Cryptocurrencies are now mainstream investment and trading commodities similar to stocks, forex and commodities. This asset class is growing in popularity and Statista numbers from 2019 show that 3.89% of Canadians used Bitcoin. This is up from 2.9% in 2017.
Clearly, a lot of Canadians are taking this space seriously and for good reason. For example, if you had invested $100 on February 1, 2020, in Bitcoin, you would be sitting on a profit of over 450% since then.
One Bitcoin currently costs $53,100 as of this report and there are multiple ways to get exposure to the world’s most popular digital currency. Considering that experts and Bitcoin evangelists have predicted that the cryptocurrency can go as high as $1 million, it is not too late to get on the crypto bus.
You can invest, both actively and passively, in Bitcoin, and other cryptocurrencies. Below are a few ways on how you can invest in this highly disruptive space:
A peer-to-peer marketplace is where you can trade Bitcoins with other individuals. Think of it like Craigslist for cryptocurrencies. Platforms like LocalCryptos and Paxful enable you to pay via multiple methods including credit cards, PayPal or even gift cards.
Sellers can choose how they want to get paid. For the buyer, it’s an option to offer something other than cash for Bitcoin. Peer-to-peer marketplaces let users have payment flexibility. However, you have to be careful here so that you don’t get scammed by accepting worthless trades. These marketplaces have a huge advantage in the sense that your wallet is protected from theft.
There are a number of good crypto ETFs that are available for people to invest in. Below you can take a look at a few of the crypto ETFs investors can buy as well as the expense ratios they charge you.
- Amplify Transformational Data Sharing ETF: 0.7%.
- Reality Shares Nasdaq NexGen Economy ETF: 0.68%.
- First Trust Indxx Innovative Transaction & Process ETF: 0.65%.
- Innovation Shares NextGen Protocol ETF: 0.95%
- Purpose Bitcoin ETF is a Canadian ETF that only hold Bitcoins. Buying this ETF is equivalent to buying Bitcoins. However, one major point to keep in mind while buying the Purpose Bitcoin ETF is its steep 1% annual management fees. However, this is a great option for people who are not tech-savvy.
- Galaxy Bitcoin ETF began trading on the TSX in March 2021 with a management fee of just 0.4% which is the lowest fees in the crypto ETF world.
There are a plethora of Bitcoin trading exchanges or trading platforms out there where investors can buy and sell Bitcoins. These are the easiest and most convenient way to invest in cryptocurrencies.
While choosing an exchange, you have to be mindful of the fees that you are paying to the exchange. Fees come in two forms: A maker’s fee where you pay a fee to add liquidity to the exchange and a taker’s fee where you pay to trade. Generally, a taker’s fee is lower to encourage more trading. The different crypto-exchanges in Canada include:
- Bitbuy: This Canadian exchange lets you buy Ethereum, Litecoin, and other cryptos apart from Bitcoin. The fees are as low as 0.1%. It has very high buy and sell limits and it is capable of handling large transactions through its OTC counter.
- Coinsmart : This is a new entrant into the crypto exchange space. It offers a variety of payment modes including e-transfers, bank transfers, credit and debit cards, and SWIFT transfers. New users will receive $20 in BTC after they make a $100 deposit. Their moto : Buy Bitcoin with CAD at CoinSmart. They’ve made it quick and easy for Canadians to invest in crypto. It’s the only exchange that offers 24/7 omni channel support.
- Netcoins: This Vancouver-based exchange is proud of its regulation and compliance under FINTRAC. It is fully audited and has high levels of liquidity. Netcoins charges 0% fee on funding and withdrawal and a 0.5% fee on trading. New users will receive a bonus of $10 when they complete $100 in cumulative transactions.
- Satstreet: This exchange is for people and investors who want to buy and sell Bitcoin in bulk. As you transact in high volumes, this exchange has some of the lowest fees in Canada.
- Shakepay: Shakepay is platform that is only available to Canadians to buy and sell Bitcoin and Ethereum. It’s easy to move crypto from Shakepay to your personal wallet. The best part about Shakepay is its Shakepay Change feature that lets users buy a small amount of Bitcoin everytime they swipe their debit or credit cards.
