bitcoin Canada Guide 2024: Should I Buy bitcoin?

We’ve had hundreds of Canadians email us or comment, “Should I buy Bitcoin?” throughout the latter part of 2020, and it has only increased in 2021 as the Canadian Bitcoin ETFs have come online. 

The truth is that I’m not a Bitcoin (BTC) guy.  

Yes, I know what it is.  Yes I’ve heard Bitcoin enthusiasts tell me why I’m wrong. I know that it’s worth $1.2 Trillion or so at this point.

No, I still don’t want to buy bitcoin.  It could go to $1Million and I will still sleep soundly never owning a virtual shred of it…. but I am not as opposed to it as before.

Given the fact that banking heavyweights such as JP Morgan have advised their customers that allocating 1% of their assets to cryptocurrency is a sound move, and the number of techno wizards, there was no getting around the fact that there is an appetite for information on how to buy Bitcoin in Canada in the safest and cheapest way possible.

Before I fully embrace my non-existent inner Bitcoin fanboy for the rest of this article, I just want to point out that there are still MANY financial advisors and prominent investors who think Bitcoin is just the latest version of Dutch Tulips (here’s a great primer if you didn’t get the financial bubble reference).  Authorities such as Janet Yellen have persuasively argued that it will never become a medium of exchange, and every single country in the world has a strong economic incentive to make sure their fiat currencies stay paramount (while perhaps embracing the blockchain technology that cryptocurrencies are built on).

In spite of the above, many Canadians want to know more about bitcoin, have questions about how to buy bitcoin directly, or get exposure through Canadian Bitcoin ETFs, and maybe find the best ways to earn interest on their bitcoin.  (Yes, there is such a thing as a high-interest Bitcoin account – the interest rate you get is 8%+ , and they are completely legal.  It might be the one way I’d get in on BTC, I’m waiting for the sector to get a little more of a track record.)

Editor’s Note May 22, 2021, just after a crypto-crash week:  Man, are cryptocurrencies tough to write about!  I wrote this post over the course of several weeks as I chatted with several experienced crypto traders.  Just when I was ready to hit “publish” we see crypto go off a cliff and then rise from the dead in just a few days.  Just keep in mind as you read some of the “risks” about buying bitcoin below, that most of this article was written pre-China/Elon impacts.

It’s worth noting that as a general rule of thumb I don’t think one should attempt to time the market, and hence the bloodbath week of May 12-19 (in which some cryptocurrency assets dropped as much as 50%, only to appreciate significantly on May 20) does not really change my longterm views.

I wouldn’t not “buy the dip” in regards to my overall allocation of assets into BTC or other crypto, and I would not decide against buying bitcoin just because it dropped significantly – it’s a high risk, high volatility asset and those types of asset appreciate quickly and depreciate quickly.

What Is Bitcoin?

Bitcoin is either the perfect creation of the techno deities – that will one day rule us all – or it’s a semi-worthless piece of the internet that people just haven’t realized is worthless yet. 

The truth is that fully understanding Bitcoin is beyond the scope of this article.  There are some decent documentaries out there, and some great podcast episodes.  (I recommend this one with Preet Banerjee.)

A friend of mine describes Bitcoin as “Someone took a bunch of Super Mario coins… but said that there’s only so many of them, so now they’re more than your car.”  They’re not totally wrong.

Bitcoin is first and foremost the most well-known example of a digital or “crypto” currency.

Digital currencies are essentially computer programs that seek to become a means of exchange (like any other type of money). The theory goes, that if one day enough people believe in these digital currencies, and accept them as payment for goods, then at that point the currencies have a lot of value. 

The aforementioned theory generally stems from the idea of, “Well hey, what is any money really?  It’s simply the belief that you can use some sort of paper or small piece of inexpensive metal to buy whatever you need, and so therefore you will accept it as payment for your own time or possessions. If that’s true – and since we’ve now largely replaced the paper/metal part with credit cards and online transactions – why can’t digital currencies become a thing?”

The supporters of cryptocurrencies (some prominent examples of cryptocurrencies other than Bitcoin would be Etherium and Litecoin) would say that the ability of two parties to complete transactions without getting banks involved is a massive advantage when it comes to replacing our traditional system. In theory, Bitcoin cuts out much of the need for banks and banking fees.  

