Bitcoin for Canadians: Where to buy it – and the taxes you’ll pay
Bitcoin continued its gravity-defying trajectory on Wednesday, breaking through the C$16,000 mark.
The skyrocketing rise of the cryptocurrency this year, and particularly over the past few weeks, has prompted comparisons to the dot-com bubble of the late 1990s and the tulip bulb craze of the early 17th century, both textbook cases of booms that went bust, leaving many in financial ruin.
Indeed, “Bitcoin should not be seen an investment, it’s speculation,” Andreas Park, professor of finance at the University of Toronto, told Global News.
Still, if you have a few extra dollars to spare – money you can lose with no consequence – where do you go to buy Bitcoin and other digital currencies?
The web is full of Bitcoin spams, and there’s precious little out there about where Canadians, specifically, can find and trade digital tokens. Global News spoke to cryptocurrency experts to prepare a brief primer for Canucks.
Where to buy it
“Vancouver’s QuadrigaCX.com is likely the country’s largest exchange for Bitcoin,” said James Kupka, communications director at Decentral, a Toronto-based cryptocurrency company founded by Anthony Diiorio, who used to be chief digital officer at the TMX Group and the Toronto Stock Exchange.
There’s also Toronto’s Coinsquare.io. Both require users to set up an account, with an on-boarding process similar to that required by traditional online investing platforms. At a minimum, you’ll need an email address and ID.
Both exchanges accept e-transfers and bank wires for funding and withdrawal, among other options. Unfortunately, though, neither accepts credit cards.
For that, many turn to San Francisco-based Coinbase, which also allows Canadians to use their debit cards. However, as of September, Coinbase stopped supporting the conversion of digital currency into Canadian dollars, according to its website.
You can also buy and sell Bitcoin and other cryptocurrencies by trading directly with other users.
“To buy his first Bitcoin in 2012, […] Diiorio used the localbitcoins.com website to find and meet up with a person looking to sell theirs,” Kupka recalled. “They traded at a rate of $9.74 per 1 Bitcoin.”
That rate is about 1,600 per cent higher today.
A third way to get your hands on digital money is Bitcoin ATMs. Most major Canadian cities have a few, and a simple Google Map will reveal the closest one to you.
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Yes, you can buy only a few dollars’ worth of Bitcoin
One Bitcoin can be split into up to 100 million bits, so you don’t have to purchase $16,000 of it. The smallest unit is called satoshi after Bitcoin’s mysterious founder, Satoshi Nakamoto. It is currently worth $0.00016.
There are a couple of catches, though. One is that exchanges often require a minimum funding transfer of $100. The other is that Bitcoin transactions often come with steep fees (more on that below).
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If you aren’t holding Bitcoin simply through an exchange, you’ll need a digital wallet. Available in app or desktop format, a virtual currency wallet will create a digital address through which you can send or receive money. It works a lot like email, except that you’ll need a new address for every transaction.
Processing wait times and fees
Every Bitcoin transaction must be registered on the blockchain, a shared public ledger. This is what allows for the existence of a digital currency in the first place. Before blockchain, everything digital could be duplicated. Now, it’s possible to keep track of who owns what and when digital assets change hands.
But the necessity to confirm every transaction creates backlogs, with wait times of 10 minutes on average. It’s also why Bitcoin transactions often aren’t free.
Bitcoin depends on people and entities called miners that use an enormous computing power to maintain the network. Miners confirm transactions by including them in a new block on the blockchain and while they are rewarded with a set amount of new bitcoins for their labour, they also generally demand a processing fee.
“Miners get to pick which transactions they want to verify first and tend to pick the ones that are paying them the highest fees,” said Park.
The average fee, which not long ago was US$7, currently sits at around US$60, he added.
How to track prices
For tracking cryptocurrency prices, “Coinmarketcap.com certainly is the largest cryptomarket tracking website out there,” said Kupka.
However, he added, “I personally prefer Coinlib for its portfolio features that makes it easier for me to track market changes of the blockchain projects I care most about.”
What you can buy with it
On top of that, transaction fees often make small payments uneconomical with Bitcoin, according to Park.
Your virtual money is not insured
Federal and provincial deposit insurance doesn’t extend to cryptocurrencies.
If the wallet provider or exchange that holds your money goes bankrupt, you are likely on your own.
Keep in mind that virtual currency exchanges have also been the victim of high-profile hacks leading to millions of dollars worth of virtual money stolen.
Think Bitcoin is beyond the reach of the Canada Revenue Agency? Think again.
“Using digital currency does not exempt taxpayers from Canadian tax obligations,” the agency told Global News.
But which taxes apply depends on how you’re using Bitcoin or other digital currencies.
If you’re using your virtual tokens to pay for goods and services, the rules for barter transactions apply.
If, like most people, you’re treating Bitcoin more like gold – buying it for the purpose of selling it at a later date for a profit – you’ll have to declare any capital gains or losses on your tax return.
The CRA also pointed to this fact sheet on digital currencies for more information.
© 2017 Global News, a division of Corus Entertainment Inc.