How to Invest in Cryptocurrency in Canada

There’s no denying that cryptocurrency is everywhere. But do you know how to begin investing in crypto in Canada? It isn’t just about trading coins on a cryptocurrency platform.

The mainstream media and crypto

Sure, there’s barely any article without the mention of cryptocurrency in mainstream media. It is a source of wealth that can’t be ignored anymore. In fact everyone wants a piece of the cryptocurrency market: trillion-dollar companies, financial institutions, economies, and retail investors all want access. The utility and evolution that cryptocurrencies bring are revolutionary not only for Canada but the entire world.

Today, anyone with a smartphone and an internet connection can access cryptocurrency exchanges, online brokers or robo-advisors, each of which give ordinary investors access to the market. However, we need to highlight the fact that, unlike traditional financial systems that are hundreds of years old, cryptocurrency as an asset is a teenager. Most top cryptocurrencies were released in the last two to three years. So there’s a lot of room to grow and improve, and we have yet to see the final stage.

Getting clear information

Since they’re still very new, most crypto projects’ efforts go toward producing scalable, interoperable, and sustainable products at the protocol level. This is why we don’t see many user-friendly options from cryptocurrencies because a lot of their technology is still experimental. As a result, cryptocurrencies can be quite difficult to understand. Whether you want to buy or sell cryptocurrencies, stake them, or even store them in a safe place, it’s imperative that you go through technical articles like this one to get the gist of things.

The cryptocurrency ecosystem is a complex space. Before you dive into the industry, you must learn its ins and outs. This is why we’ve compiled this extensive, beginner-friendly, easy-to-read article where you can learn all about cryptocurrencies, how they work, and how you as a Canadian citizen can invest in crypto.

What are cryptocurrencies?

Cryptocurrency is a decentralized peer-to-peer (p2p) digital currency. The secure cryptographic algorithms make it almost impossible to counterfeit or double spend. Cryptocurrencies are decentralized because they exist on something called blockchain technology. Blockchain is a decentralized distributed ledger that is immutable, transparent, and very fast.

Cryptocurrency versus fiat

Cryptocurrencies operate similar to fiat currencies. For those who don’t know, fiat currencies are government-issued currencies that are backed by the government that issued it. Fiat currencies are centralized. They are controled by a central bank. Our Canadian Dollar is a fiat currency, the US Dollar is a fiat currency, the Japanese Yen is a fiat currency, to name a few. A lot of factors play into what values our currencies, such as inflation, supply, purchasing power, investments, exports, imports, and more.

Cryptocurrencies also share some of the same factors as fiat. Their value is based on macroeconomic and microeconomic factors, supply, purchasing power, investments, and more. Another similarity of cryptocurrencies with government-issued currencies are that they can be exchanged for goods and services and other currencies.

What is decentralized currency?

Today there are over 17,000 unique, different stablecoins and altcoins, each with their own features, advantages, disadvantages, and values. The defining feature of a cryptocurrency is that unlike government-issued currencies, they’re decentralized, meaning they aren’t issued by any centralized institution, authority, or government. This means cryptocurrencies are above government enforcements, which is why they’re so hard to regulate.

What was the reason behind creating cryptocurrencies?

Originally, cryptocurrency was a hedge against future economic crises like that of 2008. Inflation is a big problem in various parts of the world, especially now because of the pandemic hitting supply chains and various parts of the economy.  Governments manipulate interest rates to devalue or inflate currencies.  These governments and central banks have centralized control over money and have always printed or minted it, controlled its distribution, and ensured transactions were legitimate and valid.

However, that the same centralization has led to the unbanking of 2.2 billion people in the world. They aren’t allowed to have something as simple as a bank account or get a loan from the bank. It hardly seems fair.

As metionned, cryptocurrencies are decentralized. There is no central governing authority controlling its supply, determining its value and distributions, or controlling the governance. Instead, it’s decentralized. Everyone on the network has a say in how the cryptocurrency operates.

Decentralization is what makes cryptocurrency so revolutionary. They break all sorts of barriers and make financial instruments transparent, faster, more trustworthy, and accessible. It is all thanks to blockchain technology.

What is a blockchain?

