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Canadians – like the rest of the world – are cleaning up the Bitcoin market. Cryptocurrency popularity has risen to the point that Bitcoin ATMs are popping up all over Ontario, British Columbia, Alberta, and other provinces; Bitcoin traders are doing so well that the government even issued guidance on paying taxes on Bitcoin profits.
Those eager to get in on the next big move in Bitcoin’s price should know what Bitcoin is, the good and the bad, where to trade it, and how Bitcoin trading in Canada differs from the United States.
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What is Bitcoin?
Bitcoin reigns as the king of cryptocurrencies. As the first cryptocurrency, Bitcoin earned its place as #1.
Cryptocurrencies are virtual currencies traded online through peer-to-peer transactions. Blockchain technology makes these transactions possible. Blockchains are electronic ledgers provided to each buyer and seller of Bitcoin or other cryptocurrencies. Exchanges of Bitcoin for cash are recorded on the blockchain. Users have control over their own ledgers. This differs from government currencies, also known as fiat currencies, where central banks control the ledger.
Bitcoin appeared in 2009, in the wake of the worldwide financial crisis. Due to the crisis, mistrust of central banks grew rife with investors and average consumers alike. This, of course, propelled Bitcoin’s rise. The cryptocurrency is purported to have been developed by Satoshi Nakamoto – though Nakamoto is not a real person. The name is a pseudonym representative of a number of individuals or entities. Who the actual developers are remains largely unknown.
Pros of trading Bitcoin
The largest attraction to Bitcoin investment arises from huge speculative gains. Stories abound about Bitcoin millionaires and billionaires, who in a short span of time turned modest investments into fortunes. Bitcoin’s run up exceeds even the headiest gains of the tech stock and real estate booms.
In July 2010, after Bitcoin’s first price surge, you could buy Bitcoin for $0.08. Those who did turned that 8 cents into nearly $9,000 by March 2018. In the intervening 8 years, opportunities have abounded to buy Bitcoin and enjoy percentage gains in the hundreds and thousands in just months, weeks, days, and sometimes hours.
Bitcoin also offers anonymity. Central authorities can’t trace Bitcoin transactions. In an age where many have privacy concerns, especially with financial transactions, this can be a huge plus. But, they aren’t completely anonymous. The transactions are public on the blockchain. Someone with time and motivation may be able to be trace transactions using public key information and IP addresses.
It also provides a hedge against currency devaluation. For example, in the wake of Venezuela’s currency collapse, many Venezuelans have traded in their Bolivars for Bitcoin to prevent further loss in value. It’s also pretty easy to acquire. It can be purchased from any smartphone or computer without any special technical skills.
Cons of trading Bitcoin
The large price swings pose the danger of severe speculative losses. Though over its existence Bitcoin’s trend has remained upwards, experts warn investors against buying Bitcoin with money they cannot afford to lose.
Hackers have also breached centralized cryptocurrency exchanges, robbing cryptocurrency holders who have no recourse. For this reason, experts recommend holding cryptocurrencies in a digital wallet like the Ledger Nano X.
Buying and trading Bitcoin in Canada
In Canada, you buy it just like you would anywhere else – via an online cryptocurrency exchange like Wealthsimple.
The easiest way to invest by using to an to an online cryptocurrency exchange. First, you’ll have open a digital wallet. Be careful with this wallet like you would with your actual wallet – make sure information is being put in a secure space. Do a little research before you open a digital wallet.
Once you have a digital wallet, you’re ready to buy Bitcoin via a brokerage. You’ll have to open cryptocurrency brokerage account. Once you set up your account, you’ll need to choose a payment method. Most platforms will allow you to buy currency with debit and credit cards. Then, you’ll be ready to buy or trade Bitcoin. You can check out Benzinga’s best cryptocurrency brokers to find the right one for you.
For investors who wish to avoid holding the asset itself can buy Bitcoin derivatives. These are available on major exchanges, such as the Chicago Mercantile Exchange and Nadex. This may be attractive to those who like access to traditional market data, security, and crave regulated exchanges with stricter rules.
How is buying and trading Bitcoin in Canada different than in the United States?
The main difference is how it’s taxed. The U.S. Government considers Bitcoin an investment. That means U.S. taxpayers must report all Bitcoin profits or losses on their tax returns. Canadians also must report Bitcoin income on their taxes, but the picture is slightly different.
The Canadian Government requires taxes be paid only on the first half of the capital gains; however, Canadians that trade heavily need to beware. If the government considers a trader to be engaged in a Bitcoin trading business, they must pay tax on all Bitcoin gains.
It may seem obvious, but make sure you are aware of the conversion rate from BTC to CAD. This information may be available on your trading platform, but it may be handy to have an online conversion calculator as well.
What platforms can I use to trade Bitcoin in Canada?
Before you jump into opening an account on any Bitcoin or cryptocurrency platform, make sure to do your research. If a broker or platform promises something sounds too good to be true, it probably is.
With the explosion of the cryptocurrency, and particularly Bitcoin, over the last few years, you might want in on the excitement. This has held true for beginning investors and seasoned traders.
If you’re in Canada – it’s no different. You’re able to buy and trade the same platforms as the rest of the world; you just file your taxes a little differently.
Frequently Asked Questions
What are the risks of trading Bitcoin?
Bitcoin is volatile, and new government regulation could pose a threat to fiat off-ramps.
What are the benefits of trading Bitcoin?
Bitcoin offers substantial gains, decentralization and protects against fiat inflation.