In a significant development within Canada's cryptocurrency sector, trading platform CoinSmart has publicly rejected a notice from its Toronto-based competitor, Coinsquare, which sought to terminate a previously agreed acquisition deal. Both companies rank among the top ten cryptocurrency exchanges in Canada, making this a notable event for the local digital asset landscape.
According to an official press release issued this week, CoinSmart maintains that the Share Purchase Agreement remains legally binding for Coinsquare. The firm has expressed its firm intention to hold Coinsquare accountable to its obligations under this agreement. CoinSmart characterized Coinsquare's termination notice as "invalid and without legal basis," leading to its formal rejection.
This acquisition saga began last fall when Coinsquare first entered into an agreement to acquire CoinSmart. The initial proposal involved a transaction valued at approximately $29 million, to be paid through a combination of cash and Coinsquare stock. Coinsquare's recent move to exit the deal, which would have united two of Canada's largest crypto companies, was described as surprising by CoinSmart. The acquiring company has since signaled that it believes the purchase no longer justifies the cost.
Understanding the Key Players
CoinSmart has established itself as a leading Canadian cryptocurrency trading platform, known for providing a user-friendly gateway for buying and selling digital assets like Bitcoin and Ethereum. Its reputation is built on a straightforward trading interface and a commitment to regulatory compliance, operating with full licensing in every jurisdiction it serves.
The platform holds the distinction of being one of the first cryptocurrency exchanges in Canada to register as a Financial Transactions and Reports Analysis Centre (FINTRAC). Furthermore, it is among the few crypto trading platforms in the country registered with the Ontario Securities Commission (OSC) as a securities dealer and marketplace.
In its rejection announcement, CoinSmart also provided a business update, revealing a strong financial position. As of June 16, 2023, the company reported holding proprietary cash and crypto assets valued at approximately $10 million, with no outstanding debt.
A Deal Forged During Market Consolidation
The original acquisition agreement was struck approximately four months prior, during a period of significant downturn in the broader cryptocurrency markets. This era has been marked by consolidation across the Canadian crypto scene, with other players like WonderFi—a Kevin O'Leary-backed crypto firm—also making multiple acquisitions during this time.
On August 22, 2022, Coinsquare announced it had entered a definitive agreement to acquire all issued and outstanding shares of Simply Digital Technologies Inc., the wholly-owned operating subsidiary that runs the CoinSmart trading platform. The deal terms involved a $3 million cash payment from Coinsquare to CoinSmart, plus the issuance of 5.2 million Coinsquare shares. Upon completion, CoinSmart would have held roughly 12% of Coinsquare’s outstanding shares.
As part of the transaction, CoinSmart’s co-founders—Justin Hartzman, Jeremy Koven, and Michael Koral—along with other employees, were slated to join Coinsquare. The combined entity would have boasted impressive metrics: over $350 million in total crypto volume since October 2018, more than $1 billion in assets under custody, and a combined user base exceeding one million. These numbers positioned the merged company to become one of Canada's largest cryptocurrency exchanges.
Challenges on the Path to Acquisition
Founded in 2014, Coinsquare is a privately held Canadian company that allows users to buy, sell, and trade cryptocurrencies commission-free through its QuickTrade mobile app. In a significant regulatory milestone, Coinsquare became the first crypto platform to register with the Investment Industry Regulatory Organization of Canada (IIROC) in June of last year.
However, the company has faced its own set of challenges. The acquisition plan was announced shortly after Coinsquare disclosed it would be reducing its workforce by about 24% in late 2022, cutting employee numbers from 125 to approximately 95. The company also implemented undisclosed pay cuts for its executives. CEO Martin Piszel cited tougher market conditions and a strategic shift toward becoming a regulated crypto exchange, a focus that followed a 2020 settlement with the OSC over market manipulation allegations.
Furthermore, just one month after the deal was announced, Coinsquare reported a security breach. While the company assured that customer assets remained "secure and not at risk in cold storage," the incident exposed sensitive client details, including names, dates of birth, email and residential addresses, phone numbers, device IDs, public wallet addresses, transaction history, and account balances.
The Unexpected Termination
According to a CoinSmart press release dated March 9th, Coinsquare’s desire to exit the deal less than four months after it was finalized came as a surprise. Justin Hartzman, CoinSmart’s CEO and co-founder, stated that he and the board were shocked to receive the termination notice, especially as they had received assurances that the final regulatory approval required for the transaction was imminent. Hartzman confirmed that CoinSmart is evaluating the validity of the notice and is "considering all options," asserting that the company was ready to complete the transaction weeks ago.