The bank’s role is semi-replaced by something called a digital ledger. The idea is that every time a transaction takes place that uses a digital currency it creates a “block” of information. This block is then inserted on a “chain” (hence the term “blockchain”) and is available for everyone to see (without seeing the details of the two people doing the transaction). This sort of public transparency is a type of guarantee against fraud and means that we can trace transactions for an infinite period of time. The digital ledger would exist on the cloud and once transactions were made, they could not be changed by any single person. The simple idea that authority over the entire system is decentralized is a feature, not a bug. 

Bitcoin vs bitcoin

Just to further confuse the situation, Bitcoin is different from bitcoin. 

No, that’s not a typo.

Bitcoin with a capital “B” is used to refer to the overall Bitcoin network – the entire digital infrastructure – while bitcoin with a “b” is used to refer to the actual bitcoin digital tokens that you can use as a not-really-functioning digital currency.

Where Does Bitcoin Come From?

Answer: Your computer, my computer, everyone’s computer.

The Bitcoin ecosystem was built in the late 2000’s by the legendary Satoshi Nakamoto. Who or what that entity is has been the topic of much speculation, and has become a part of Bitcoin folklore. To the best of my knowledge, no one has actually proven who this person or group of people actually is. The network is now maintained by thousands of people.

When the “God of Bitcoin” created their virtual gold, they only put so much of it in the digital ground. This scarcity is what most bitcoin buyers believe gives it its value. Your computer “finds” bitcoins by doing mathematical computations. About 19 million of the 21 million bitcoins that were created have now been mined. Before you fire up your laptop trying to get your hands on one of the last chunks, just realize that you’re computing with massive supercomputers from around the world and it’s probably not worth your effort.

Should I Invest In Bitcoin as Part of My Portfolio?

TL;DR: Bitcoin should NEVER be the backbone of your investment portfolio and I have yet to see any responsible financial advisor recommend more than a 5% allocation.

I want to be clear in saying that I do not have any Bitcoin investments in my portfolio.

That said, from my point of view there are two solid arguments in favour of investing in Bitcoin.

1) Bitcoin is a type of “digital gold”.  Even if it just sits there in your account and looks shiny, it will be a “hedge” against inflation and a possible counterbalance to stocks. (Even though it has moved more or less in correlation with stocks the last few years.)

2) It’s really fun to speculate on cryptocurrencies, and just like I might spend an amount equal to 1-2% of my investment portfolio on gambling or picking small-cap stocks, I’ll look at my Bitcoin portfolio not so much as an investment, but as a way to “place a bet” and have some fun – fully understanding that speculating on a digital currency horse race is not much different than speculating on an actual horse race.  

You’ll notice I don’t believe that Bitcoin is going to suddenly have value as an actual medium of exchange (what it was originally intended for). Up until very recently, I hadn’t seen any evidence that this was even close to being true. That said, a few anecdotal examples have recently caught my attention.

The most prominent recent news story about Bitcoin becoming more commonly accepted is Tesla of course, but the ones that standout more to me in terms of long term relevance are news stories about businesses in developing countries where inflation is running rampant. 

Admittedly, as a person who has thoroughly benefitted from Canadian privilege, I have a massive blind spot when it comes to the currency risk that people in developing countries have. As volatile as BTC is against world currencies such as the USD or Euro, it is arguably still considerably less volatile than many of the world’s most inflation-ravaged currencies. I’m definitely keeping an eye on these developments.

Is Bitcoin Becoming Institutionally Owned – and Why is it Exploding?

When bitcoin was in its early years, it was supposed to be the “everyman’s decentralized currency”. Most used for illegal deals on the darknet and highly speculative holding by a small subset of techies who believed that it was digital salvation.

As it has grown in value, Bitcoin became more mainstream among retail investors. Then the 2017/2018 Boom-and-Crash happened and chased away the vast majority (if not all) of the large institutional investors. The big hedge funds, investment banks, multinational corporations, and other large pools of money essentially swore off of cryptocurrencies.

Fast forward to 2021 and we have Tesla, the world’s most revered (or hyped) auto manufacturer that has decided to exchange 1.5 Billion Dollars of its cash assets into the digital currency. PayPal, the payments giant, has decided to incorporate Bitcoin buying and holding in its platform. Square, another payment giant, is also storing some of its reserves in Bitcoin. Even a BANK, and not just any bank – but America’s old bank (BNY Mellon) – has started offering a bitcoin service.