Blockchain is the core technology that allows cryptocurrencies to be what they are today. At its core, a blockchain is a distributed database that stores and records every crypto transaction on the network. It eliminates the need for a centralized institution to verify transactions.

Today, the blockchain powers an array of diverse sectors such as cryptocurrencies, the metaverse, games, logistics, to name a few. Blockchain’s reign over multiple sectors is deeply rooted in its ability to decentralize everything. By making everything transparent, immutable, secure, and accessible, the blockchain has undoubtedly opened up a lot of doors.

Everything right now, including our financial systems, games, media, and other sectors, are centralized. This means that a few major entities, companies, or institutions dictate how the end-users navigate the ecosystem or use their products. Whether it’s banking, trading, or even something as simple as financing, a lot of gatekeeping happens, and fortunately enough, blockchain technology changes that.

To help you understand how Blockchain technology works, let’s break it down into three simple sections.

Blockchain is a digitally distributed ledger

A ledger is a record of financial transactions. In the case of cryptocurrencies, blockchain technology serves as a ledger. Fundamentally, blockchains are distributed collections of documents secured cryptographically and chained to each other. However, in the case of cryptocurrencies, these documents store every cryptocurrency transaction that takes place on the network for the public to see.

Blockchains are a chain of blocks

Blockchains, as the name suggests, are a chain of blocks. Each block has a certain storage capacity, and when filled, it’s closed, encrypted, and chained to the previous block. All transactions that take place on the network are first verified by the network and then aggregated to the block.

What is a hash?

For a simpler analogy, each block is basically a page on the ledger. Except in the case of blockchains, each block has a unique digital fingerprint called a hash. Now what’s interesting about hashes is that they’re very dynamic and sensitive to change. So, whenever you manipulate or alter the data on a block, you automatically change its hash.  Which is why  they’re so extremely difficult to alter.

If in five years you try to change a block’s data, you’d automatically change that block’s hash. The network will kick you out. That is why blocks in a blockchain are immutable. No one can modify, change, or tamper with any data on the network.

Interestingly, these hashes also play a pivotal role in chaining blocks. When a block is filled and aggregated to the blockchain, its final hash is recorded on the next block. That creates a strong interconnected network.

These unique digital fingerprints ensure that everything on the block is accurate and unaltered. It eliminates middlemen or central authorities to do any sort of verification. Instead, verification is done in a decentralized manner on the blockchain thanks to its consensus mechanism. There are several types of consensus mechanisms, namely: The Proof of Work Consensus Mechanism (PoW) and the Proof of Stake Consensus Mechanism (PoS).

Proof of Work and Proof of Stake protocols

PoW was the original verification protocol that was found in early cryptocurrency projects like Bitcoin, Ethereum, and Litecoin. It involves a verification process called mining, where users on the network solve computationally complex cryptographic puzzles to verify transactions on the network and add them to the blockchain.

As a reward, users get newly generated cryptocurrencies for their work. The PoW was great. However, it wasn’t sustainable or scalable because of the dynamic difficulty of the cryptographic puzzles. It became quite computationally expensive for average users. Today, mining is so computationally expensive that it requires thousands of special computers called ASICs to solve these puzzles and verify transactions on the blockchain network. Fun fact: Bitcoin mining uses the same amount of energy as the whole of Ireland.

Proof of Stake protocol was introduced to address the shortcoming of PoW. Today, the PoS protocol is found in most cryptocurrencies. It involves a verification process called staking, where users on the network stake some amount of their cryptocurrencies, and verify blocks on the network and add them to the blockchain. The PoS protocol is much better, moreefficient, and cheaper than the Proof of Work protocol. It’s being utilized by some of the best cryptocurrencies in the market such as Ethereum 2.0, Cardano, and Solana.

Blockchains are the key to decentralization

Remember when we said blockchains’ reign over various sectors is deeply rooted in its ability to decentralize everything?Well, that’s true since no central authority controls the data on the blockchain network. Instead, everything is based on a peer-to-peer network, meaning there’s no central computer with exclusive power to tamper with the transactions. There’s no way to shut down the blockchain, which is why it’s so difficult to ban cryptocurrencies.