- Kraken: This is one of the most highly rated exchanges for Canadians. It has never been hacked which is great considering it is one of the oldest exchanges around. It has a daily buy limit of $2,000-$25,000 depending on your tier.
- Wealthsimple Crypto: This is the first crypto trading platform in Canada that is regulated by the government. It lets you buy and sell Bitcoin and Ethereum directly. It’s more of a platform that aggregates multiple exchanges that their clients can choose from. Think of it like the booking.com of crypto trades.
- Coinbase: Coinbase is one of the more expensive platforms for crypto traders. You can buy Bitcoin from Coinbase using two methods. The first option is to buy directly from Coinbase where it sells you the cryptocurrency directly instead of connecting you with other users.
- MyBTC.ca: Trusted since 2016, MyBTC.ca customers benefit from ultra-fast Interac e-Transfer funding for amounts up to $10,000 and bank wire transfers with a reduced fee for amounts up to $250,000. My BTC.ca was rated “Best Customer Service and Support via Phone, Text or Email” in the Canadian crypto space.
Coinbase charges you either a flat fee of 0.5% or a variable fee depending on where you are, whichever is greater. Canadians have to pay 3.99% if they buy through debit or credit cards.
The second option is Coinbase Pro that works as a regular exchange where you connect with other users to buy and sell cryptos. Maker and taker fees are high at 0.5% for users who trade less than $10,000 a month.
Binance: Binance is one of the world’s oldest and largest cryptocurrencies with one of the lowest trading fees of them all: 0.1% for both maker and taker fees. When you withdraw your cryptocurrency from Binance, you have to pay a flat fee in the form of the cryptocurrency. For Bitcoin, the fee is 0.0005 BTC.
A lot of these crypto exchanges offer the option of OTC (over the counter) buying and selling of bitcoins. OTC means you can directly negotiate with the broker instead of trading on an exchange. This is very popular among individuals who want to settle large orders quickly.
For instance, if you want to buy worth $50,000, you may have to pay variable rates to complete the transaction. Chances are you will have to buy Bitcoins in parts and not the whole amount at one go. There is every possibility that after every transaction, the price of Bitcoins will rise and you end up paying a lot more than the initial price you wanted to purchase the digital currency. Different exchanges and platforms set different limits for Bitcoin OTCs. It could vary between $25,000-$100,000.
Active crypto funds
Actively managed crypto funds are another option for you to buy Bitcoin. These funds invest in a plethora of cryptocurrencies and fund managers actively manage them unlike passive index funds. For a long time, passive funds have been touted as the best thing since sliced bread in the financial industry.
But actively managed funds argue that cryptocurrencies are so volatile that you need a human being to manage it all the time. That’s why stocks like Pantera Bitcoin Fund and Rivemont Crypto Fund are the bee’s knees in the crypto world.
Pantera charges a management fee of 0.75% and a realization fee of 1%. You need a minimum of $100,000 to invest in the fund and it doesn’t charge any performance fees.
Rivemont Crypto Fund has fees on the higher side. For a class A investor, the fixed fee is 2% and a performance fee of 20% comes into play when the fund delivers. Fixed fees for Class B and Class F investors are 1.5% and 1% respectively. The performance fee for both investor classes is 20%. Launched in 2017, Rivemont is Canada’s only authorized actively managed crypto fund.
A Bitcoin trust is an investment tool that offers investors the option to buy cryptocurrencies through an open-ended private trust. The two biggest names in this space are the Grayscale Bitcoin Trust (GBTC) and the Osprey Bitcoin Trust.
Grayscale has been around since 2013 and has over $30.7 billion in AUM (assets under management). If you want to invest in GBTC, you need to put down a minimum amount of $50,000 and you will be charged an annual fee of 2%.
GBTC became an SEC reporting company on January 21, 2020, after it registered its shares with the regulator. It was the first digital currency investment vehicle to get this status. This lets accredited investors liquidate their holdings early. Private placement shares have a holding period of 12 months which is halved to six months for SEC reporting companies.
