Buying the Dip? Crypto for Canadians (beginner friendly)
Updated: Nov 14, 2022
It hasn't exactly been rosy for crypto investors the past few weeks. Coming from optimistic predictions from 2021 that bitcoin will reach $100k, the tables quickly turned in January 2022 when Bitcoin prices plummeted. However, uncertainty and fear in the market can also mean a bargain buying opportunity for you. Today, I will be covering why you might want to invest in crypto, the future outlook for crypto, and investing strategies for crypto.
Reasons for Investing in Crypto
In the current economy, where you might be worried about recession and inflation eating away your savings, why should you even consider investing in something as volatile as crypto?
Diversification
For one thing, according to the Global and Mail, many Canadians are sitting on excess savings - $300 billion in fact. If you are in this position, too much excess cash just sitting around won't do too much for you other than being eaten away by inflation. One way to use your excess savings is to invest and have your money working for you.
One thing I've known and have confirmed in this current sideways market is the importance of diversification. I don't believe anyone should invest in just one type of asset, such as just real estate or just stocks. If the market for that particular asset plummets, then you are left in the dust with no other options and may be forced to liquidate and realize losses if you have no other choice. Instead, I like to diversify my investments across real estate, stocks, and last but not least, crypto. This is in addition to having a healthy emergency fund and investments in my business.
Higher Risk = Higher Reward
With every investment, there is a risk to reward ratio - and higher risk can result in higher rewards. It can also result in higher losses. On the other hand, low-risk investments may be safer, but you will never become wealthy from not taking any risk. That is how I see crypto, an investment that has potential for explosive growth but you also need to stomach 50%+ drops. It's important to not realize your losses simply because of the volatility or because you need the cash. If you have conviction in the technology and are diversified in other assets with cash to spare, your patience may be rewarded.
While there is a risk that crypto can lose all of its value, I don't believe crypto will suddenly disappear overnight. The global market cap for crypto is currently $1.2 Trillion as of May 29th. According to Earthweb, there are currently 300 million people using crypto worldwide, and 46 million Americans who have invested in Bitcoin. That being said, no other investment has come close to the returns you can get on crypto. Let's do a quick comparison across the three commonly known asset classes: real estate, stocks, and crypto across a 5 year time period.
Real Estate - Canadian market
According to the Canadian Real Estate Association, the composite home prices in 2017 were around $500k and are now currently around $900k, up around 80%. This is a great return where you almost doubled your initial investment. Though keep in mind that in order to buy real estate property, you also need to start off with a large amount of money for the deposit, which not everyone can necessarily afford.
Stock Market - Nasdaq 100 Index
Let's use one of the best performing indexes, the Nasdaq 100. In the past 5 years, the return has been 116% - not too bad for a recent 25% drop from its all-time peak. If we take into consideration the return from the peak, it would have been around 182%. It hasn't exactly been a smooth roller coaster for the stock market index, but you can see that over time, the market has shown to recover, providing you with positive returns.
Crypto - Bitcoin
Now for crypto, we will be referring to the price of Bitcoin, as some like to refer as the Digital gold, in the past 5 years. Even with the price of Bitcoin being down more than 50% from the peak, the 5 year return has been a whopping 839%. When it was at its peak, the return was almost 2000%! That is more than 10x return of the Nasdaq 100.
As you can see, if the asset is higher risk, such as being subject to a greater drop in price, there are also significantly higher returns during a bull market. It all depends on your risk appetite and what investment portfolio is right for you.
Direction of the Future
We are at a critical pivot point in where the world is going. There are talks about Web3, unimaginable leaps in technology, and globalization accelerated by the Pandemic. Not to mention the shift in the dynamic of the population, with more baby boomers born between 1946 and 1965 retiring, and more Millennials and Gen Z generations who are born after 1981 taking a greater stake in today's economy and politics.
According to CNBC,83% of millennial millionaires have the bulk of their wealth in crypto and are planning to add more in 2022 despite the recent price declines. Contrastingly, only 4% of baby boomers hold any crypto. As CNBC stated:
The results suggest that crypto is creating a vast generational schism in investing and wealth creation. While older generations of millionaires are still largely skeptical of crypto and its future, cryptocurrencies have become the primary source of wealth creation and asset growth for many younger investors who got in early and have seen rapid returns...With so many millennials and Gen Z investors becoming millionaires from the crypto economy, it’s likely to remain central to their investing in the coming years. That’s created a new dilemma for wealth management firms. Most of the existing business of private banks, wealth management firms and advisors comes from wealthier older clients who don’t want crypto and its associated risks in their portfolio or products. Yet their future relies on the next generation clients — who are demanding crypto products and advice.
To me, this signals a couple of things. For one, there are going to be a growing number of institutional investors, which means that crypto will become more integrated into our current financial system, creating greater demand for crypto. For your entertainment, here are a couple of outlooks of crypto out 50 years, as covered by CNBC:
“Central bank authorities are busy developing regulations on cryptocurrency. They recognize that digital currencies are native to the digital economy and, as such, are on their way to becoming mainstream in the next 10 years.”
