the Bank of
Ripple 8% Canada in 2016, with an additional
incorrect statement (“Bitcoin is secure
Dogecoin 8%
from cyberattacks”) added to the
Dash 6% test.40
Stellar 3%
Other 1% Only 34 per cent of Ontarians cor-
Don’t know (12 per cent) not shown.
rectly identified four or more of these
Bitcoin knowledge test results Ontarians overall Cryptoasset owners
Statement Correct Incorrect Correct Incorrect
Bitcoin allows for direct transactions between two 41% 11% 75% 23%
parties, without a third party involved (TRUE).
The total supply of Bitcoin is fixed (TRUE). 17% 35% 60% 38%
All Bitcoin transactions are recorded on a distribut- 16% 36% 64% 34%
ed ledger that is publicly accessible (TRUE).
Bitcoin transactions take place instantaneously 30% 22% 63% 35%
(FALSE).
Bitcoin is secure from cyberattacks (FALSE). 44% 8% 67% 31%
Bitcoin is backed by the government (FALSE). 50% 2% 82% 16%
Don’t know 48% 2%
INVESTOR OFFICE 19statements as true or false, and only A surprising number of cryptoas-
3 per cent received a perfect score. set owners (16 per cent) incorrectly
Knowledge levels were higher among agreed with the statement that “Bit-
cryptoasset owners, however, with 15 coin is backed by the government.”
per cent receiving a perfect score and The Bank of Canada study referred
72 per cent correctly identifying four to above found a similar result when
or more of the six statements. testing the statement “Bitcoin is simi-
lar to other national currencies … that
Roughly half of respondents did not are backed by the government.”41 The
complete this question, either be- study’s authors speculated that re-
cause they had not heard of Bitcoin or spondents may have misunderstood
other cryptoassets before this survey, the question, and that a clearer state-
or because they felt they weren’t ment reading “Is Bitcoin backed by
familiar enough with Bitcoin to com- a government?” might have yielded
plete the question. Cryptoasset a greater share of correct answers.42
owners tended to feel more confident This change in phrasing, adopted for
responding to this question, with only this survey, does not appear to have
2 per cent opting out. had this effect.
Cryptoasset The survey asked past and present vider. The results indicate that there is
cryptoasset owners where they would no clear consensus as to which regu-
complaints go for help if they had a problem lator cryptoasset buyers would go to,
and involving the cryptoassets they hold and accordingly that consumer com-
regulation or used to hold, and couldn’t resolve plaints may be being spread out over
it by talking to their cryptoasset issuer, a number of different agencies.
trading platform, or other service pro-
Where past and present cryptoasset owners
would go with a complaint
Financial Consumer 16%
Agency of Canada
Bank of Canada 15%
Consumer Protection Ontario 15%
Financial Services 15%
Commission of Ontario
Ontario Securities 15%
Commission
The police 13%
Local MP or MPP 9%
Office of the Superintendent 9%
of Financial Institutions
Other 7%
Don’t know 30%
20 TAKING CAUTION: FINANCIAL CONSUMERS AND THE CRYPTOASSET SECTORRespondents were also asked who ulation. Among the regulators listed in
they believe is responsible for regu- the survey question, respondents who
lating ICOs. Of the respondents who had heard of cryptoassets, as well as
reported having heard of cryptoassets past and present cryptoasset owners,
before being surveyed, most (67 per were most likely to identify the OSC as
cent) didn’t know who was responsi- responsible for regulating ICOs, but
ble for regulating ICOs, and many be- only by a narrow margin.
lieved that ICOs are not subject to reg-
Who respondents believe regulates ICOs
18%
ICOs are unregulated.
21%
Ontario Securities 4%
Commission 14%
Financial Services 3%
Commission of Ontario 12%
3%
Consumer Protection Ontario
11%
Bank of Canada 4%
10%
Financial Consumer 3%
Agency of Canada 10%
Office of the Superintendent 2%
of Financial Institutions 7%
1%
Other
3%
Don’t know 67%
29%
All respondents who had heard of cryptoassets before taking this survey
Current/past cryptoasset owners
INVESTOR OFFICE 21CONCLUSION
Most people The survey findings suggest most The OSC and other securities regu-
Ontarians are approaching cryptoas- latory authorities have emphasized
are taking sets with caution. A relatively small the significant risks associated with
caution—but percentage of Ontarians owns cryp- cryptoassets, and the Investor Office
not everyone. toassets, and those who do tend to has developed several educational re-
spend relatively small amounts buying sources on GetSmarterAboutMoney.
them and fund their purchases with ca/crypto on the characteristics and
cash savings rather than debt. The risks of different types of cryptoassets.
reasons cryptoasset owners gave for The survey results indicate that, while
purchasing cryptoassets also suggest many Ontarians are aware of and have
that many are entering the sector some knowledge of cryptoassets,
largely out of curiosity, or interest in there remains a need for education-
cryptoassets’ practical use as a pay- al materials on this rapidly evolving
ment mechanism, rather than as a way sector.
to get rich quick.
