In this column, which appears every two weeks, we give you concrete ideas for investing.
Are you thinking about investing in cryptocurrencies but don't know where to start?
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Cryptocurrencies have been in the news frequently in recent weeks, with the United States greenlighting 11 exchange-traded funds (ETFs) that track Bitcoin.
Many see this long-awaited decision as THE path to the “democratization” of crypto.
Two of the world's three largest asset managers, BlackRock and Fidelity, immediately launched their Bitcoin ETFs. In two weeks, these two funds have raised more than $3 billion!
There are also Canadian cryptocurrency ETFs, which were the first to be launched worldwide in 2021.
Is this really for you?
This makes it easier than ever to invest in crypto. But before you move forward, you need to ask yourself the question: Do you really want to commit to this?
“The biggest risk is that you are investing in something that has no fundamental value. If people decide overnight that they no longer want to use this method of electronic transfers, the value could go back to zero,” warns Alexandre F. Roch, professor of finance at UQAM.
Alexandre F. Roch, Professor of Finance at UQAM and cryptocurrency specialist. Photo from LinkedIn
In addition, cryptocurrencies are among the assets that are subject to the greatest volatility. For example, Bitcoin's return was 146% in 2023, but -65% in 2022 (in Canadian dollars). For this reason, the risk of cryptocurrency funds is considered “high” by the companies that offer these products.
“Hot sauce”
“I liken it to hot sauce,” Mr. Roch explains. In small doses it’s fun, it can make a difference.”
Some people invest in cryptocurrencies because they see them as the future of global finance. Others because they want to make money quickly – which is rarely a good idea.
But if you think crypto is completely separate from traditional financial markets, think again.
“We realized that cryptos are very highly correlated with stock markets,” says Adelphe Ekponon, an assistant professor at the University of Ottawa and co-author of a study on the topic.
Adelphe Ekponon Photo from the University of Ottawa website
This means that cryptocurrencies tend to increase in value when the stock market rises, and vice versa. With generally significantly greater fluctuations.
Vanguard, the world's second-largest investment firm behind BlackRock, has also decided not to offer a Bitcoin ETF. “Crypto is speculation rather than investment,” the company said.
How much to invest?
But hey, if you still want to take the plunge, how much of your portfolio should you dedicate to cryptocurrency? It's up to everyone to answer this question based on their risk tolerance.
However, keep in mind that if you invest only 5% of your assets in cryptocurrencies, that portion of your investments represents more than 20% of the total risk of a traditional portfolio (made up of about 60% stocks and 40% bonds), Morningstar recently noted firmly.
For investors who already have a broker account, investing through an ETF is often easier than buying cryptocurrencies themselves. This is also the only way to include this asset in a TFSA or RRSP.
However, there is a price to pay for the simplicity and security that an ETF brings: fees that can be as high as 1% per year. On the other hand, if you have a US dollar brokerage account, you will have access to funds with fees of 0.25% or less (see table).
Registered platforms
For those who want to buy cryptocurrencies directly, Mr. Roch recommends using a platform registered with the Financial Markets Authority (AMF), such as Quebec-based Shakepay.
You then need to decide whether you want to trust this platform to store your cryptocurrencies or whether you would prefer to do this task yourself using a wallet.
“The problem with wallets is that there is a private key that cannot be lost, otherwise we will lose the cryptos,” emphasizes Mr. Ekponon.
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