The kicker being JP Morgan, one of Bitcoin’s most vocal critics which was also once considered the “Bitcoin killer” has advised customers to shift up to 1% of their portfolios into Bitcoin.

As more and more of these institutional investors have decided that they want a small amount of exposure to Bitcoin, the demand for the scarce digital resource has obviously shot through the roof. I am very interested to see what corporate boards and shareholders decide to do with their allocation the next time Bitcoin loses 60%+ of its value in a couple weeks. For now, there is no question that the feedback cycle of institutional demand – generates huge positive press headlines – which spurs more retail speculation – drives the price even higher – thus reinforcing the institutional FOMO, has some powerful momentum.

How to Buy Bitcoin in Canada Safely: Paypal and Crypto Exchanges

So the easiest way to buy bitcoin in Canada is probably going to be through PayPal when it enables it sometime in 2021 (but perhaps as a limited rollout at the beginning).

That said, if it’s anything like Paypal’s other ventures, it will definitely not be the cheapest way to buy Bitcoin in Canada – with predicted fees in the neighborhood of 5%+.

The two other main places where Canadians can buy Bitcoin directly would be cryptocurrency trading platforms, and online exchanges.  Each of these platforms can be easily funded through a basic Interac e-Transfer.

The best rate that you’re going to find is at online Bitcoin exchanges such as Coinbase.  If you’ve never heard of Coinbase, it’s the largest cryptocurrency exchange in the USA, and it is available for Canadians to use. It boasts over 56 million users, and recently went public. The company is now worth $67 Billion – or roughly the same as the Bank of Montreal (BMO), one of Canada’s top banks, for comparison sake.

If you want to go with one of the well known cryptocurrency trading platforms like Wealthsimple Crypto or MogoCrypto, you should be prepared to pay some hefty fees.

Buying bitcoin and other cryptocurrencies with CoinSmart

Our #1 selection for buying bitcoin in Canada would have to be CoinSmart. It has an incredible UI which is easy to understand and execute even for newcomers, it offers a variety of cryptucrrencies (10+ at the time of writing), offers a same-day via INTERAC E-TRANSFER (with 0% fees for transfers of >CA$2,000), and offers a cold wallet functionality for its users. Needless to say it is FINTRAC regulated.

Withdrawal fees from the platform carry a 1% fee which is pretty standard in this industry and each trade within the platform costs 0.2% to 0.4% (depending whether the base currency is bitcoin or not), which is overall pretty good.

Tip of the day would be to avoid buying bitcoin through CoinSmart using a debit or credit card because the fees can be immense (up to 6%). That’s the only real vice we could find in CoinSmart, other than the fact it is not as large and as recognizable as the American exchanges.

What Is a Bitcoin or Crypto High Interest Savings Account?

Even as a Bitcoin sceptic, I had to do a double take when I heard about Block Fi’s 8.6% Interest Account (BIA).  Yes – that’s an 8.6% annual interest rate vs the 1.4% you’re going to get at Canada’s best high interest savings account.

It sounded a bit too good to be true, but after listening to three episodes of the Animal Spirits podcast (hosted by solid investing veterans who are famous for their love of index funds and boring investing strategy) where they interviewed a fellow form Block Fi – I have to admit that I’m interested.  If you’re going to take the risk of owning a cryptocurrency, I don’t see how this regulated lending component adds much additional risk – but it sure does add some juicy returns!

There are some competitors out there, but basically Block Fi is the most well known and well regulated from what I can tell.

Essentially, the company can pay these huge amounts of interest because there are so many people wanting to borrow cryptocurrency on the other side of the ledger for various financial reasons (shorting, market arbitrage, etc) – so they will pay a premium for it.

Of course my first question was, “Is Block Fi safe?”

The short answer is… probably.

The crypto interest account space is still relatively new, and it is not as well regulated as the CIPC-backed high interest savings account options in Canada.  

That said, Block Fi will hold your underlying cryptocurrency in well-known custodian accounts at Gemini.  Gemini is a New York-based company that is regulated by the New York State Department of Financial Services and is SOC 2 Type 1 security compliant.  The company is owned by several high-profile startup funds such as those managed by Peter Thiel, and has nearly 500,000 clients.  Block Fi states that they have never lost any customer funds or been hacked in any way, shape, or form.  

Look, I’m not jumping in with both feet here, but to be able to take advantage of this evolving market by getting an 8.6% interest rate… there is no denying that’s enticing.  When you compare it to the market leading 1.25% available at Canada’s best online banks (check out our EQ Bank savings account review for more details) it’s hard not to salivate a little.  Just remember that risk and return are always correlated in some manner!