Blockchain’s ability to always stay online has revolutionized how we perceive financial products, trading, and more. For example, to invest in the stock market, you have to wait till the markets open and trade until the markets close. That’s not the case with blockchain-based digital currencies. Instead, you can trade, buy, sell, and invest any time of the day, month, or year. And that’s not all; the decentralization that blockchain technology offers has trickled its way into a revolution of decentralized games, decentralized apps (dapps), and even decentralized finance(DeFi).

How to invest in cryptocurrency in Canada

Now that we understand blockchain technology and how cryptocurrencies work, we can move on to investing. However, before you invest in cryptocurrencies, you need to familiarize yourself with the risks. Cryptocurrencies are fairly recent assets, and most projects aren’t even a decade old. Moreover, it’s highly volatile. What’s trending today won’t be trending tomorrow, so it’s important to always do your own research and invest responsibly.

Investing in cryptocurrencies has become easier than ever. If you have a smartphone and an internet connection, you’re all set to go. Here’s how you can get started.

Pick an exchange

Most cryptocurrency investments take place on exchanges. Cryptocurrency exchanges come in multiple shapes and forms, and it’s where investors buy, sell, and trade crypto. A cryptocurrency exchange works just like the stock exchange; however, it’s digital, accessible, and doesn’t shut down.

There are hundreds of exchanges out there, each providing its own set of services, fees, and rates. Investors can choose to buy cryptocurrencies from an array of diverse cryptocurrency exchanges, whether they’re centralized or decentralized. Before you invest in your coin of choice, you need to pick an exchange. And before you pick an exchange, here’s what you should be looking for.

Security

Security should be your number one priority. The cryptocurrency space is notorious for being a hunting ground for hackers and scammers. Innocent and unaware users have lost millions of dollars to theft, which is why we advise you to tread carefully and prioritize security over anything else. When picking your exchange, ensure it uses the best technology, cryptography, and security policies to protect its users’ investments and data. Check how many of the exchange’s assets are kept offline, have they been audited, and how many times it has been hacked.

Fees

There are many exchanges in the market, each unique to its name, features, rates, and fees. As a result, investors may have to pay some amount or percentage in fees for various services such as trading, withdrawing, and more. You don’t have to be worried because these fees can be pretty low; however, that statement may not be true depending on where you live.

Customer service

If you’re buying cryptocurrencies for the first time, you may want to pick a crypto exchange that has support, like 24/7 customer service and an excellent track record for answering questions. You also want to make sure that there is technical support on call. You don’t want to be locked out of your account and have to wait hours or days for technical help.

Supported cryptocurrencies

Finally, there are about 17,000 unique cryptocurrencies in the market. While a majority of them might be irrelevant, it’s important that you pick an exchange that supports an extensive list of tokens. Most exchanges support a select few of the top cryptocurrencies, so it’s important you find yourself an exchange that won’t let you miss out on the next big project.

Investing in cryptocurrency

Once you’ve selected your preferred exchange, you’ll need to connect it to a payment method, such as your bank account, credit card, or debit card. Not every exchange in Canada accepts credit cards. Before buying some cryptocurrencies, make sure you’ve checked out their fees. For example, some exchanges charge lower fees for bank account transactions in contrast to debit card transactions.

After you’re set-up your payment method, you can start placing your orders. The exchange platform you use can limit the order types you can use. There are many different order types including market and limited orders, stop-loss, stop-limit, take-profit, and take-profit limit orders.

Keep your cryptocurrency safe

After choosing your favorite exchange and buying some cryptocurrencies, you need to ensure your assets are safe. Although most exchanges offer the option of storing your crypto with them, you should consider getting a crypto wallet for extra security, especially if you have large amounts of crypto. You should get wallets that support the coin you are buying: there are Ethereum wallets and Bitcoin wallets. The crypto space is a full of hackers and scammers alike, so protection is important.

How do cryptocurrencies work?

Now that we’ve covered the technology behind cryptocurrencies let’s talk about how cryptocurrencies work in the real world. Cryptocurrencies offer an endless list of opportunities and utilities to the people of the world. Whether it’s games, non fungible tokens (NFT), or just money, cryptocurrencies are revolutionary. They make a lot of things possible that were once deemed impossible because of the over-centralization of our institutions.