While cryptoassets come with signif-
This does not hold true for everyone, icant risks, the OSC recognizes the
though. Nearly half of past and pres- potential for innovative capital raising
ent cryptoasset owners bought cryp- and different applications of block-
toassets to make a profit, and about chain technology to increase transpar-
1 in 10 current cryptoasset owners encies and efficiencies in the capital
spent $10,000 or more acquiring markets, and remains committed to
cryptoassets. In addition, 29 per engaging with fintech businesses
cent of past and present cryptoasset through OSC LaunchPad.
owners who borrowed money to buy
cryptoassets still owe some or all of As noted above, the CSA has issued
the money they borrowed. new guidance for businesses looking
to offer digital tokens and to help
While each of these groups rep- these businesses navigate securities
resents a small percentage of Ontar- law requirements.
ians overall, they nonetheless collec-
tively translate into tens of thousands That more than 1 in 10 Ontarians have
of Ontarians taking significant, highly been approached about, or sought
risky bets on cryptoassets—bets that information about, an ICO underlines
may have a substantial impact on their the importance of continued regulato-
financial wellbeing. ry focus on this area, especially given
The OSC Investor Office has developed educational resources
on GetSmarterAboutMoney.ca/crypto on the characteristics
and risks of different types of cryptoassets, as well as cryp-
toasset trading platforms and other service providers.
22 TAKING CAUTION: FINANCIAL CONSUMERS AND THE CRYPTOASSET SECTORthe significant and continuing activity forms. The OSC and other CSA mem-
by fraudsters seeking to take advan- bers are collecting information on a
tage of consumer interest in ICOs. number of trading platforms operat-
ing in Canada and their compliance
Confusion among Ontarians at large with securities laws. The OSC reminds
as well as cryptoasset owners as to Ontarians that, currently, there are no
whether ICOs are regulated is also cryptoasset trading platforms recog-
of significant concern. The OSC will nized as an exchange or otherwise au-
continue to be proactive in reminding thorized to operate as a marketplace
Ontarians of its role in regulating ICOs or dealer in Canada.
that constitute securities offerings.
While the OSC has received many
As part of this mandate, OSC staff, complaints and inquiries relating to
along with staff with other CSA cryptoassets over the past several
members, are conducting active months, the survey results indicate
surveillance of digital coin and token that different complaints and inquiries
offering activity to identify past, on- may be being directed to a variety of
going, and potential future violations different regulators and agencies. The
of securities laws and conduct in the OSC will continue to work with oth-
capital markets that is contrary to the er regulators and agencies to share
public interest. CSA members have information relating to developments
taken and intend to continue taking in the cryptoasset sector.
regulatory and/or enforcement action
against businesses that do not comply The cryptoasset sector offers signif-
with securities laws. icant opportunities, as well as sig-
nificant risks. The OSC will continue
The significant number of cryptoasset to monitor this sector as it develops
owners who have experienced issues and act to protect investors while also
using cryptoasset trading platforms fostering innovation in the capital
supports securities regulatory author- markets.
ities’ continued focus on these plat-
INVESTOR OFFICE 23NOTES 1. The adult population of Ontario was 11,490,799 as of July 2017. Statistics Canada, Table 17-10-0005-01, Population estimates on July 1st, by age and sex (13 June 2018), https://bit.ly/2afMALX. 2. CSA Staff Notice 46-308, Securities Law Implications of Token Offerings (2018), 41 O.S.C.B. 4685, https://bit.ly/2tzLt3C. 3. “Funding” an account means transferring cash or cryptoassets into a trading platform account. 4. Bitcoin and other cryptoassets offered to financial consumers typically do not rely on a central authority to validate transactions. However, it is possible to design a “private” blockchain network where participants need to obtain an invitation or permission from a central authority to participate. See Justin O’Connell, “What Are the Use Cases for Private Blockchains? The Experts Weigh In,” Bitcoin Magazine (20 June 2016), https://bit.ly/2lhlPuC. 5. OSC Investor Office, Ontarians and Cryptocurrencies: A First Look (2017), https://bit.ly/2s8TfzS; Finder, Why haven’t we all bought cryptocurrency yet? (2018), https://bit.ly/2IL4c1D. 6. Catherine C. Eckel and Sasha C. Füllbrunn, “Thar SHE Blows? Gender, Competition, and Bubbles in Experimental Asset Markets,” 105(2) American Economic Review 906 (2015). This dynamic may depend on culture—one study applying the bubble experiment in China found that asset prices followed a boom-bust pattern regardless of whether it was being traded by men or women. Jianxin Wang, Daniel Houser, and Hui Xu, “Do Females Always Generate Small Bubbles? Experimental Evidence from U.S. and China” (GMU Working Paper in Economics No. 17-30, 2017), https://bit.ly/2GM4kMN. 7. Rachel Wolfson, “Millennials Speak Out About Investing in Cryptocurrencies For Retirement Funds,” Forbes (28 March 2018), https://bit.ly/2s9SmIj. 8. For a directory listing stores that self-report as accepting cryptoassets, see Coinmap2.0, http://coinmap.org/. For general information on vendors accepting cryptoassets, see Noelle Acheson, “What Can You Buy with Bitcoin?,” Coindesk (20 January 2018), https://bit.ly/2IOP6Zk; Tim Sandle, “The rise of cryptocurrency as an acceptable means of payment,” Digital Journal (20 October 2017), https://bit.ly/2GOAF5Bl; “The search for peak Bitcoin continues as KFC Canada briefly accepts currency,” Financial Post (12 January 2018), https://bit.ly/2kpbVrH. 9. Frank Chaparro, “97% of all bitcoins are held by 4% of addresses,” Business Insider (11 January 2018), https://read.bi/2GOjfpQ. 10. “Steam stops accepting payments in bitcoins,” BBC News (7 December 2017), https://bbc.in/2j57dlY. 11. “Bitcoin Futures Trading Brings Crypto Into Mainstream Finance,” Fortune (9 December 2017), https://for.tn/2APO7H2. 12. Yoshifumi Takemoto and Sophie Knight, “Mt. Gox files for bankruptcy, hit with lawsuit,” Reuters (28 February 2014), https://reut. rs/2GYjIWp. Mt. Gox reported locating approximately 200,000 of the missing bitcoins some months later, but concluded that the remaining bitcoins had been stolen. “MtGox finds 200,000 missing bitcoins in old wallet,” BBC News (21 March 2014), https://bbc. in/1d6a8Ro. 13. Frank Chaparro, “Some of the biggest crypto exchanges are shutting out new users because they can’t keep up with demand,” Business Insider (27 December 2017), https://read.bi/2Cl5cK3. 14. Fabric Ventures and Token Data, The State of the Token Market: A Year in Review & an Outlook for 2018 (2017), at pp. 4, 9, https:// bit.ly/2I1novZ. 15. Coinschedule, “Cryptocurrency ICO Stats 2018,” https://www.coinschedule.com/stats.html. 16. CSA, “CSA Regulatory Sandbox—Decisions,” https://bit.ly/2LBUf8P. 17. Kai Sedgwick, “46% of Last Year’s ICOs Have Failed Already,” Bitcoin.com (23 February 2018), https://bit.ly/2sVpgzp. 18. Ibid. 19. Fabric Ventures and Token Data, note 14 above, at p. 7. 20. CSA Staff Notice 46-307, Cryptocurrency Offerings (2017), 40 O.S.C.B. 7231, https://bit.ly/2kFsdQl. 21. SEC, “Spotlight on Initial Coin Offerings and Digital Assets,” https://bit.ly/2o2OiHM. 22. See, e.g., SEC News Release 2017-185, SEC Exposes Two Initial Coin Offerings Purportedly Backed by Real Estate and Diamonds (29 September 2017), https://bit.ly/2x3p2mt; CFTC News Release 7678-18, CFTC Charges Randall Carter, Mark Gillespie, and My Big Coin Pay, Inc. with Fraud and Misappropriation in Ongoing Virtual Currency Scam (24 January 2018), https://bit.ly/2K5YYT4. 24 TAKING CAUTION: FINANCIAL CONSUMERS AND THE CRYPTOASSET SECTOR
23. Georgi Georgiev, “Crypto and ICO Scams Burning Through $9 Million Per Day: Do Your Homework and Stay Safe!,” Bitcoinist (15
March 2018), https://bit.ly/2sf06c6.