BitCoin Cryptocurrency ETFs in Canada

While Paypal might soon be the easiest way to own Bitcoin direct, and Coinbase might be the cheapest way to buy bitcoin, there is now a much cheaper and easier way to get Bitcoin exposure in your investing portfolio: Canada’s Bitcoin ETFs.

The first Bitcoin ETF in the world was the Purpose Bitcoin Fund (BTCC), and despite its 1% MER fee, it has collected well over $1 Billion assets under management in just two months.

BTCC’s direct competitor – Evolve Fund Group’s Bitcoin ETF (EBIT) – launched a day later and has an MER of 0.75%, and is also easily traded.

A third Bitcoin ETF – the CI Galaxy Bitcoin ETF (BTCX.B) – recently launched as well, and has an even lower MER of 0.40%.  Many more applications are in the cryptocurrency ETF pipeline.

In addition to not needing to understand what a “cold wallet” is or any of the other nuances around how to directly buy bitcoins in Canada, Bitcoin ETFs can be held in an RRSP or TFSA (making them much more tax friendly than directly holding the assets).  

From everything I’ve read, the companies behind these ETFs all state that they directly own Bitcoin through the Gemini Trust company (which acts as a custodian).  This structure should reliably track the price movements of BTC, and it appears that the market has faith in the product to do so.

If you want to buy a Canadian Bitcoin ETF, simply open up a discount brokerage account and then search those ticker symbols on the TSX in order to get instant bitcoin exposure (for better or for worse).

Bitcoin Taxes in Canada

One of the bigger surprises that Canadians who buy and sell bitcoin run into is that the government is fully involved – just as they would be with any other asset class.

For some reason there is this myth out there that cryptocurrencies have somehow transcended government control, and are not subject to the same taxes as you would be liable for if you bought and sold gold for instance.

The truth is that if you are trading Bitcoin in Canada you are going to owe capital gains taxes on the difference between what you purchased your bitcoins for and what you got when you sold them. The only exception to this would be using a Bitcoin ETF in a TFSA or RRSP.  

If you used a Block Fi account to gain interest in your Bitcoin, then that is 100% taxable, just as any other form of interest income would be in Canada.

If you accept bitcoins as payment for a normal business service, then you’ll need to convert the value to Canadian dollars at the time of transaction in order to record and report official revenues to the CRA. Here is the official CRA guide on crypto and taxes.

Other Cryptocurrencies Worth Exploring – Ethereum, Ripple, Litecoin

You might see many internet forums pumping the latest cryptocurrency fad (anyone else seeing a lot of Dogecoin ads these days?) but by far the second biggest cryptocurrency is Ethereum (ETH) which has some interesting technological features.

My understanding this is quite limited – but the fact this currency includes “smart contracts” which indicate future transactions based on whether certain conditions – are met makes it a good candidate to replace traditional financial contracts. The company was once considered a leader in innovating the underlying blockchain technology, but with so many other companies now competing for that title, the original advantage might be dissipating.

There is a lot of development based on Ethereum, and in terms of performance, it has closely tracked bitcoin. So if you have decided to build a small cryptocurrency egg nest, you may as well go and buy some ETH. Canada recently released the world’s first Ethereum ETFs (or at least the first to directly hold Ether tokens). 

ETHR and ETHX are both quick ways to diversify into Ethereum. Other known cryptocurrencies include the Ripple (XRP) is used mostly for payments and has partnerships with credit cards and banks, but I am not sure I would consider it before the SEC lawsuit issue is cleared.

Frequently Asked Questions About Bitcoin In Canada

Final Verdict – Should I Invest in Bitcoin?

Bitcoin may go as some of its supporters adamantly claim, but I still favor basic index investing through all-in-one ETFs, Canada’s robo advisors, or Canadian dividend stocks.

Before ultimately making the decision on buying bitcoin or not, just please understand one thing:

At this point in time you are using your money to speculate on what will happen.  You are looking at the names of horses at a horse race, reading the flyer that the racetrack gave you, and betting on a winner.  

You are NOT investing.  You are speculating.

Speculating can be very fun and very profitable – but it’s not investing. 

Oh – and in this horse race, it’s entirely possible that every horse could win, but if history is any indicator, it’s much more probable that every horse will lose.