Cryptocurrency

Cryptocurrency is an online-only digital currency that is decentralized. That means it is not backed, controlled, or regulated by a central bank, like the Canadian dollar is. You cannot physically carry crypto coins in your wallet, or keep them in a bank account. They are created, used, and stored online on a new kind of digital database called a blockchain. You can use cryptocurrency as a form of payment, a store of value, or you can buy crypto an investment.

Cryptocurrencies run on a distributed public ledger called a blockchain. The blockchain is spread across millions of computers around the world, and everyone can access it. It records and stores every crytpocurrency transaction ever made. Cryptocurrency transactions cannot be reversed, like traditional transactions through a bank, and you cannot alter the information stored on the blockchain either. You can use cryptocurrnecy in much the same way you use traditional money to buy goods or pay for services. You can also use cryptocurrency as an investment if you believe the value of a coin will increase in the future, or as a store of value if you believe your tradtional money may lose value in the future.

Yes, if you engage in crypto transactions you will need to pay tax on your cryptocurrency. If you simply buy and hold, it is unlikely you will need to pay tax until you dispose of your crypto. Cryptocurrency is considered an investment asset just like stocks, bonds, and mutual funds. Therefore, any gains you make on your crypto transactions are subject to capital gains tax or business income tax, depending on the situation. There are also tax implications anytime you exchange one crypto coin for another, use it to buy goods or services, use it to generate passive income like staking, or sell it back into fiat money like the Canadian dollar. If you actively trade your crypto, like a day trader, there will likely be business income tax implications. It is your responsability to track your crypto activity and report it to the Canada Revenue Agency (CRA).

Crypto mining is a term for the process some cryptocurrencies, like Bitcoin, use to create new coins. New coins are created when miners, computers and other hardware called nodes, verify, record, and store transaction data on the blockchain. Mining is used for Proof of Work (PoW) blockchain models in which miners compete to solve a complicated math equation. The miner who solves it first is the one to add the most recent verified block of transactions to the blockchain. When a new block of transaction data is verified and added, the miner is rewarded with newly minted coins and some of the fees cryptocurrency users pay when they transact on that blockchain. Miners are what create the network for a PoW blockchain, and are a critical part of keeping the network safe from hacks and other malicious attacks.

Crypto staking is like sending your cryptocurrency to work to earn passive income for you. It works by locking your crypto holdings up in a special wallet or on an exchange platform where you cannot access them for a certain amount of time. In return, you earn rewards while your crypto is locked up, usually in the form of more crypto. The rewards earned are a percentage of the crypto you stake; the more you stake the more you earn. On average, stakers earn about 5% returns per year on their crypto, but it can range anywhere from 5-20% depending on the coin, its value, and where you stake it. Not all cryptocurrency can be staked though. There are several cryptocurrencies that can be staked, the most popular being Ethereum 2.0, Cardano (ADA), Polkadot (DOT), and Terra (LUNA). The easiest way to stake your crypto is through an exchange platform that offers staking, such as NDAX.

The best place to buy crypto in Canada is through an online exchange platform, which requires you to have access to a device like a computer or smartphone. There are many excellent cryptocurrency exchange platforms in Canada, each with unique features, benefits, and drawbacks to consider. To find the best exchange platform for you, use our Cryptocurrency Exchange Comparison Tool to filter exchanges based on your needs and preferences. The comparison tool will then populate the best exchanges based on the information you provided. To select an exchange for your purchase, simply click in on it and you will be redirected to their webiste. Follow the prompts to singup, fund your account, and make your purchase.

In the traditional stock market, crashes are part of the normal business cycle. The same is true for the crypto market. Though, historically, crypto crashes are more frequent and severe. No one can predict the future of crypto, or any other market for that matter. Bitcoin and a few other top cryptocurrencies have recovered from past major crashes and gone on to acheive new all time highs during the most recent bullrun. Cryptocurrencies make up a new kind of asset class still in its infancy, which is why the crypto market is volitile and speculative. The market as a whole will likely continue to grow and evolve over time, although it’s impossible to know forsure. The real question is, which crypto projects will survive longterm and which ones won’t? No one has the answer to that question. However, you can still participate in the crypto market and reduce your risk at the same time by only investing what you can afford to lose, doing your research, and choosing projects that align with your risk tolerance.

