Canadian Exchange Merger Looks A Bit Sketchy

Something strange is afoot in Canada.

Something even stranger than maple taffy.

We’re talking about the newly announced merger of the Canadian exchanges WonderFi, Coinsquare, and CoinSmart.

At first glance, this looks like a simple merger among three smaller exchanges to form one dominant Canadian entity. But, dig deeper, and something just doesn’t feel quite right.

Let’s break it down.

The Players

If you don’t live in Canada, you’ve probably never heard of WonderFi, Coinsquare, or CoinSmart. So, before we dive into the story itself, let’s quickly cover our 3 main players:

• WonderFi describes itself as the “modern wealth generation company” and is not actually a crypto exchange itself but more of a web3 holding company that is publicly traded (WONDF). They currently own many web3 brands, including the trading platforms Bitbuy and Coinberry, the DeFi frontend Uniifi, the NFT platform Last Known, and the web3 educational platform Metacademy. Finally, they also are notably affiliated with the Mr. Wonderful and FTX shill himself, Kevin O’Leary (get it? WonderFi, Mr. Wonderful).

• Coinsquare is a crypto exchange that holds the title of Canada’s first IIROC-regulated exchange.

• CoinSmart is another Canadian crypto exchange, and like Coinsquare, is regulated.

The Merger

The merger between the three Canadian giants was announced on Monday, and in the announcement, several benefits were touted:

• The new exchange will be one of the largest in Canada, with over $17 billion in transactions since 2017, over $600 million in assets under custody, and a user base of over 1.65 million Canadians.

• The combined exchange will be fully regulated.

• The new exchange will provide Canadians with various products and services, including retail and institutional trading, staking, B2B crypto payment processing, sports betting, and gaming.

• The new exchange will set an example of what a regulated and innovative crypto exchange should look like.

Sounds pretty good, right? We agree, at face value, it does.

But, digging deeper, we’re not sure the merger is as good as it looks.

Funny Business

To explain why our spidey senses are tingling here, let’s first set the timeline:

• WonderFi purchased Bitbuy in January 2022 for $161.8 million in cash and shares. At first glance, and considering the context, it looks like a pretty good deal. Bitbuy grew quickly, had 375,000 users, and crypto was still (at least outwardly) in a bull market. But, the purchase just doesn’t add up to us. $162 million is 6.48x WonderFi’s current market cap, and even at the time of purchase, it was greater than WonderFi’s $148 million market cap. Sure, they only dished out $39 million in cash, with the rest through diluting their own shareholders, but even that $39 million is more than WonderFi’s current market cap.

• In July, 2022, WonderFi acquires Coinberry for $30.6 million.

• In September 2022, Coinsquare and CoinSmart announced their plans to merge, with Coinsquare purchasing CoinSmart for just under $30 million CAD.

• But then, in January, Coinsquare terminated the merger, but no reason was ever given.

• Following the termination, it was reported that WonderFi and Coinsquare were in advanced talks to merge, but the terms were unknown, and the deal never went anywhere.

• Then, in February, Canada put a 30-day deadline for exchanges to register with regulators.

• And now, the three exchanges are merging, seemingly out of nowhere.

To us, there are multiple reasons for consumers to be wary here:

• Kevin O’Leary has a history of dealing with shady and fraudulent crypto exchanges.

• Combined, the companies have raised $167 million. That is much more than whatever the market cap of the new exchange will be.

• CoinSquare was previously accused by Canadian regulators for wash trading.

• Canaccord Genuity, a Canadian investment bank, brought WonderFi public and invested in Coinsquare.

• The largest shareholder, at 14%, is now…Mogo? A company that is on its way to being delisted from the NASDAQ.

To add, after a quick archive browse, look who showed up as a WonderFi strategic investor! (who obviously isn’t listed anymore)

Ultimately, this to us looks more like a deal of convenience to raise share prices than a deal meant to help consumers. We’re not saying it’s fraudulent, just that it looks weird.

Are we right? Who knows. But, as the classic saying goes, “if it looks like a duck, swims like a duck, and quacks like a duck, it’s probably a duck”.

Look, we aren’t saying this is just one big stock promotion, but we aren’t not saying it isn’t a big stock promotion.

We are more than happy to be proven wrong, and all might be okay, but with other Canadian exchanges taking a dirtnap, plus the ability to buy crypto on other exchanges, we can’t, in good faith, suggest to our readers either (1) buy crypto on the new conglomerate, or (2), invest in the stock.