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Statement of Crypto Asset and Crypto Contract Risks

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This Statement of Crypto Asset and Crypto Contact Risks (“Statement”) is presented to you at the time of opening your account and is available to you at any time in the eDocuments section of your account. You must acknowledge having received, read and understood this Statement in order to open and operate a Coinberry account. Please read this Statement in its entirety.

The Statement does not disclose all the risks or relevant considerations of acquiring, selling or otherwise dealing with your Crypto Assets (as hereinafter defined) or your Crypto Contracts (as hereinafter defined). Considering the risks, you should undertake such transactions only if you understand the nature of the contractual relationship with Coinberry into which you are entering, and the extent of your exposure to risk of trading in Crypto Assets and entering into a Crypto Contract. Please refer to www.coinberry.com/legal for additional information.

Trading in Crypto Assets and Crypto Contracts may not be suitable for you. You should carefully consider whether trading is appropriate for you considering your knowledge, experience, financial objectives, financial resources and other relevant circumstances.

A separate Crypto Asset Statement (“Crypto Asset Statement”) with plain language description of each Crypto Asset made available through the Platform, is also available to you at any time in the eDocuments section of your account.

Introduction

Coinberry believes that its customers should be aware of the risks involved in the deposit, purchase, sale, withdrawal and custody of Crypto Assets and the risks related to entering into a Crypto Contract. Crypto Asset trading may not be appropriate for you, particularly if you use funds drawn from retirement savings, student loans, mortgages, emergency funds, or funds set aside for other specified purposes. The volatility and unpredictability of the price of Crypto Assets relative to fiat currency may result in significant loss in a short period of time. The following is a brief non-exhaustive summary of certain significant factors and risks you should take into account when deciding whether to trade Crypto Assets or Crypto Contracts.

No securities regulatory authority in Canada or any other jurisdiction has expressed an opinion about the Crypto Contracts or any of the Crypto Assets made available through the Platform (as hereinafter defined), including an opinion that the Crypto Assets are not themselves securities and/or derivatives.

Coinberry is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Coinberry Limited dated August 19, 2021 (https://www.osc.ca/en/securities-law/orders-rulings-decisions/coinberry-limited). The statutory rights of action for damages and the right of rescission in section 130.1 of the Securities Act (Ontario) and similar legislation in the other provinces and territories of Canada would not apply in respect of a misrepresentation in this Statement or the Crypto Asset Statement for each of the Crypto Assets available for trading on Coinberry.

What are Crypto Assets?

Crypto assets (“Crypto Assets”) are Bitcoin, Litecoin, Ether, Bitcoin Cash or such other underlying crypto assets as may be listed on Coinberry from time to time.

Coinberry has performed due diligence with respect to Crypto Assets that it lists, to satisfy itself as to the viability of offering these Crypto Assets on our platform. Our due diligence included, but was not limited to, a review of the following:

  • Liquidity of the market
  • Total market capitalization
  • Timeline since token inception
  • Token available for custody with existing custodians
  • The current developer ecosystem
  • Whether the asset has been classified as a security or a derivative by any Canadian jurisdiction, or the jurisdiction with which the Crypto Asset has the most significant connection. There are certain risks that arise if Coinberry has incorrectly determined whether any Crypto Asset listed on the Platform is not a security and/or derivate, including the necessity to delist said Crypto Asset from Coinberry which may have potential impact on our ability to custody said Crypto Asset or the liquidity, transactability, volatility or price of the Crypto Asset in question.

What are Crypto Contracts?

As set out in CSA Staff Notice 21-327 - Guidance on the Application of Securities Legislation to Entities Facilitating the Trading of Crypto Assets, if crypto assets that are securities and/or derivatives are traded on a platform, such platform would be subject to securities legislation. In addition, securities and/or derivatives legislation may apply to platforms that facilitate the buying and selling of crypto assets, including crypto assets that are commodities, because the user’s contractual right to the crypto asset may itself constitute a security and/or a derivative. “Crypto Contacts” refer to contractual rights to receive Crypto Assets or proceeds from the sale thereof pursuant to transactions conducted through Coinberry.

Risks in Trading Crypto Assets and Crypto Contracts

The following is a summary, though not exhaustive, of some of the risks connected with trading Crypto Assets.

(1) Short History Risk

As a relatively new open-source technology, it is expected that there will continue to be technical developments in blockchain technology, which could impact the value of a Crypto Asset. Due to this short history, it is not certain whether the economic value, governance or functional elements of Crypto Asset will persist over time. The Crypto Asset community has successfully navigated a considerable number of technical and political challenges since the genesis of the bitcoin blockchain, which Coinberry believes is a strong indicator that it will continue to engineer its way around future challenges. That said, the continuation of a vibrant Crypto Asset community is not guaranteed, and insufficient software development, contribution rates, disputes regarding the development of the network and scaling options, or any other unforeseen challenges that the community is not able to navigate could have an adverse impact on the price to purchase, or proceeds received from the sale, of a Crypto Asset.

Open-source developers of blockchain technology have signaled that they will continue to make efforts to improve the scalability and security of public blockchains like Bitcoin and Ethereum. Changes may also occur to the bitcoin blockchain, for example with the continued development of scalability protocols like the Lightning Network, which operate on top of the bitcoin blockchain. The expected timing and impacts of these changes are uncertain. Other crypto asset blockchains continue to evolve and the continued support or lack thereof by the crypto asset community or the development community can not be predicted or guaranteed.

(2) Volatility in the Price of Crypto Asset and Loss of Liquidity

The Crypto Asset markets are sensitive to new developments, and since volumes are still maturing, any significant changes in market sentiment (by way of sensationalism in the media or otherwise) can induce large swings in volume and subsequent price changes. Crypto Asset prices on trading platforms have been volatile and subject to influence by many factors, including the levels of liquidity, public speculation on future appreciation in value, swings in investor confidence, changes in regulatory characterization (which may result in the delisting of the Crypto Asset from Coinberry or from one or all of our liquidity providers, or may have potential impact our ability to custody or on the liquidity, transactability, volatility or price of the Crypto Asset), and the future growth of alternative Crypto Assets that may gain market share. In certain circumstances, it may become difficult or impossible to assess the value of your Crypto Assets. The trading of Crypto Assets on public trading platforms has a limited history. The prices available on those platforms have, in some cases, been more volatile and subject to influence by additional factors not specific to the value of Crypto Assets, including liquidity levels and operational interruptions. Operational interruptions can limit the liquidity of Crypto Assets on the trading platform, which could result in volatile prices and reduced confidence in the Crypto Assets traded on those platforms.

Coinberry uses multiple brokers and trading platform, which we refer to as liquidity providers, to buy and sell the Crypto Assets that we trade for you. Use of multiple liquidity providers and multiple trading platforms is designed to reduce the liquidity risk and operational risk associated with any one trading platform. However, there is a risk that the liquidity sources accessed directly and indirectly by Coinberry are unable to return the best possible prices or execution quality on your behalf. This risk may be greater during periods of high market volatility or operational outages at a major trading platform.

(3) Potential Decrease in Global Demand for Crypto Assets

Crypto Assets represent a new form of digital value that is still being digested by society. Their underlying value is driven by their utility as a store of value, means of exchange, or unit of account. Just as oil is priced by the supply and demand of global markets, as a function of its utility to, for instance, power machines and create plastics, so too is a Crypto Asset priced by the supply and demand of global markets for its own utility within remittances, B2B payments, timestamping, etc. Speculators and investors using Crypto Asset as a store of value then layer on top of means of exchange users, creating further demand. If consumers stop using Crypto Asset as a means of exchange, or its adoption therein slows, then the price may suffer. Investors should be aware that there is no assurance that Crypto Assets will maintain their long-term value in terms of purchasing power in the future or that the acceptance of Crypto Asset for payments by mainstream retail merchants and commercial businesses will continue to grow.

While the values of bitcoin, Litecoin and Bitcoin Cash may be derived primarily from their capitalization and positions as first movers, the value of ether relies far more on its underlying blockchain technology. The Ethereum blockchain is intended to allow people to operate decentralized applications using blockchain technology that do not rely on the actions of a centralized intermediary. Ether, which is the primary currency of the Ethereum blockchain, can then be used to compensate for the effort of others to power these decentralized applications and ensure that any transactions that occur on these applications are recorded in the blockchain. Accordingly, the long-term value of ether may be tied to the success or failure of the blockchain technology and the decentralized applications built upon the Ethereum blockchain.

(4) The Blockchains on which Crypto Assets operate may Temporarily or Permanently Fork

Certain Crypto Assets offered by Coinberry are powered by open-source software. When a modification to that software is released by developers, and a substantial majority of miners consent to the modification, a change is implemented and the blockchain network continues uninterrupted. However, if a change were to be introduced with less than a substantial majority consenting to the proposed modification, and the modification is not compatible with the software in operation prior to its modification, the consequence would be what is known as a “fork” (i.e. a split) of the blockchain. One blockchain would be maintained by the pre-modification software and the other by the post-modification software. The effect is that both blockchains would operate in parallel, but independently. There are examples of such forks occurring in the past on both the Bitcoin and Ethereum blockchain networks. In the future, such a fork could occur again, and affect the viability or value of a Crypto Asset. Coinberry may choose not to support any future fork of a Crypto Asset available on our platform (the “Platform”), in which case you may not have any rights to a new Crypto Asset that may be created as a result of that fork. Should Coinberry be issued an additional Crypto Asset alongside the ones held by Coinberry we would not be responsible for any consequences arising from such an issuance, including any perceived, or actual, losses or missed gains. It is in our sole discretion to decide whether or not to support the crypto assets subject to a fork or whether or not to distribute the forked crypto assets to our users, with or without prior notification. By using Coinberry you forfeit any profit, loss or voting right claims to any crypto assets forked on the Platform.

(5) Airdrops

Third parties may send Crypto Assets into wallets operated by Coinberry or Coinberry’s third-party custodians (“Airdrops”). Should Coinberry be issued any additional Crypto Assets alongside the ones held by Coinberry or Coinberry’s third-party custodians, we would not be responsible for any consequences arising from such an issuance, including any perceived, or actual, losses or missed gains. It is in our sole discretion to decide whether or not to support the Crypto Asset Airdrops or whether or not to distribute the Crypto Asset Airdrops to our users, with or without prior notification. By using Coinberry you forfeit any profit, loss or voting right claims to any Crypto Asset Airdrops to Coinberry.

(6) Issues with the Cryptography Underlying the Crypto networks

In the past, flaws in the source code for digital assets have been exposed and exploited, including flaws that disabled some functionality for users, exposed users’ personal information and/or resulted in the theft of users’ digital assets. Although the Bitcoin and Ethereum blockchains have demonstrated resiliency and integrity over time, the cryptography underlying either one could, in the future, prove to be flawed or ineffective. For example, developments in mathematics and/or technology, including advances in digital computing, algebraic geometry, and quantum computing, could result in the cryptography of the blockchain network being vulnerable to attack. This could negatively affect the value of Crypto Assets traded with Coinberry.

(7) Uncertainty in Regulation and Future Financial Institution Support

The regulation of Crypto Assets and Crypto Contracts continues to evolve in Canada and in foreign jurisdictions, which may restrict the use of Crypto Assets or Crypto Contracts or otherwise impact the demand for Crypto Assets or Crypto Contracts. There may be limitations on the ability of a securities regulator in Canada to enforce or influence the enforcement of rules that apply to Crypto Asset or Crypto Contract activities that occur in other jurisdictions. Furthermore, banks and other financial institutions may refuse to process funds for Crypto Asset or Crypto Contract transactions, process wire transfers to or from Crypto Asset or Crypto Contract trading platforms, Crypto Asset or Crypto Contract-related companies, or service providers, or maintain accounts for persons or entities transacting in Crypto Assets or Crypto Contract.