To help you understand how the cryptocurrency ecosystem works, we’ve broken it down into different parts to make it easier for you to grasp.

Buying and selling cryptocurrencies take place on crypto exchanges.

As previously mentioned, crypto exchanges operate very similarly to stock exchanges. However, they’re easier to access and open all the time. A crypto exchange is basically a digital platform where you exchange your CAD for crypto or, more likely, exchange one asset for the other.

While there are ways you can buy cryptocurrencies using your credit card, Paypal account, or even an automated teller machine (ATM), these methods aren’t accessible in most countries, which is why you’ll see investors flocking to exchanges to buy, sell, or trade cryptocurrencies.

There are centralized, decentralized, and hybrid exchanges. Each type of exchange has its own range of features, supported assets, and operations, which we will be discussing later in the article.

Here are some of the best crypto exchanges in Canada.

• Bitbuy
• WealthSimple
• Coinbase
• NDAX
• VirgoCX

Centralized exchanges (CEX)

Centralized exchanges are the most similar to traditional stock exchanges. You invest in assets on your CEX by placing an order for certain crypto, and the exchange finds a seller to match your order. After you buy your assets, you pay the CEX some percentage in trading fees, depending on the CEX, and they store your assets on their exchange or their cold wallet, depending on the asset and the amount of asset you hold. We explain wallets later on in this article.

The biggest issue with CEX is that they’re centralized, as the name suggests. And for most crypto purists, that pretty much defeats the whole purpose of cryptocurrencies. Not only can security be a problem, but it also opens you up to potential cyber attacks. When investing in CEXs, you have to share your personal information and identification with them. This could be a risk. And historically, some of the largest crypto hacks have happened on centralized exchanges.

However, there’s no denying that CEXs are convenient if you’re willing to ignore the centralization. Instead of looking for a buyer or a seller yourself, the CEXs do a lot of heavy lifting to find you good rates and keep track of everything. Despite the security dilemma of centralized exchanges, there are some exchanges that are extremely secure and insured. Gemini, Robinhood, and Coinbase are some of the largest and most popular centralized exchanges in the crypto space.

Decentralized exchanges (DEX)

As the name suggests, a decentralized crypto exchange has no middlemen. It’s simply a platform where buyers and sellers can exchange crypto directly. What’s special about DEXs is that investors don’t have to give out private information to third parties or entrust the platform to set them up with orders. In contrast to CEXs, DEX users pay a lot less in fees and retain complete privacy.

However, DEXs still have their shortcomings, despite being decentralized and cheaper than CEXs. CEXs provide a lot of utility and convenience to users by finding a buyer or seller; however, in DEXs, you do that all on your own, which can be quite time-consuming. There aren’t many options for liquidating your assets, which can affect the long term.

Interestingly, some DEXs have developed a workaround by introducing Automated Market Makers and Liquidity Pools. However, these concepts can be quite complex and inconvenient for the average user.

Hybrid exchanges

Hybrid exchanges improve on the shortcomings of CEXs and DEXs by amalgamating the speed, convenience, and efficiency of a CEX with the security and privacy of a DEX. As a result, you can have complete control over your assets on a hybrid exchange, and buy, sell, or trade them fairly quickly. While hybrid exchanges aren’t that popular, many crypto purists and enthusiasts see them as the future of crypto exchanges.

Investing in crypto ETF

Cryptocurrencies are still very young and experimental, which is why they’re so volatile. Compared to the millennia-old government-issued currencies and the age-old gold market, cryptocurrencies are a little over a decade old. Due to the high volatility, investors and traders still think that cryptocurrencies are a risky investment.

Moreover, besides the decentralized and unregulated nature of cryptocurrencies, owning one requires in-depth knowledge of how the technology works. You need to know a bunch of things such as staking, wallets, private and public keys, mining, trading, etc. Additionally, buying cryptocurrencies on your own exposes you to potential hack and scam risks. Not only that but investors also need to work out how to file taxes for each of their crypto sales and purchases.