Ivory Johnson, certified financial planner and founder of Delancey Wealth Management
“Cryptocurrencies will disrupt traditional finance because one of their most attractive utilities is the ability to efficiently transfer payment across borders with little to no cost, delay or foreign currency fluctuations. With respect to bitcoin, 50 years is a long time and bitcoin could either become the world reserve currency or the next AOL that made a lot of people wealthy until it was unseated by better technology.”
Tips for investing in Crypto
Before we dive into some investing strategies for crypto, I want to thank today's sponsor, VirgoCX, Canada's trusted cryptocurrency trading platform. What drew me to VirgoCX is, right off the bat, the low fees. I wanted the flexibility to easily fund my account, transfer my crypto for no fee, and have instant liquidity if I want to sell my crypto for Canadian dollars.
Virgo is transparent about its fees in that there is no fee to deposit or withdraw Canadian dollars, to deposit cryptos, and to withdraw most cryptos. You can see here that all the major cryptos such as Bitcoin, Ethereum, Link, Cardano, Matic, Dot, don't have a withdrawal fees. I've had the case of paying high withdrawal fees in the past, so this was definitely something I valued.
If you are new to crypto and want to start investing, setting up an account and funding an account with VirgoCX was super easy. I think it took me less than 10 minutes. If you want to get started, feel free to use my link HERE so that you can get $30! $10 for just signing up and an additional $20 if you fund your account with $100. *LIMITED TIME GET $60 UNTIL JUNE 17TH IF YOU SIGN UP*
Now let's jump into some crypto investing tips:
Tip #1 - Invest what you can afford to lose
The number one rule before we move forward is to only invest what you can afford to lose. It's still in the early stages of development and the crypto market has shown to be volatile. Make sure to prioritize saving up for an emergency fund and paying off high-interest loans, before you dive into crypto. That being said, if you want to experiment and dip your toes into the world of crypto investing, put in as little as $100 and keep tabs on the crypto market until you become more knowledgeable about cryptos and ready to take the next step in growing your crypto portfolio.
Tip #2 - Diversify and Go with Reputable Cryptos
There are currently over 10,000 different cryptocurrencies on coinmarketcap and the numbers continue to increase. While we have heard of some small-time, unknown crypto suddenly shooting out of nowhere, making 10,000 times returns - this is highly speculative and not unlike gambling. There have been many crypto projects that have launched and failed in the past. According to Coinopsy, there have been over 2,400 dead crypto coins. As with any investment, whether it comes to investing in new businesses, stocks, or crypto, you need to be able to choose the good apples from the bad ones.
Some key factors to take into consideration is how established the crypto is via longevity and market cap. For example, Bitcoin has been around the longest and was launched in 2009. It currently holds the largest market cap for crypto of $561 billion, which is almost half of the entire crypto market cap of $1.2 Trillion.
I usually like to stick with a few from the top 10 to 20 cryptos based on market cap, as you can see here, which reduces the risk of investing in certain small-time cryptos that become irrelevant over-time. So when it comes to investing in crypto, I don't need a trading platform that offers hundreds or thousands of cryptos, but just stick to the larger and well-known ones. That being said, VirgoCX has more than 60 cryptos on its platform, which is one of the largest selections of cryptos offered in Canada.
Of course, it is also important to do your own research and to believe in the projects that the crypto is invested in and its functionality. There are a lot of resources that explain what cryptos are out there and their applications - but if you want me to make a video breaking them down, let me know in the comment section below!
Tip #3 - Security is Key
When you buy a digital currency, it's subject to all the benefits and risks of being online. Like real money, you would need to store crypto in what is called a wallet. You want to make sure your wallet is safe and secure so you don't risk being hacked and losing all your crypto.
There are two types of wallets: hot and cold wallets. Hot wallets are when they are connected to the online world and you can make trades. Cold wallets are offline and can be stored in a hardware wallet, which is something you need to purchase separately and can range from around $100 to $300. While cold wallets are more secure, you are also responsible for keeping your password safe and run the risk of physically losing it.
There are also custodial wallets, which are organized by third-party institutions, and non-custodial wallets where you need to maintain it yourself. That means if you lose the private key to your non-custodial wallet, you can lose access to your crypto. If you are new to crypto and not tech-savvy, it might be more convenient to go with custodial wallets since if you lose your password, you can recover it.
I'm someone who forgets passwords all the time, so I want the convenience of a custodial wallet, and have instant access to my cryptos to make trades and transfers. In this case, you want to go with a trusted crypto trading platform such as VirgoCX. They take security seriously by only keeping a small amount of crypto on the platform and keeping the rest in an offline storage. They are also other security measures they take, which you can read through here.
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