(8) Concentration Risks

Certain addresses on the Bitcoin, Ethereum and other blockchain networks hold a significant amount of the currently outstanding Crypto Assets. If one of these addresses were to exit their positions, it could cause volatility that may adversely affect the price. Further, if anyone gains controls over 51% of the computing power (hash rate) used by the blockchain network, they could use their majority share to double spend their Crypto Assets. If such a “51% attack” were to be successful, this would significantly erode trust in public blockchain networks like bitcoin and Ethereum to store value and serve as a means of exchange, which may significantly decrease the value of Crypto Assets.

(9) Electronic Trading and Dependence on the Internet

There are risks associated with using an internet-based trade execution software application including, but not limited to, the failure of hardware and software. Coinberry maintains an independent and secure ledger of all transaction to minimize loss and maintains contingency plans to minimize the possibility of system failure, however Coinberry does not control signal power, reception, routing via the internet, configuration of your equipment or the reliability of your connection to the internet. The result of any failure of the foregoing may be that your order is either not executed according to your instructions or is not executed at all. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a particular Crypto Asset suddenly drops, or if trading is halted due to recent news events, unusual trading activity, or changes in the underlying Crypto Asset system. The greater the volatility of a particular Crypto Asset, the greater the likelihood that problems may be encountered in executing a transaction. In addition to normal market risks, you may experience losses due to one or more of the following: system failures, hardware failures, software failures, network connectivity disruptions cyber security breaches, hacking attacks, and data corruption.

(10) Cyber Security Risk

The nature of Crypto Assets or Crypto Contracts may lead to an increased risk of fraud or cyber attack. A breach in cyber security refers to both intentional and unintentional events that may cause Coinberry to lose proprietary information or other information subject to privacy laws, suffer data corruption, or lose operational capacity. This in turn could cause Coinberry to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. Cyber security breaches may involve unauthorized access to Coinberry’s digital information systems (e.g. through “hacking” or malicious software coding), but may also result from outside attacks such as denial-of-service attacks (i.e. efforts to make network services unavailable to intended users). In addition, cyber security breaches of the Coinberry’s third-party service providers (e.g. the liquidity providers) can also give rise to many of the same risks associated with direct cyber security breaches. Like with operational risk in general, Coinberry has established risk management systems designed to reduce the risks associated with cyber security.

(11) Open Loop System

When you enter into a contract with Coinberry to buy and sell Crypto Assets, that contract provides you with certain rights and imposes certain responsibilities; the contract, and your contractual right to the Crypto Assets that you may deposit, buy, hold and sell pursuant to the contract, may constitute a security or derivative. In particular, the contract you sign with Coinberry enables you to deposit, buy, sell, withdraw and hold Crypto Assets in your own private wallet. We refer to this as a “open loop” system.

(12) Lack of Investor Protection Insurance

Coinberry is not a member of the Canadian Investor Protection Fund. Crypto Assets and Crypto Contracts purchased and held in an account with Coinberry are not protected by the Canadian Investor Protection Fund, the Canadian Deposit Insurance Corporation or any other investor protection insurance scheme.

(13) No Voting Rights

Coinberry will not enable voting functionality for any Crypto Assets that would confer a right to vote on topics that may directly and indirectly affect functionality and economics of the particular Crypto Asset (e.g., changes to block reward amounts, inflation percentages, consensus modelling or governance models). Therefore, if you have a Crypto Contract in respect of any Crypto Assets that confer these rights to vote, you will not be able to exercise any such voting rights, and forfeit any such rights to Coinberry.

(14) Commission and Other Charges

Although Coinberry does not charge a commission fee, there are certain costs built into the spread offered on your purchase and sale of Crypto Assets, as disclosed to you within the app. Estimated fees that Coinberry Limited will charge for a particular transaction are displayed prior to trade confirmation. In addition to our spread, you may be subject to additional fees charged by our liquidity providers, which are subject to change but in all cases will be passed onto you as is. Finally, you may be charged withdrawal fees when withdrawing Crypto Assets from Coinberry. Withdrawal fees will be displayed to you prior to withdrawal confirmation.