And if investors don’t know how to do those things, they need to dive into the crypto rabbit hole and dissect everything by themselves. The crypto space can be complex for those who don’t have the time or energy to learn each and everything. It can be intimidating for newcomers because of the constantly changing protocols, products, and mechanisms.

The crypto ETF advantage

That is why financial institutions introduced crypto exchange-traded funds (ETFs). Crypto ETFs are investment vehicles that represent the value of its underlying asset. These crypto ETFs can be then traded on traditional stock exchanges, and their value corresponds to the underlying asset’s price. ETFs allow investors to utilize trusted and experienced parties, in this case online brokers and robo-advisors, to handle their assets and not deal with diving deep into the space.

What’s special about ETFs is that it could provide a safer environment for investors who are very risk-averse by enabling a safe space for investors. What’s more, is that investing in crypto ETFs also enables investors to leverage crypto prices without having to deal with buying or selling any of them. Lastly, financial authorities regulate ETFs in Canada.

Storing and protecting your assets

In the crypto ecosystem, investors store and protect their assets in a crypto wallet. A crypto wallet is an interface that users  use to safely store, transfer, and spend their assets. The wallet does a bunch of cool things. It provides deals with private keys and public keys. A wallet provides an interactive user interface to monitor your balance, send money, and conduct other operations.

A crypto wallet works similarly to a bank account that stores your fiat currency. However, they’re decentralized and extremely accessible, unlike banks. A crypto wallet serves as the main interface for your cryptocurrencies. A Crypto wallet comes in many shapes and forms, each unique to its features, advantages, and disadvantages.

There are three categories of wallets

A crypto wallet comes in one of three categories. Each has unique features, advantages, and disadvantages.

• Hardware wallet
• Software Wallet
• Exchange wallet

A hardware wallet, popularly known as a cold wallet, is the most secure option because you can disconnect it from the internet. However, both software wallets and exchange wallets provide more utility and convenience than hardware wallets.

To understand how wallets store your assets and keep them protected, we need to understand the basic components of a cryptocurrency. A cryptocurrency is the main utility token of its blockchain network. It powers everything on the network, whether it’s smart contracts, dapps, or transactions.

What to know about public and private keys

Every cryptocurrency has keys that give a user access to a specific token. A key is a collection of encrypted characters. The collection links to both a private and public key. Every cryptocurrency has a public and a private key. The public key enables users to receive transactions from other network users, whereas the private key enables users to unlock the transaction and obtain access to the token.

Now private keys are important because they enable users to verify ownership of their tokens and access the assets associated with their public addresses. And you can lose access to your assets if someone hacks your private keys. Since blockchain transactions are irreversible, there is no way to recover your assets.

Wallets store and protect your public and private keys. For a simpler analogy, your public key is your bank account number, and your private key is your personal identification number (PIN).  When you say you own cryptocurrencies, you’re basically saying that you have the private key to prove the crypto is yours. Anyone on the blockchain can look at the crypto’s public key and verify that you’re the owner.

Here’s a breakdown of some of the most common types of wallets used.

Mobile wallets

Mobile wallets, which are perhaps the most popular choice, are smartphone applications that allow you to access your cryptocurrency from any mobile device. They’re very popular because of their convenience. You can use them to buy things with your crypto.

Online wallets

Online wallets are the popular wallet option. They store your crypto in a cloud, which you can then access from any device. While online wallets may be very convenient, you might be opening yourself up to some risks by exposing your assets online.

Desktop wallets

Desktop wallets, as opposed to online wallets, store cryptocurrency on your computer. They aren’t as convenient as mobile or online wallets because you cannot acess your crypto on-the-go.

Hardware wallets

In contrast to software wallets, hardware wallets keep a private key on an external drive, allowing investors to access their cryptocurrency from a variety of devices. Because hardware wallets fully disconnect from the internet, they can help investors protect their funds from hackers. Therefore, when dealing with large quantities of cryptocurrency, investors may want to consider purchasing a hardware wallet.

Do we really need a crypto wallet?

During the early days of cryptocurrency, investors needed a crypto wallet since exchanges were more susceptible to hacking. Things are a lot more secure now. Wallets are a good option for investors who want more protection or who want to spend cryptocurrency at retail outlets. In addition, if they own a large amount of cryptocurrency, then a crypto wallet is the safest option to keep them protected.

