A Saskatchewan condo corporation has purchased thousands of dollars worth of bitcoin in hopes of eventually eliminating fees for residents, but experts say such cryptocurrency investments come with risks.
Regina-based Thornton Place Condominium Corp. announced Wednesday that it recently bought 0.4 bitcoin for $25,000 through cryptocurrency platform Kraken and has allocated $700 per month for future purchases of the cryptocurrency.
The investment made by the corporation behind a 32-unit building on Smith Street amounts to about five per cent of its reserves and six per cent of its monthly operating fund contributions.
With the value of Bitcoin rising from about $7,000 per coin to roughly $70,000 over the last year, the model may seem tempting to copy, but experts believe condo corporations should think twice because cryptocurrency can be risky.
“The price is really prone to wild variation and I’m sure that the condo association is investing in hopes that the price will go way up. but volatile assets can just as easily go down in value,” said Lisa Kramer, a finance professor at the University of Toronto.
Tannis Waugh, a lawyer who specializes in real estate, was also “appalled” by the announcement.
“The purpose of a reserve fund is supposed to be a safety net for future repairs and it’s not a high-risk investment vehicle, so that is cause for quite a significant amount of concern,” Waugh said.
“It may end up being a very lucrative investment for them, but if it goes awry, and that’s the concern here, then board members are going to have the answer to that.”
Thornton Place’s decision to invest in Bitcoin was inspired by building resident and former board member Eric Miller, said condo board treasurer Howard Ulmer.
Miller has been involved in personal cryptocurrency investments for several years and has been increasingly integrating into his law practice, but felt the corporation could benefit from potential bitcoin gains, so he made a pitch.
“When I held my first initial meeting with them, they wanted to open the account that day,” recalled Miller, a lawyer with Clarke Johnston Estabrooks and Miller Law Office.
“It took almost no convincing…once they were reassured that it would be legal.”
Saskatchewan condo corporations, Miller said, are permitted to make investments that are permissible under the Trustee Act, which requires investments to be both reasonable and prudent.
Ontario, British Columbia and Alberta, however, restrict condos from investing in anything that isn’t insured, doesn’t have a guaranteed return or isn’t backed by the federal or provincial governments, he said.
The Thornton Place board was well aware of restrictions in other provinces and risks like the ones Kramer outlined, but Ulmer said it felt Bitcoin’s present conditions made an investment in the cryptocurrency “reasonably secure.”
“There’s always volatility in the markets, but when you look long term, usually this type of investment will be suitable,” he said.
To protect residents, Ulmer and Miller said the board was careful to only invest a small portion of funds and to use a cryptocurrency service following all of Canada’s regulations.
Thornton Place took direct physical custody of the bitcoin, rather than opting for a custodial service or exchange-traded fund with a management fee, they said.
“They’re actually maintaining physical custody themselves, but if somebody happens to forget the password or if somebody steals it, there are risks associated with that,” said Kramer.
She pointed to recent Mt. Gox and Quadriga incidents as warnings.
Mt. Gox was a Tokyo-based bitcoin exchange that went bankrupt after the man heading it was arrested and found guilty of manipulating electronic data.
The Quadriga cryptocurrency exchange was embroiled in trouble when millions of dollars in investments disappeared just as its Canadian founder died. It was later called a “fraud” and Ponzi scheme by the Ontario Securities Commission.
While Thornton Place only made news of its investment public Wednesday, Ulmer said residents were told sooner and he’s yet to hear complaints.
“We’ve not received anything negative from them that I’m aware of,” he said, noting that he has heard several favourable comments.
“Certainly there’s always questions like are we going to lose money, but we’re not anticipating that to happen.”