How to Buy and Hold Cryptocurrencies
This post will describe how to buy and hold cryptocurrencies like Bitcoin and Ethereum.
Before considering adding cryptocurrencies to your investment portfolio, you should create an investment policy to guide your decision-making process because your investment holdings should reflect your investment goals.
Budding crypto investors should also answer the following questions:
- Why are you buying cryptocurrency?
- Are you technically savvy?
- How will you store your cryptocurrency passwords or private keys?
- How does your cryptocurrency work with your estate plan? (i.e. what happens to your crypto when you die?)
- Do you want the government to know you hold cryptocurrency? (i.e. how do you feel about taxes?)
Quick and Easy – But Not Useful
If you simply want to hold cryptocurrencies (and do nothing with them) and you’re happy to report for tax purposes, then an easy way to buy small amounts of cryptocurrency is by using apps such as Wealthsimple and Mogo. These apps will allow you to quickly transfer funds from your bank account, to purchase “nominal” bitcoins. These apps don’t offer “real” bitcoins, because the apps control coins and all you can do it trade them back to the app again. You can’t transfer the coins anywhere or use them for anything. The apps make profits by the spread between buys and sells.
Buy a Bitcoin ETF
If you want to buy large amounts of nominal bitcoins quickly, you can also use bitcoin ETFs such as the Purpose Bitcoin ETF and the Evolve Bitcoin ETF. These ETFs are traded on the TSX and can be purchased using your brokerage account. These ETFs charge fees of 1% and 0.75% per year respectively. You can also trade options on these ETFs, but most bank owned brokerages will not allow customers to write uncovered positions on these ETFs. Just like holding coins on apps, these bitcoins are “nominal” since you cannot transfer your coins out of the ETF or do anything with the ETFs other than sell them again.
Get Real Crypto
Canadians who want to buy “actual” cryptocurrency need an exchange to trade Canadian dollars for cryptocurrency. This might be done by e-transfer, linking your bank account, or making a purchase with a debit or credit card. The Canadian crypto exchanges allowing users to trade for actual cryptocurrencies usually comply with at least some parts of Canadian AML laws but that doesn’t necessarily make them secure places to store crypto.
Some crypto exchanges act as “dealers” and others provide a “marketplace”. Dealers such as Shakepay, Newton, Coinberry, Bitbuy, and Coinbase, allow users to buy crypto directly from the application, whereas exchanges such as Coinsquare allow users to buy and sell with each other in an open market.
Buy and Hold Cryptocurrencies
Once you have some crypto, you’ll need to find a place to store it. Your best choice is to find a “wallet” that suits your objectives. If you plan to do something with your crypto, such as spend it, invest it, or gamble with it, then you’ll need a wallet that is easy for you to make and receive payments. This is typically called a “hot wallet”. If you simply want to store your crypto as a long-term investment, then you should consider other “cold storage” methods. Trezor, Ledger, Blockchain.com, Trust Wallet are just some of the most popular cryptocurrency wallets. There are many different wallets. Crypto enthusiasts should do their own research and consult with an advisor if they plan to store large values of crypto.
“Dead Person” Switch
All cryptocurrency holders should plan for what happens to their crypto when they die. Commonly, spouses and kids inherit our financial assets, and the transition is easy for assets like stock portfolios since investment advisors can be used. But unless your spouse and kids are tech savvy (and have access to your passwords and private keys), then you’ll need to line up someone to recover your crypto for you when you die (and “maybe” document a plan for how this will happen).
If you want to pay taxes and disclose your crypto assets publicly, then you can leave instructions for your crypto and other digital assets and online profiles in your will. Be careful however about putting crypto passwords and keys in your actual will, which may be stored at home or in your lawyer’s office because if someone gets a hold of this document, they can access your coins. To protect from this, leave some space between your will and your passwords by only providing instructions on how to access your private keys and passwords in your will. Store the actual passwords and keys in some other location such as a safety deposit box where only certain people have access.
If you don’t want the government to know about your crypto, as this is one of the main reasons many people have crypto in the first place, your cryptocurrency recovery plan should include at least one other person who has access to your private keys and passwords. This could also mean someone else has instructions on how to obtain those keys and passwords once you die, without having access to your coins in the present.
How can a Family Office Help?
Should you buy and hold cryptocurrencies? Managing wealth and transitioning your wealth to future generations can be done without cryptocurrencies. In fact, investing in cryptocurrencies will often distract you from the more important tasks of wealth management. Cryptocurrencies mostly add needless complexity to your financial situation. To bring clarity and simplicity to your financial life, your investments should be rooted in a diversified portfolio of blue-chip dividend paying stocks, bonds, and real estate.
The best way to successfully manage your wealth is not to look for the latest “hot” investment trend, such as cryptocurrencies, but to create a wealth management process that brings consistency and predictability to your financial life.
Below are links to some posts that describe some fundamental aspects of a wealth management process: