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
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   1
Half 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 to
About 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        3
Almost 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 SECTOR
Where 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     5
Who 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 SECTOR
BACKGROUND
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     7
Alternative 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 SECTOR
Raise 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    9
Cryptoassets               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 SECTOR
The 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     11
METHODOLOGY
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 SECTOR
KEY 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   13
Money spent acquiring cryptoassets
                           Didn’t spend money on                                                          $10K to
                           the cryptoassets they own
When 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   15
Reasons 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 SECTOR
Issues 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   17
Ontarians 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 SECTOR
Cryptoasset          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       19
statements 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 SECTOR
Respondents 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   21
CONCLUSION
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 SECTOR
the 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   23
NOTES
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      25
If 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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