Michael Zagari says Canadian market insulated from major concerns
On Feb. 21, the world’s second-largest cryptocurrency exchange platform, ByBit, watched as $1.5 billion USD in Ethereum was stolen during a routine funds transfer. The hack sent shockwaves across the crypto world, raising questions about the asset’s security.
But Michael Zagari, a firm believer in crypto assets, says that while the ByBit hack was certainly concerning, he sees no reason to panic given Canada’s strict regulations and a belief in bitcoin’s broader security measures.
Canadian investors were largely insulated from the hack, as ByBit left the Canadian market in 2023 over disputes with regulators. For Zagari, this provides assurance over crypto security in Canada, while he pointed to Canada being the first country to create a crypto ETF. He added that Canadian regulators have been adept at blocking “pump and dump” schemes, another major concern surrounding the crypto industry.
“When I think of the regulators from their perspective, I really do get the sense that they want to help with the acceleration of innovation in this country,” said Zagari, investment advisor and associate portfolio manager at Wellington-Altus Private Wealth. “But they also have a mandate to protect the public.”
While Zagari has full confidence in bitcoin’s security system, he stressed the inherent risks of using any crypto exchange service. Self-custody of bitcoin can be “a little bit more complicated” according to Zagari, though removes the risk of exposure to potentially risky third-party services.
“The actual bitcoin network is probably the strongest and most sophisticated network in the world,” he said. “When you put your bitcoin on an exchange, then you are encountering counterparty risk, no matter how much the company tells you that their security is as strong as it can be.”
For investors, Zagari often leans towards bitcoin ETFs, pointing to Purpose and Fidelity products. Purpose allows for bitcoin assets to be held in both cold storage and a hot wallet to diversify risk, while Fidelity uses self-custody for security.
The ByBit hack is believed to be the largest crypto heist in history, with the FBI pointing fingers at North Korea and its notorious yet secretive Lazarus Group of cybercriminals. Zagari emphasized the loss of investor trust from security breaches like the ByBit hack. While the ByBit heist is undoubtedly the largest in scale, there have been a number of significant crypto hacks in recent years, including a $275 million USD theft of exchange platform KuCoin also attributed to the Lazarus Group.
“If you're a publicly traded company, if you lose the trust of your customers and your shareholders, it's not good,” he said. “And bitcoin is no different in that aspect.”
The advancement of bitcoin adoption will allow advisors to reach more clients with fewer funds who would otherwise be overlooked by the industry, according to Zagari.
“You can take on more clients, a lot of these LPs, these private equity firms, when they go to raise capital, they don't want 300 investors, they want five whales,” he said. “But now with Blockchain, you can take on those 300 investors that have lower investable amounts of money.”
The decentralized nature of bitcoin, its limited cap and its global reach has always been the asset’s main attraction for Zagari, who is confident that growth will continue as traditional investors increasingly put their faith in the technology.
“We've seen governments pump liquidity into the markets, and that that resulted in high inflation, which doesn't serve well for the general public, but serves well for people with assets,” he said. “But bitcoin in itself, has a limited cap, has no counterparty risk, and can be represented and used by anyone with a mobile phone, even the ones that don't have any banking in other countries.”