24. Shane Shifflett and Coulter Jones, “Buyer Beware: Hundreds of Bitcoin Wannabes Show Hallmarks of Fraud,” Wall Street Journal
(17 May 2018), https://on.wsj.com/2GsCV2e.
25. Ernst & Young, EY research: initial coin offerings (ICOs) (December 2017), https://go.ey.com/2KjkJhv.
26. “Bitcoin (USD) Price,” Coindesk, https://bit.ly/2v7bKbW.
27. Emma Dunkley, “Problems at two cryptocurrency exchanges raise security concerns,” Financial Times (20 December 2017),
https://on.ft.com/2BDbHVP.
28. Evelyn Cheng, “Japanese cryptocurrency exchange loses more than $500 million to hackers,” CNBC (26 January 2018), https://
cnb.cx/2DEjrai; Kai Sedgwick, “Cryptocurrency Market Manipulation Is Rife – But Does Anyone Care?,” Bitcoin.com (29 April 2018),
https://bit.ly/2ku0HCj; John Biggs, “Researchers find that one person likely drove Bitcoin from $150 to $1,000,” TechCrunch (15
January 2018), https://tcrn.ch/2mwzI9U. The U.S. Department of Justice launched an investigation into possible Bitcoin price
manipulation in May 2018. Matt Robinson and Tom Schoenberg, “U.S. Launches Criminal Probe into Bitcoin Price Manipulation,”
Bloomberg (24 May 2018), https://bloom.bg/2IF4o6R.
29. CSA News Release, Canadian securities administrators remind investors of inherent risks associated with cryptocurrency futures
contracts (18 December 2017), https://bit.ly/2tqrd3K.
30. CSA News Release, Caution urged for Canadians investing with crypto-asset trading platforms (6 June 2018), https://bit.
ly/2xSaonK.
31. Cheang Ming, “New cryptocurrency rules just came into effect in South Korea,” CNBC (29 January 2018), https://cnb.
cx/2DNJlwu; Elaine Ramirez, “Why South Korea Is Banning All Foreigners From Trading Cryptocurrency,” Forbes (23 January 2018),
https://bit.ly/2JbHcwo; Rosie Perper, “China is moving to eliminate all cryptocurrency trading with a ban on foreign exchanges,”
Business Insider (5 February 2018), https://read.bi/2E3x1rY.
32. Trevor Hunnicutt, “Fund managers say bitcoin ETF proposals withdrawn due to SEC concern,” Reuters (8 January 2018), https://
reut.rs/2DcuwQn.
33. Peter Ivancic, “Canadian Peer-to-Peer Trading Explodes Due to Bank Restrictions on Crypto Purchases,” Cryptoslate (12 April
2018), https://bit.ly/2xlYGRV.
34. Louise Matsakis, “The Cryptocurrency Industry Might Actually Benefit from an Ad Ban,” Wired (4 April 2018), https://bit.
ly/2Ix2qkf.
35. See note 2 above.
36. See note 1 above.
37. Businesses often give away digital tokens to promote community interest in their services. See Erin Griffith, “The Hustlers Fueling
Cryptocurrency’s Marketing Machine,” Wired (12 June 2018), https://bit.ly/2HG87f9.
38. A majority (55 per cent) reported having used cryptoassets to make a payment or transaction in the 12 months prior to being
surveyed. However, not everyone in this group used cryptoassets to purchase goods or services (many reported that they used
cryptoassets to purchase other cryptoassets).
39. Respondents were asked to list each trading platform they have used to buy or sell cryptoassets. OSC staff used this data and
research on the primary locations of the platforms respondents reported using to generate the data above. Responses that did not
correspond to a known trading platform were excluded from this analysis.
40. Christopher S. Henry, Kim P. Huynh, and Gradon Nicholls, “Bitcoin Awareness and Usage in Canada” (Bank of Canada Staff
Working Paper No. 2017-56), https://bit.ly/2Jg9m9L.
41. Ibid., at p. 8.
42. Ibid., at p. 30.
INVESTOR OFFICE 25If you have any questions or comments about this report, please contact: Tyler Fleming Director Investor Office tfleming@osc.gov.on.ca 416-593-8092 Doug Sarro Senior Advisor, Research and Regulatory Innovation Investor Office dsarro@osc.gov.on.ca 416-597-7236 Ontario Securities Commission Investor Office 20 Queen Street West, 22nd Floor Toronto, ON M5H 3S8 416-593-8314 1-877-785-1555
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