(15) Custody Risk and Insurance

Coinberry is the primary custodian of the Crypto Assets that you deposit into or purchase and hold in your Coinberry account. These Crypto Assets are held in cold and hot wallets held by Coinberry as well as with a third-party custodian – Gemini Trust Company, LLC (Gemini). Gemini is a licensed digital asset exchange and a New York trust company regulated by the New York State Department of Financial Services. Gemini is a “qualified custodian” for purposes of NI 31-103 and has completed a SOC 2 Type 2 examination. Crypto Assets held in trust with Gemini are held offline in “cold storage”. Gemini currently maintains $200 million in specie coverage for Crypto Assets held in Gemini’s cold storage system. The amounts and continuing availability of this coverage are subject to change at Gemini’s sole discretion. Crypto Assets held in cold storage are also protected by Gemini’s security measures, which reflect best practices in the payment industry generally and in the cryptoasset space in particular. Crypto Assets may also be temporarily held online in a Gemini “hot wallet”. Gemini maintains separate commercial crime insurance coverage for digital assets custodied in its “hot wallet”.

Coinberry has developed a sophisticated and robust set of cold and hot wallet policies and procedures to safeguard the Crypto Assets in its custody. However, inherit risks of an open loop system present vectors of attack that may be exploited such that a part or all of the Crypto Assets custodied by Coinberry may be lost without any means of retrieving them.

Even though Coinberry and Gemini have both put in place respective insurances to protect the Crypto Assets they hold, it is important to note that the insured sum may not be sufficient to cover all of the potential losses that may be incurred by Coinberry or by Gemini, and any losses of Crypto Assets held in custody may only be covered partially by existing insurances. As such, you are strongly encouraged to withdraw any Crypto Assets that you may purchase on Coinberry or hold on Coinberry into your own private wallet(s).

As Gemini is resident outside Canada, all or a substantial portion of the Crypto Assets Coinberry holds in trust with Gemini are located outside Canada. As a result, anyone seeking to enforce legal rights against it in Canada may find it difficult to do so.

(16) Possible Impact of Threats on Coinberry’s Physical Assets

Coinberry’s physical assets, such as its personnel, hardware, buildings, or data processing infrastructure could experience a range of threats, such as fire, flood, natural disaster, theft, vandalism, or terrorism. As such, there exists a risk of partial or full loss of your Crypto Assets or Crypto Contracts due to the aforementioned events.

(17) COVID-19 Outbreak

The novel coronavirus (COVID-19) outbreak was characterized as a pandemic by the World Health Organization on March 11, 2020. The outbreak has spread throughout the world, causing companies and various governments to impose restrictions, such as quarantines, closures, cancellations and travel restrictions. The effects of COVID-19 and the measures taken by companies and governments to combat the coronavirus have negatively affected Crypto Asset values and increased volatility in the financial markets, including the market price and volatility of the Crypto Assets. At this point, the extent to which COVID-19 may impact, or may continue to impact, the market price of the Crypto Assets is uncertain and cannot be predicted.

(18) Use of Leverage

Using borrowed money to finance the purchase of Crypto Assets or Crypto Contracts involves a potentially greater degree of risk than purchases made with cash. If you borrow money to purchase Crypto Assets or Crypto Contracts, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the Crypto Assets or Crypto Contracts purchased declines.

(19) Halting, Suspending and Withdrawing Crypto Assets from Coinberry

There may be instances when Coinberry may decide to halt, suspend or withdraw certain Crypto Assets or Crypto Contracts from the Platform for any reason whatsoever, including but not limited to, business decisions made in Coinberry’s sole discretion, changes in market trends, changes in the demand on the Crypto Asset, changes in 3 rd party Custodian availability of the Crypto Asset, any actions or decisions taken or communicated by any government or regulatory body against or with respect to the Crypto Asset in question. In cases where Coinberry decides to halt, suspend or withdraw a Crypto Asset from the Platform, Coinberry will seek to notify users and give as much time as possible, on a best-effort basis, for users to sell, or withdraw said Crypto Asset from the Platform. However, said time notification period may only be within the ranges set out below:

Buy Sell Fund Withdraw from platform into personal wallet
Halt 0-30 days 0-60 days 0-30 days 0-90 days
Suspend 0-30 days 0-60 days 0-30 days 0-90 days
Withdraw from offering on the Platform 0-30 days 0-60 days 0-30 days 0-90 days

If a user has not sold or withdrawn from the platform Crypto Assets that have been Halted, Suspended or Withdrawn for over 90 days from the time a notification has been sent of the change of status of said Crypto Asset, a monthly custodian fee may be charged to the user which shall be communicated to the user at the time the Halt, Suspend or Withdraw notification was sent.

