How To Invest in Cryptocurrency in Canada

By: Updated: November 19, 2021

Investing in cryptocurrency is highly speculative and risky. Only invest in cryptocurrency after you have paid the mortgage, bought groceries, put money in your RRSP, and purchased dog food. Then you might want to take a flyer on crypto.

 

What is cryptocurrency?

Cryptocurrency is used to send money around the world – securely and anonymously. It’s a term for thousands of digital currencies that are supported by a decentralized system using cryptography. The best-known is Bitcoin but there are many others available worldwide.

These currencies are very different from state-regulated currencies like the Canadian dollar. The Bank of Canada is responsible for maintaining the integrity of the dollar, whether that is printed bills or electronic transfers.

It’s legal to use cryptocurrencies. And it’s legal to buy and sell them as investments. But they are not legal tender in Canada, like a toonie or a $20 bill. Businesses don’t have to accept crypto as payment for goods and services.

 

What is blockchain?

This is a system in which the transactions of a cryptocurrency are maintained. Blockchain is a database that tracks the date and time of transactions. These can’t be altered and serve as a permanent record to show ownership of the crypto.

 

How does cryptocurrency work?

Crypto depends on the willingness of both buyers and sellers to use it for transactions. To spend your crypto, you need to find vendors who will accept it as payment for the goods and services that you wish to purchase. Then you can simply transfer it to them.

 

How to buy cryptocurrency in Canada

If you need cryptocurrency, you can purchase it using Canadian dollars. However, be very careful as there are many scammers involved in this market. You could be hacked and have all of your cryptocurrency stolen. There may not be a complaint procedure like there is when you purchase an item using your credit card or debit card.

In addition, the value of crypto can vary wildly. The amount that you purchase today could be worth less in a few weeks.

 

What is the best way to invest in cryptocurrency?

There is a wide range of options for buying crypto in Canada. Again, do your research to ensure that you are not the target of fraudsters and hackers.

Here are just a couple of places where you can purchase crypto:

  • Wealthsimple: Wealthsimple says it’s the first regulated crypto platform in Canada. It features a wide variety of cryptocurrencies.
  • Coinsmart: It is based in Toronto and allows you to buy and sell Bitcoin with credit cards.

So, what’s the best place to buy crypto in Canada? As we have indicated, there are risks associated with any purchase of crypto. So do your research and be careful!

 

What are the risks involved with cryptocurrency investing?

The biggest risk is that the value of cryptocurrency fluctuates dramatically. For example, 1 Bitcoin ranged in price from USD $13,000 in 2020 to a high of $66,000 in 2021. When you purchase a stock, you expect the value to go up or down based on the company’s expected revenues and profits. With a cryptocurrency, you have no idea why the price is moving. So Bitcoin trading in Canada is highly speculative and risky.

Secondly, cryptocurrencies are an unregulated market. This is different from a stock exchange, like the TSX, which is supervised by the Ontario Securities Commission.

Thirdly, you need to hold your crypto in a “wallet”. If you hold it in a “hot wallet” this means it is online and vulnerable to being hacked. Alternatively, you can keep it in a “cold wallet” which means it is offline and stored in a physical way, such as a USB stick. The risk with a cold wallet is that you could lose the USB stick – and access to your crypto.

In 2019, thousands of people lost money when the president of Canadian bitcoin exchange QuadrigaCX, Gerald Cotten, died suddenly and took the passwords to his grave. The company could not recover the crypto and had to file for bankruptcy protection. The circumstances around his death in India are still mysterious, casting a dark shadow over the crypto sector.

These types of situations reduce confidence in cryptocurrencies and may cause them to decline in value. If you are holding them as an investment, there is a risk that you will lose money.

A digital wallet is not protected like bank deposits, which are insured by the Canada Deposit Insurance Corporation. In the unlikely event of a bank failure, your money is safe (up to certain limits).

 

How to purchase cryptocurrency

Buying crypto in Canada is actually quite easy:

  1. You sign up for a Canadian cryptocurrency exchange
  2. You deposit Canadian dollars directly from your bank account
  3. You make a purchase of crypto
  4. You store it on the exchange account or transfer it to a wallet

Your next steps depend on the reason why you are making a purchase:

  • For an investment: You can simply hold the crypto to see if it goes up in value. Or you can trade it for other types of digital currencies. You can then decide how long to hold it before selling.
  • To purchase goods and services: You may need the crypto to buy something online. Just be sure you know and trust the organization before sending them the funds. Bitcoin transactions are not reversible.

 

Should you purchase cryptocurrency?

As we have indicated, there are two reasons that you may wish to buy Bitcoin or other cryptocurrencies – to make a transaction with a vendor or as an investment.

Crypto helps you to remain anonymous when you make a purchase. A vendor may request that you buy goods and services using crypto. If so, just be sure that you trust the organization – because once you transfer your funds you can’t get them back.

Some people engage in Bitcoin trading in Canada as an investment. As we have indicated, this is a high-risk investment and you could lose some or all of your money.

 

Are you incorporated in Canada?

Small business owners and incorporated individuals in Canada can use a Health Spending Account (HSA) to save up to 40% of their medical expenses.  An HSA has no premiums and it is a cost effective alternative to traditional health insurance.  The plan covers a wide variety of health and dental expenses.  An HSA takes only a few minutes to set up.  Learn more by downloading one of our guides.

 

Learn more about a Health Spending Account by downloading a free guide:

Download the HSA Guide for Incorporated Individuals Download the HSA Guide for a Business with Staff

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