He further claimed that "Coinsquare has not fulfilled its obligations as set out in its purported notice of termination." In response, Coinsquare argued that it was simply "exercising its right to terminate the agreement with CoinSmart under the terms." Coinsquare’s Chief Operating Officer, Eric Richmond, told media outlets that after conducting standard due diligence, the company concluded that acquiring a public company at such a high cost was not worth the investment. CoinSmart had gone public on the NEO Exchange in June 2021, trading under the symbol SMRT, to increase its visibility and investor awareness.
A Potential New Suitor: Talks with WonderFi
In a twist to the story, reports emerged just days later that Coinsquare was in advanced discussions to merge with WonderFi Technologies Inc. (WNDR), a move that would create Canada’s largest cryptocurrency exchange. Trading in WonderFi’s shares on the Toronto Stock Exchange was halted following a Bloomberg News report that cited people familiar with the matter. WonderFi, one of Canada’s only publicly traded exchanges, saw its stock price jump 29% to 31 cents on the merger speculation.
While the potential terms of a Coinsquare-WonderFi merger remain unclear, one Bloomberg source suggested that Coinsquare shareholders would likely receive a majority stake in the combined entity. In a public statement issued "in response to a request from IIROC to comment on recent market activity," WonderFi neither confirmed nor denied the merger reports. The company acknowledged that it has engaged in preliminary discussions with various parties regarding potential acquisitions and that it itself is a potential acquisition target, consistent with its past practices and overall M&A strategy.
However, WonderFi cautioned that these discussions are still preliminary and that there is no guarantee a deal will be reached. The company added that the terms of any potential transaction have not been agreed upon and that it is uncertain whether a transaction will occur. WonderFi has approximately 650,000 users with $500 million in assets under management, while Coinsquare claims a user base of about 500,000, though it does not disclose its assets under management or revenue.
Legal Recourse and Industry Implications
A source familiar with the discussions pointed to Coinsquare’s IIROC-regulated status as a key asset that could position it to lead the consolidation of other struggling Canadian crypto operators. The acquisition was also part of Coinsquare’s broader ambition to become a dominant crypto asset trading platform in Canada, offering a diversified and compliant suite of products across retail and institutional trading, crypto payment processing, and digital asset custody.
In response to the rumors of a potential WonderFi-Coinsquare merger, CoinSmart issued a statement confirming it is aware of the speculation and is monitoring developments closely. Regarding its own agreement with Coinsquare, CoinSmart asserted that it expects to satisfy all its obligations and that Coinsquare’s attempt to terminate the Share Purchase Agreement is due to Coinsquare’s internal issues, not any problem with CoinSmart or its business.
The company added that it "intends to vigorously challenge Coinsquare’s purported termination of the agreement" if necessary. CoinSmart will also seek all available remedies to enforce its contractual rights, which include "the right to specific performance or monetary damages." For those tracking this complex situation, it may be useful to explore more strategies for understanding corporate acquisitions in the volatile crypto market.
Frequently Asked Questions
What is the core dispute between CoinSmart and Coinsquare?
CoinSmart alleges that Coinsquare is attempting to illegally back out of a binding Share Purchase Agreement to acquire CoinSmart. CoinSmart has rejected the termination notice, calling it invalid, and intends to force Coinsquare to complete the acquisition or seek monetary damages.
Why does Coinsquare want to terminate the acquisition?
Coinsquare has stated that, following standard due diligence, it determined that acquiring the publicly-listed CoinSmart at the agreed-upon price is no longer worth the high cost. They maintain they are exercising a right to terminate under the agreement's terms.
What is the significance of IIROC registration in this context?
IIROC registration is a key regulatory approval in Canada that signifies a high level of compliance and oversight. Coinsquare's status as the first crypto platform to achieve this was seen as a major advantage and a reason it could lead market consolidation.
How might a potential WonderFi-Coinsquare merger affect the Canadian crypto landscape?
A merger between these two entities would create the largest cryptocurrency exchange in Canada by user base, significantly consolidating market power and potentially setting a new standard for regulated crypto trading in the country.
What are the possible outcomes for CoinSmart?
CoinSmart has two primary legal paths: it can seek "specific performance" to force Coinsquare to complete the acquisition, or it can sue for "monetary damages" to compensate for the broken agreement. The company is currently evaluating all its options.
What does this situation indicate about the broader crypto market?
This series of events highlights the intense pressure and rapid consolidation occurring within the crypto industry, particularly after a market downturn. Companies are seeking strength through mergers but are also reassessing deals as valuations and market conditions shift. To stay informed on such market movements, you can view real-time tools that track industry developments.