Osprey Bitcoin Trust is a new investment vehicle that has listed on the exchanges and has just $103 million under management as of mid-March. However, it scores over GBTC in its management fee which is just 0.49%. Investors can hold both these trusts in their brokerage accounts.
Bitcoin mining companies
Bitcoin works on the premise that when the cryptocurrency is transacted online, someone has to record and secure these transactions. There is no official regulator that does this job. The transactions are outsourced to the general public.
About a decade back, it was possible for individual Bitcoin miners to do this job. However, now, the number of resources in terms of powerful enough machines, electricity, and software that is required for the task is beyond the reach of an individual. This is where Bitcoin mining companies come into the picture. They are a high-beta play on Bitcoin.
Bitcoin mining companies like Riot Blockchain, Hive Blockchain, and Marathon Patent Group are some of the largest publicly-listed companies out there. These stocks have seen massive surges in the last year with Marathon, for instance, gaining over 1,240% since September 2020. Hive Blockchain Technologies is traded on the TSXV. In its latest quarter, Hive mined $13.7 million worth of cryptocurrency and reported $17.2 million in net income.
A Bitcoin miner gets Bitcoins every time they record a transaction. These companies are sitting on a pile of Bitcoins that are sold when the timing is right. They might also decide to hold on to Bitcoins, and, if the predictions of Bitcoin hitting $500,000 or even $1 million are right, they stand to make massive profits.
Companies that have bought Bitcoin: Sometimes, you just don’t want to take a risk by holding Bitcoin. You might not want to stay away from ETFs, trusts, and miners but still want to hold Bitcoin. In that case, you can simply shares of companies that hold a substantial amount of Bitcoin.
The value of the Bitcoin they hold is factored into their stock prices. When Bitcoin prices go up, so do their stock prices and you get a solid return on their investment. A bunch of publicly-traded companies bought Bitcoin to the tune of $3.19 billion this past summer. On February 8, electric carmaker Tesla announced that it had bought Bitcoin worth $1.5 billion.
On March 1, business intelligence provider MicroStrategy announced it had bought 90,859 Bitcoin for $2.19 billion. The Bitcoin that MicroStrategy bought in 2020 doubled in value to $4.4 billion by March 2021. However, you have to keep in mind that MicroStrategy incurred a debt of $1.6 billion to fund this Bitcoin purchase.
As of March 2021, payments-facilitator Square had bought Bitcoin worth $220 million. Square’s Cash App platform is seeing a lot of traction in its Bitcoin exchange and saw revenues of $4.57 billion.
Crypto lending house
A crypto lending house is a platform where you can deposit cryptocurrencies (assets) and take loans against them. One can also choose to lend out their cryptocurrencies and earn interest on them. A simple thing to do is to buy into crypto lending houses like Nexo and make money as it grows. Nexo is one of the world’s largest crypto lending institutions in the world that operates on two fronts: Credit lines and Earn interest income.
A credit line is simple. You can take a loan against their crypto-assets. Since the loan is secured against collateral that is stored with Nexo, it eliminates the need for credit checks. The Earn Interest income line is where Nexo customers can earn interest on their cryptocurrencies. Founded in 2017, Nexo has over a million clients and has processed over $4 billion in assets. Its Nexo tokens are a great way to own the company, and the tokens themselves have seen a return in excess of 700% since December 2020.
The reason why Nexo is so popular is that it eliminates the need for credit scores and lengthy processes to get loans. People with no financial history can get loans instantly through Nexo and its aim of disrupting the financial system one step at a time seems to be working well.
The bottom line
You can choose to enter the highly volatile cryptocurrency space by trading actively via an exchange or by investing passively via ETFs. Alternatively, you can also look to invest indirectly in companies such as Tesla and MicroStrategy.
However, you should understand investing in this asset class is a high-risk proposition given the lack of regulations and wild swings in prices. While institutional investors have entered the crypto space retail investors should invest capital that they can afford to lose.