The hype around Bitcoin trading has certainly died down since its meteoric price rise in 2017. But the story of Bitcoin is still being written, and a new trading platform just might be the key to gaining more attention (and trust) from Canadian investors.
Bitcoin is a digital currency or online version of money that is stored in a digital wallet (on a computer or mobile app). This “cryptocurrency” is the first peer-to-peer payment network powered by its users rather than a central authority or middle-person (like a bank). A public ledger, or blockchain, records every single transaction between users.
More than just a medium of exchange, however, Bitcoin is also hyped as an investment. It’s by far the largest and most popular cryptocurrency in the world and, amazingly, investors have already been trading Bitcoin for more than 10 years. At the height of its popularity in 2017, one Bitcoin was worth $19,783 (USD). Today, the price of a Bitcoin hovers around $12,000 (USD).
Bitcoins are “mined” by using computer power to solve a complex cryptographic problem. Successful miners receive a “block reward” or a predetermined number of Bitcoin. There is a finite supply of 21,000,000 Bitcoins that can be mined – and today there are more than 18 million Bitcoins in circulation. That gives Bitcoin a market cap of more than $221 billion (USD), or roughly the same size as companies like Netflix, Bank of America, and Disney. It is estimated that the final Bitcoin will be mined in 2140.
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You can store your Bitcoin on an exchange, or digital marketplace, where you can buy or sell Bitcoins using government currencies (CAD, USD, etc.) or other alt-coins. Popular cryptocurrency exchanges include CoinBase Pro, Gemini, and Binance.
Since cryptocurrency and exchanges are largely unregulated, they are prime targets for hackers. In 2019, 12 exchanges were hacked, including Binance – which lost 7,000 Bitcoins worth $40 million.
Instead of using an exchange, you can store your Bitcoin(s) in a wallet. A “hot” wallet essentially stores your Bitcoin online, making it easier to transact but also more susceptible to being hacked.
A cold wallet stores your Bitcoin offline. In basic terms, it’s a computer with an operating system and Bitcoin wallet, but that is not connected to the internet. This is obviously a more secure, but less convenient solution.
How to Start Bitcoin Trading in Canada
Bitcoin is heavily traded as an investment, with an average of $25 billion worth of Bitcoin traded each day. During the height of the Coronavirus crisis in March, nearly $75 billion worth of Bitcoin was traded in a single day.
As discussed, you can trade Bitcoin with other users on an exchange. There are no fees to sign up and hold Bitcoin on exchanges like CoinBase Pro. Instead, exchanges make money on trading fees – up to 0.50% on each order (known as a spread fee), plus an additional fee that can equal up to 1.49% of the trade.
Investors can buy one whole Bitcoin, but with the price above $10,000, it’s more common for crypto traders to buy fractions of one Bitcoin.
I opened a Wealthsimple Crypto account, funded it with $100, and bought Bitcoin to see what the process was like. Here’s how to trade Bitcoin in Canada:
- Open a Wealthsimple Crypto account: You must initially join a waitlist, but Wealthsimple Crypto has been slowly released to users starting in August 2020. Wealthsimple Crypto is available on iOS and Android through the Wealthsimple Trade app.
- Fund your Wealthsimple Crypto account: Add money to your account through a linked bank account to make your first trade. Note that once you make a deposit your funds won’t be ready to trade for five business days.
- Buy Bitcoin in your Wealthsimple Crypto account: Once your deposit has cleared you can start trading Bitcoin. Select “Bitcoin,” tap the “buy” button, and enter the dollar amount you want to buy.
My $100 purchase bought a whopping 0.006210 worth of Bitcoin.
Crypto bought through Wealthsimple is held in trust and stored in a cold wallet at Gemini, a regulated cryptocurrency custodian. Bitcoin (and Ethereum) must be bought and sold within Wealthsimple Crytpo.
Why You Should Trade Bitcoin
As a die-hard index investor, it was difficult to even add $100 worth of play money to something as speculative as Bitcoin. But even I’ll admit it’s hard not to get caught up in the hype surrounding cryptocurrency and Bitcoin in particular.
Whether you call it a store of value (like gold), a medium of exchange (like fiat currency), or a purely speculative investment, there’s no denying that Bitcoin has captured the attention of investors and we’re just at the beginning of its story.
At its peak popularity in 2017, the price of one Bitcoin increased from $909 to nearly $20,000. The highly speculative investment then proceeded to fall to around $3,100 just one year later. Still, if you held onto your investment from January 2017 to December 2018 you would have still seen price appreciation of 240%.
We’re still in the early stages of Bitcoin and other cryptocurrencies. Investing in Bitcoin may provide investors with a coveted “uncorrelated” asset to diversify their stock and bond portfolios.
There’s a scarcity factor since there are only so many Bitcoins that can be mined. That alone can increase the price over time. Finally, there’s the idea of widespread adoption of cryptocurrency as an alternative to fiat or government currency. If that idea ever takes off, Bitcoin is certainly at the forefront as the most popular cryptocurrency.
Is Bitcoin Trading Worth It?
Is Bitcoin trading right for you? It may be if used an alternative asset class like gold, which is a store of value that can be highly speculative and often performs well during volatile markets.
Bitcoin can be traded frequently by day traders and the like, who enjoy trading investments that can gyrate up and down unexpectedly. But, if you’re the type of investor who is passionate about Bitcoin, and cryptocurrency in general, then consider dedicating 5-10% of your portfolio to Bitcoin and hold on for dear life.