From left, CoinSmart CEO Justin Hartzman, Coinsquare CEO Martin Piszel and WonderFi CEO Dean Skurka on April 3. WonderFi Technologies Inc., CoinSmart Financial Inc. and Coinsquare Ltd. are signing a three-way merger agreement to create Canada’s largest cryptocurrency trading platform.Fred Lum/the Globe and Mail
As a deal between three Canadian companies to form the country’s largest cryptocurrency trading platform closes on Monday, the combined parent business will “cherry pick” which parts to keep and which ones to lose, shutting down one of the firms entirely.
Vancouver-based WonderFi Technologies Inc. announced its merger with Toronto-based crypto firms CoinSmart Financial Inc. and Coinsquare Ltd. in April, ending a months-long heated exchange between the three companies.
On Monday morning, WonderFi – the new controlling company – will ring the opening bell on the Toronto Stock Exchange to mark the finalization of this transaction, which has been approved by Canada’s Competition Bureau.
But in the months after that, WonderFi’s interim chief executive officer Dean Skurka said the company hopes to wind down the CoinSmart platform, ceasing a crypto brand older than WonderFi itself. (CoinSmart launched in 2018; WonderFi went public in 2021.)
In an interview, Mr. Skurka said layoffs or job reductions are “not expected to happen directly” because of this merger. Although, he added that some roles will “certainly be looked at, to determine and keep the best talent.” Around 120 employees are stated to remain on board at WonderFi across all divisions of the combined company.
It’s a telling sign for the state of the crypto industry at large. Until last year, both crypto assets and the companies that traded them had enjoyed booming fanfare, with soaring stocks and skyrocketing valuations. Now, companies are banding together around the world to position themselves in an uncertain economic environment, where the cost of regulation has become too high to bear and opportunities for growth are too sparse for individual firms.
Consolidation is commonplace particularly in Canada. WonderFi had already acquired two popular Toronto-based platforms, Coinberry Ltd. and Bitbuy Technologies Ltd., in 2022 before setting its eyes on a merger with CoinSmart and Coinsquare this year.
Meanwhile, Canadian securities commissions have been clamping down on the digital assets sector with stricter rules and sharper language around enforcement action, after the high-profile implosions of some of the biggest names in crypto, such as FTX Trading Ltd. and Celsius Network LLC. This has already driven out Binance Holdings Inc., the world’s largest crypto company, which in May cited regulatory restrictions as “untenable” for its business to continue in the country.
“From our vantage point, the best way to move forward with current market conditions is to consolidate and cherry pick the best aspects of the business,” Mr. Skurka said. “Smaller exchanges are destined to either shut down or get swallowed up by companies like ours, and what we really want is for WonderFi to be Canada’s market leader.”
WonderFi’s plans for the CoinSmart closing are pending regulatory and shareholder approvals. But CoinSmart CEO Justin Hartzman told The Globe his title is expected to be shuffled by WonderFi in the coming days. Other senior roles will also be shifted by the newly combined company, he added.
“Of course, not everything’s set in stone yet, but all of this seems like the best likely next steps,” Mr. Hartzman said. “We’re preparing for the future.”
CoinSmart, Coinsquare and WonderFi have been struggling with profitability. All three companies brought in a total of roughly $37-million in revenue last year. Still, the companies stated, their merger would put together nearly $600-million in combined assets under custody from a customer base of around 1.65 million users, with 1.6 million of those customers across Canada.
In September last year, Coinsquare said it was set to buy CoinSmart for about $29-million in cash and shares. That deal was expected to close by the end of 2022. But by January, Coinsquare said it was pulling out of the agreement because of “unacceptable costs and risks associated with the public disclosure obligations the regulators were requiring.” CoinSmart called this “completely bogus,” and in early February, said it was willing to seek monetary damages in court to enforce its commitment with Coinsquare.
After that termination, WonderFi stepped in, alluding to talks of another deal but declining to comment further at the time, before announcing the three-way merger in early April. “Obviously this deal hasn’t been easy to get here. Mergers like this are almost unheard of, and so we’re very glad to see it through,” Mr. Skurka said.
As of Monday, existing WonderFi shareholders are expected to own 38 per cent of the newly combined company. Former Coinsquare shareholders will own 43 per cent, and former CoinSmart shareholders 19 per cent on a partially diluted basis.
The price of bitcoin – trading for around US$30,000 on Sunday – has rallied this year, climbing back nearly 40 per cent since 2022. Other cryptocurrencies, such as ethereum, have also been clawing back their value.