Content & Frequency of Reporting

Coinberry will, in connection with each purchase or sale of a Crypto Asset, promptly deliver to the client an electronic trade confirmation of each transaction containing certain prescribed information including, but not limited to, (i) the spread paid to Coinberry; (ii) the amount of each transaction charge, or other charges in respect of the transaction; and (iii) the total amount of all charges in respect of the transaction.

Coinberry will also provide clients ongoing statements either on a monthly or quarterly basis as requested by the client setting out the details of the transaction history including but not limited to:

(a) the date of each transactions
(b) whether the transaction was a purchase, sale or transfer;
(c) the name of the Crypto Asset;
(d) the number of Crypto Assets purchased, sold or transferred;
(e) the price per Crypto Asset if the transaction was a purchase or sale;
(f) the total value of the transaction if it was a purchase or sale;

And at each quarter end:
(a) the name and quantity of each Crypto Asset in the user’s account;
(b) the market value of each Crypto Asset in the account;
(c) the total market value of each Crypto Asset position in the account;
(d) any cash balance in the account;
(e) the total market value of all cash and Crypto Assets in the account;
(f) whether the account is eligible for coverage under an investor protection fund approved or recognized by the securities regulatory authority and, if it is, the name of the fund; and
(g) which Crypto Assets in the account might be subject to a deferred sales charge if they are sold.

Clients will also have access to view their accounts and statements at any time.

Suitability and Know Your Client (KYC)

The Know-Your-Client (“KYC”) obligations are foundations of securities law. Coinberry will engage in KYC procedures in order to assess:

  • Client Identity Verification
  • Suitability, and
  • Investor Status

Prior to accessing the Platform, the client shall provide the following information:

1. Evidence of identity
2. A completed and executed KYC form. The KYC form requires that, at a minimum, the client provide their:

  • Investor Status (whether they meet the “Accredited Crypto Investor” requirements or not
  • Financial Situation
  • Investment Objective(s)
  • Risk Tolerance
  • Time Horizon, and
  • Investment Restrictions

Clients provide personal and financial information to Coinberry. The information that is gathered enables Coinberry to learn and remain informed of the essential facts relevant to every client and every order or account accepted. The information must be obtained to assist Coinberry in:

  • Servicing an account properly
  • Determining if the information given by the client is reasonable in comparison to the client’s desired investment objectives and risk factors and would be suitable for the client to proceed with the transaction

The investments and services offered by Coinberry may not be suitable for all investors. Coinberry users should be aware that certain types of assets might carry greater investment risk compared to more traditional assets classes such as fixed income or balanced mutual funds. Investment in Crypto Assets can involve greater risks which can result in significant capital losses that may have a detrimental effect on the value of your holdings. In order to assess and disclose some of these risks Coinberry has created an applicant questionnaire in order to obtain a greater scope of our users’ financial profiles. Coinberry will provide users with risk disclaimers in the event any trading request would create the need for one. Any risk disclaimer produced will need to be acknowledged in order to proceed with all trading transaction requests prior to proceeding through the Platform for execution. The material on the Coinberry website and application has been prepared for informational purposes only without regard to any particular user's investment objectives or financial situation. The fact that Coinberry has made information available to you does not constitute a recommendation to enter into a particular transaction.

Benchmarking

Coinberry provides its clients access to historical pricing information and performance graphs and data for the Crypto Assets trading on its Platform. However, past performance is not an indicator of future performance. Coinberry will not provide benchmarks on your account statement.

Last Updated August 20, 2021

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