Shares of WonderFi Technologies Inc. jumped as much as 22 per cent before briefly being halted Wednesday afternoon after BNN Bloomberg reported the company was engaged in advanced merger talks with Coinsquare Ltd., according to sources familiar with the matter.

After the company’s shares were halted at 1:51 p.m. EST, WonderFi released a statement stating that it acknowledges it has held “preliminary discussions” with other companies in respect to potential acquisitions and being acquired. WonderFi’s shares resumed trading at 3:15 p.m. EST.

“These discussions are preliminary in nature and are ongoing, and no assurance can be given that any agreement or agreements will be reached, or that the terms of a transaction will be agreed upon or that a transaction will be completed,” WonderFi said in a statement. “The company does not intend to make further comment unless or until an agreement has been entered into and there is a transaction to announce.”

While the exact terms of a merger between the two operators remain unclear, a deal would create the largest cryptocurrency exchange in Canada. One scenario would see Coinsquare shareholders take a majority stake in the combined business, as well as control more seats on the board than WonderFi, one of the sources said. While the talks may be at an advanced stage and an announcement could occur within days, there is no certainty that a deal will be consummated between the two companies, the sources said.

The potential deal comes a few days after Coinsmart Financial Inc. said that Coinsquare is walking away from a previously agreed-upon decision to acquire the company. Coinsmart said in a release on Monday that the company's management and board of directors are "evaluating the validity and effectiveness" of Coinsquare's decision to terminate its merger.

Representatives for Coinsquare declined to comment.

If a deal is announced, the combined exchange operators would have a combined user base of about 1.15 million. WonderFi said in November it counts about 650,000 users on its exchange, $258 million worth of assets under management and $45 million in revenue across its BitBuy and Coinberry subsidiaries; privately-held Coinsquare does not disclose its assets under management or revenue but counts about 500,000 users on its platform.

While a price tag for the merger was not immediately known, shares of WonderFi - which counts O’Leary Financial Group Founder and Shark Tank star Kevin O’Leary as a strategic investor - have plunged by about 63 per cent since the company went public in June. WonderFi currently has a market capitalization of about $51 million on Thursday, while Coinsquare said it had a pre-money valuation between $250 million to $350 million in Feb. 2021 when Vancouver-based Mogo Inc. made a $56 million investment for a 19.9 per cent stake in the firm.

A deal between Coinsquare and WonderFi would also come at a pivotal point in the cryptocurrency industry. The sector has been reeling since the collapse of Bahamas-based FTX Trading Ltd. - once valued at US$32 billion - and which filed for bankruptcy in November and its former CEO Sam Bankman-Fried faces eight counts of fraud, money laundering and other financial crimes. Since then, bitcoin prices have tumbled by as much as nearly 25 per cent while securities regulators have increased their scrutiny on the industry.

In an effort to remain onside with regulators, Coinsquare became the first Canadian platform to be registered with the Investment Industry Regulatory Organization (IIROC) in October.

“We look like any other investment dealer in Canada,” Coinsquare CEO Martin Piszel told BNN Bloomberg in a television interview in November.  “We have the same rules, restrictions, guidelines … I think that’s good for the industry.  And I think that’s really good for consumers.”

One source with direct knowledge of the discussions with WonderFi believes that Coinsquare's regulatory status with IIROC would help it take a leading role in consolidating other distressed cryptocurrency operators in Canada.

“As a result of very high regulatory costs and regulatory capital in the tens of millions of dollars, the smaller exchanges will find themselves forced into consolidation, likely with this new amalgamation … or face extinction,” the source said.

An exchange deal in Canada’s cryptocurrency sector comes as other trading operators have already engaged in various consolidation efforts in what industry watchers described as a “crypto winter”. Crypto lender Voyager Digital recently struck a deal to sell some of its assets to Binance’s U.S. operations, while bankrupt crypto platform Celsius Network LLC plans to auction its assets to interested bidders next month.