Using crypto as a means of payment in Canada

Let’s not forget the whole point of cryptocurrency being a currency that can replace or work in parallel with normal currencies. In the past, buying things with cryptocurrencies was a hassle. However, now that cryptocurrency is more mainstream, you can easily use it as a means of payment for various goods and services.

Crypto cards

Crypto debit cards or crypto cards are all the rage nowadays. You can get one on Crypto.com or from Shakepay. They’re perhaps the simplest way to spend crypto. There are two types of crypto cards: prepaid and debit.

As the name suggests, a prepaid card is where you pre-pay or load your card with funds. It is reloadable. To load your prepaid card, you must convert your crypto to CAD, which can become a hassle if it becomes a routine, not to mention the hefty fees that come with exchanging.

On the other hand, debit crypto cards are much better because you don’t need to load or pre-pay funds into your card. The card links to a crypto wallet. If the retail store accepts the debit crypto card, you can use it at the point-of-sale. You don’t need to go through the hassles of converting your CAD because it happens on the spot. However, the problem with crypto debit cards is that there aren’t many options in Canada.

Retailers that accept cryptocurrency

Cryptocurrencies have become more accessible than ever as more merchants, businesses, and companies start to accept them as a means of payment. There’s a rising number of businesses that accept cryptocurrencies as is without converting them to CAD.

Payment processors that accept crypto

An increasing number of point-of-sale companies are beginning to accept cryptocurrencies as a valid means of payment. In addition, business Titans like Shopify, Square, and even Stripe are starting to integrate crypto into their payment processors, opening the door for crypto mass adoption.

How many cryptocurrencies are there?

There are over 17,000 unique cryptocurrencies in the market. Popular names are  Bitcoin, Ethereum, Tether, Binance Coin, and USD Coin. There are also altcoins like Doge and now metaverse coins like MANA and Decentraland. More and more coins are coming onto the market.

Are there any risks in cryptocurrency investing?

Like any investment, crypto has the potential to help investors make a lot of money; however, with one big turn, you could lose a lot of money in a very short time. Not only that, but cryptocurrencies are still very risky. They’re fairly nascent, and governments are still working on regulating the space. You can never really tell what will happen to the crypto space in the future.

So, before we jump on the crypto bandwagon, we need to consider the following risks.

Volatility

Volatility in the market is always going to be undesirable. You can never predict where the market will go, whether you invest in stocks, bonds, or cryptocurrencies. However, cryptocurrencies are highly volatile and magnifies this danger.

There are a lot of reasons why cryptocurrencies are so volatile. However, one major reason is that they’re still very new and experimental. Cryptocurrencies have yet to reach their full potential.

Because the crypto market is so volatile, it’s extremely susceptible to fear, greed, and speculation from investors. Look at what happened in 2021. Increased regulation, Elon Musk tweets, Chinese interference, and attention from mainstream media wiped off trillions of dollars in a few weeks. Crypto enthusiasts expect this volatility to die down in the next decade; however, there’s no telling what’s going to happen next in the crypto market.

Security

As an investor, you should also be concerned with security. As mentioned multiple times in this article, the crypto market serves as the feeding ground for scammers and hackers. Although exchanges and wallets have become highly secure over the years, the threat of losing your assets to scammers and hackers still lingers.

Illiquidity

Illiquidity, or the inability to sell an investment promptly at a reasonable price, was a major concern for cryptocurrency investors at first. However, the increasing development of exchanges, credit cards, and regulations has made it easier to cash out or trade cryptocurrency these days. While it may be true for major cryptocurrencies, it’s the opposite for lesser-known ones. Therefore, before investing in a new currency, investors should always consider the risk of not selling the coins at their desired price.

Insolvency

Again, because cryptocurrencies are still relatively new, no one knows which project will become a “blue chip”. Some will eventually go away. Many anticipate that cryptocurrency will see its own “dotcom” bubble burst, resulting in a reduction in the number of cryptocurrencies.

Regulation

Finally, many countries are completely clueless when it comes to cryptocurrency. The Canadian government has deemed cryptocurrencies a commodity instead of an official form of money issued by the country’s government. That said, the Canadian government will still collect taxes on the proceeds of trading cryptocurrencies.