You cannot buy cryptocurrency directly on Questrade. However, you can still invest in the cryptocurrency market indirectly on Questrade through the purchase of a cryptocurrency Exchange-Traded Fund (ETF). A crypto ETF tracks the performance of a single digital asset like Bitcoin, or multiple digital assets like Bitcoin and Ethereum together. However, when you purchase a crypto ETF you are not purchasing, nor do you own, any actual cryptocurrency. The investment company that manages the fund purchases, stores, and retains control of the digital asset. Your crypto ETF holdings repesent your share of the digital assets under managment. Crypto ETFs behave like any other ETF; you can buy or sell them anytime during open market hours, and keep them within registered accounts like an RRSP or TFSA.

In most cases, the Canada Revenue Agency (CRA) treats cryptocurrency like a commodity. If you simply buy and hold your crypto, it is very unlikely you will need to pay tax on it. However, if you engage in any cryptocurrency transactions that result in a gain, the CRA will tax it as either business income or a capital gain, depending on the nature of the transaction. Determining how your crypto transaction will be taxed is the tricky part with no hard and fast rules. The CRA will decided if your crypto activity generated business income or a capital gain on a case by cases basis, given the specific circumstances. However, here are some general rules to help you distinguish between the two: business activity is typically regular, repetitive, and continues over a period of time. Business activity can also be defined as crypto transactions carried out for a commercial purpose, business like in nature, intended to promote a good or service, or with the intention of generating a profit at some point. But it can also consider a one time trade as business activity if the intended purpose of the trade was to generate a profit. If you dispose of your crypto in a way that is not part of normal normal business activity and it results in a profit, it is generally considered a capital gain. You are considered to have disposed of your crypto if you sell it, use it to buy something, trade it for another crypto, or even give it away as a gift to someone. If your crypto gains are considered business income, you will be taxed according to the applicable business income tax laws. If your crypto gains are considered a capital gain, you’ll be taxed according to applicable capital gain tax law.

A crypto wallet is like the digital version of a real wallet that allows you to send, receive, and manage your digital assets. There are two different kinds of crypto wallets called hot wallets and cold wallets. Hot wallets are software applications that download to a device like a smartphone, computer, web-browser, or built into an exchange platform. A wallet is “hot” because it exists online where it remains connected to the internet. Cold wallets are other types of software programs or physical devices, many of which look like a mini USB drive. A wallet is “cold” because it disconnects completely from the internet altogether, and physical cold wallets can be stored elsewhere like a personal safe or safety deposit box. Crypto wallets do not actually store your digital assets, those remain forever on the blockchain. Digital wallets simply store the private keys to your digital assets. A private key is a long string of numbers and letters required to authorize the movent of your digital assets.

The crypto market is volatile and has experienced several major crashes of 50% or more since its inception. In addtion to that, double digit pullbacks followed by double digit surges are commonplace. The unpredicitability makes it hard to determine if crypto is a bubble, or experiencing “normal” market cycles unique to this space. As crypto evolves and matures, there are going to be growing pains. You can reduce your risk by sticking to an investing strategy that aligns with your risk tolerance.

Technically yes, you can short crypto like Bitcoin and other cryptocurrencies. Some crypto investors will short a digital asset if they have reason to believe the market price will go down in the future. To short crypto an investor borrows it from the exchange platform, then sells it at the current market price, and pays interest on the borrowed amount until it is returned to the exchange platform. When the market price of that cryptocurrency goes down, the investor buys it back at the new lower price, returns it to the exchange, and keeps the profit minus interest owed and applicable fees. This type of crypto trading is high risk because you cannot perfectly predict the market and digital assets are especially unpredictable. The price could defy your prediction and increase instead. When that happens, the investor must decide if they will wait for the price to come back down, and continue to pay interest in the meantime. Or buy the asset back, return it to the exchange, and take a loss. The size of the loss depends on how much the market price had increased at the time the investor bought the asset back; the higher the price, the bigger the loss. Canadian exchange platforms do not currently offer crypto short selling features to users. However, global exchanges like Binance, KuCoin, and Kraken allow you to short sell cryptocurrencies.

The most important thing to consider when looking for a cryptocurrency platform are the associated fees. This includes deposit fees, transaction fees (buying and selling), and in your case, withdrawal fees. Using our cryptocurrency exchange comparison tool, you can check “Withdrawal” in the left sidebar and you will get a list of platforms that offer this option. According to our comparison tool, BitBuy, NDAX and MyBTC.ca have the lowest fees and therefore give you the highest return. When you want to withdraw Bitcoins to put them on your Ledger key, the platforms usually charge a mining fee. This is not the case with MyBTC.ca: since it is a non-custodian, you must to your cryptocurrency in a wallet. As for selling your Bitcoins, it is the selling fees that will interest you. Among the most affordable are BitBuy and NDAX, with a fixed fee of 0.2% per transaction.