How Can I Buy Cryptocurrency In Canada?

Buying any cryptocurrency like bitcoin, ether or dogecoin is easy. One needs to create an account with any exchange like Coinbase or Binance. Money can be added digitally in this account, which is used to purchase cryptocurrencies. But before trading in cryptocurrencies, it is important to have some basic knowledge regarding this highly popular investment option.

Not all trades in cryptocurrencies lead to profits. One can mint a lot of money, but losses also occur. Despite its volatile nature, many are trading cryptos to make quick bucks. Today, let’s discuss frequently asked questions on cryptocurrencies.

Question: How can I get cryptocurrency?

Answer: There are multiple ways of investing. The most common way is to use the services of any crypto exchange. Not one or two, there are nearly a dozen exchanges where Canadians can trade digital currencies.

Coinbase is by far the most popular crypto exchange. Based in the US, the company is listed on Nasdaq under symbol ‘COIN’. The cryptocurrency, Dogecoin, made popular by Elon Musk, surged nearly 20 per cent when Coinbase recently listed it on its exchange. This is popularly referred to as the ‘Coinbase Effect’.

Creating an account is simple. Any Canadian resident over the age of 18 years can use a government-issued photo ID to do so.

Coinbase services can be used to trade bitcoin, ether, cardano, dogecoin, litecoin and many other cryptocurrencies. For all purchases and sales over Coinbase, about 0.50 per cent spread is charged.

Another major crypto exchange available to Canadians is Binance. It supports purchase of digital currencies using Canadian dollar. Other popular crypto exchanges in Canada are CoinSmart, Bitbuy, and Coinsquare. The user interface and transaction fee vary from exchange to exchange.

Exchange traded funds (ETFs) can also be used to invest in cryptocurrencies. Canada has both bitcoin and ether ETFs. These funds trade on traditional market exchange, and investors can buy stake in them without, skipping the crypto exchange route like Coinbase altogether. ETFs track movement in prices of underlying digital currency, and investors make profit if price of digital currency surges. Purpose Investments launched the world’s first bitcoin ETF in Canada in February.

Question: Are cryptocurrency wallets different than exchanges?

Answer: One can either store the digital currency bought on the same exchange or withdraw and store it in a crypto wallet. A couple of months back, some crypto exchanges in Turkey suddenly went out of business. All crypto holdings of users got stuck. To mitigate such risks, one can choose to avail the services of any cryptocurrency wallet.

Crypto wallets can be hot or cold depending on their features. Hot wallet is connected to the internet and can make the stored digital currency vulnerable to online hacks. By contrast, cold wallets are physical wallets like USB device. Cold wallets are comparatively safer but expensive than hot wallets. Trust wallet is a popular hot wallet, while Ledger Nano, Trezor, and Exodus are some popular cold wallets.

Question: Which is the best cryptocurrency to buy?

Source: Pixabay

Answer: It depends. Bitcoin is the most popular, but it is not always the most profitable for investors. In April 2021, bitcoin surged to all-time high of US$64,895. It has since lost nearly 40 per cent of its market cap.

All cryptocurrencies are underpinned by blockchain technology, and different cryptos use this tech in a different manner. For example, Theta is a video delivery network where users can watch music videos or movies and earn tokens at the same time. Users can also share their spare bandwidth with one another. Theta network’s cryptocurrency is named Theta token. This token can rise or fall depending on how people react to Theta’s blockchain tech. Similarly, ethereum’s currency, ether, depends on acceptance of the ethereum blockchain.

Dogecoin, which started as a meme on wild swings in the rally of cryptocurrencies, can be used on ethereum blockchain.

Recently, Samsung confirmed they will use Theta’s blockchain to provide video streaming services to users of its smartphones. Wider endorsement of any blockchain tech can lift prices of its allied cryptocurrency.

Question: What are the rules surrounding cryptocurrencies in Canada?

Answer: Neither bitcoin nor any other cryptocurrency is legal tender in Canada. However, trading digital currencies is not considered illegal. The Canada Revenue Agency (CRA) treats them as commodity. Any person who earns profit on their trade has to show it as business profit or capital gain. Disposition of any cryptocurrency holding attracts tax. Other than trade, even activities like crypto mining and operating crypto exchanges are also considered as cryptocurrency business for the purpose of income tax. Any profit or loss arising from these activities has to be reported to the CRA.

The CRA also mandates that any person acquiring a digital currency or disposing it must maintain records. These records must be preserved for at least six years from the year when they attracted tax provisions.

Trading in cryptos is both legal as well as easy for Canadians. A digital currency can be bought over an exchange using wire transfer or credit/ debit card. Picking the right cryptocurrency is equally important. At times, lesser-known cryptocurrencies can also return good profits. Keeping a record of all trades in digital assets is important for CRA reporting. To keep crypto holdings safe, one can always keep them in a hot or cold wallet.

A Word of Caution

Just like company shares or any other investment instrument, cryptocurrency trading can be risky. The value of holdings can swing any way depending on investors’ sentiments. One has to exercise extreme caution while trading in these highly speculative assets.