On the other hand, any regulation news may hurt the cryptocurrency market. For example, when a government, such as China, orders banks to stop accepting cryptocurrency as a form of valid money, cryptocurrency investors start to sell off their holdings. The market reflects this. That is why the crypto market drops with each regulatory notifications release. Consequently, regardless of how Canada regulates cryptocurrency, regulations in other countries can still have an impact on the value of crypto investments.

Cryptocurrency and taxes

Canadian tax authorities categorize cryptocurrency transactions as taxable revenue. It is either business revenue or capital gains, according to the Canada Revenue Agency (CRA). There is no tax levied on people merely owning cryptocurrency.

However, if you mine or trade crypto as a company, the entire amount of capital gains is taxable at the prescribe tax rate. On the other hand, if an investor does it as a minor hobby, their personal marginal tax rate applies to only half of the capital gain. If the CRA looks at your transactions and decides that you are operating a business, they will tax you as such.

If you are unsure about how the government classifies your cryptocurrency transactions, reach out to a tax professional. It is better to have a professional assist you in understanding the tax responsibilities associated with cryptocurrency rather than paying fines later on. Hardbacon offers this material for educational purposes and it is not tax advice. Please speak with a tax expert about tax information your specific circumstances.

Should you invest in cryptocurrencies?

Hardbacon wants to help Canadians make better personal financial decisions but we do not recommend any one thing. Return of a currency will be zero over the long term. We believe that investing in cryptocurrencies has the potential to open up a whole new universe of possibilities. However, it is not without its dangers. Crypto is not a get-rich-quick-scheme. If you treat it as like one, you can lose money.

Investors have to be aware of- and willing to accept the dangers related to cryptocurrency. It can be a valuable asset in a well-diversified investment portfolio. As long as investors dedicate the appropriate amount of their capital to currency, based on their risk tolerance, they can gain significantly from investing in cryptocurrency. At the very least, by diversifying their holdings in other assets, investors reduce the likelihood that they would lose their entire investment if the cryptocurrency market crashes.

Finally, for those who are new to cryptocurrency investing, we propose that they start gradually. Learn as much as you can about how cryptocurrencies work before making a little investment over time. Additionally, for individuals who are new to investing, we always urge that they educate themselves on investing tactics before diving into a very complex investment like cryptocurrencies. Compared to cryptocurrency investments, investing in more established categories such as stocks, ETFs, or mutual funds may provide greater transparency, previous investment performance, and risk disclosures, as opposed to cryptocurrency investments.

FAQs about investing in crypto in Canada

What is a cryptocurrency?

Cryptocurrencies are decentralized peer-to-peer digital currencies. Cryptographic algorithms secure them. These algorithms make it almost impossible to counterfeit or double spend. Cryptocurrencies are decentralized because they use blockchain technology; a decentralized distributed ledger that is immutable, transparent, and very fast; more on that later.

Cryptocurrencies operate similar to government-backed currencies. Cryptocurrency’s value is based on macroeconomic and microeconomic factors, supply, purchasing power, investments, and more. Cryptocurrencies are like government-issued currencies in you can exchange them for goods and services and other currencies.

How many cryptocurrencies exist?

Currently there are over 17,000 cryptocurrencies in the world.

How do you buy cryptocurrency?

There are three types of exchanges: centralized, decentralized, and hybrid exchanges. Each different type of exchange has its own range of features, supported assets, and operations. You can compare Canadian crypto exchanges on features such as coins, fees, and funding options.

Are cryptocurrencies taxed in Canada?

Canadian tax authorities categorize cryptocurrency transactions as either business revenue or capital gains, according to the Canada Revenue Agency (CRA). There is no tax levied on people merely owning cryptocurrency.

Is cryptocurrency regulated in Canada?

The Canadian government has deemed cryptocurrencies a commodity instead of an official form of money issued by the country’s government. That said, the Canadian government will still collect taxes on the proceeds of trading cryptocurrencies. There is a movement to regulate cryptocurrency exchanges. Regardless of how Canada regulates cryptocurrency, regulations in other countries can still have an impact on the value of crypto investments.