With the recent surge in Bitcoin prices and the surpassing of the major $100,000 USD milestone in late 2024, the question on many Canadian investor’s mind is: is cryptocurrency here to stay? While digital currencies have proven their staying power by weathering previous setbacks and gradually gaining mainstream acceptance, their role in the global and Canadian economy remains a topic of intense debate. Let's take a closer look at where crypto stands in Canada, how it's integrated into our financial landscape, and what Canadian investors should keep in mind.
Recent Bitcoin Price Spike: A Familiar Pattern?
Bitcoin’s price has seen a noticeable increase recently, echoing the volatile spikes and crashes that have characterized its journey since its inception in 2009. Some attribute the spike to the recent US election results. Others point to broader macroeconomic factors, including concerns about inflation and the search for alternative assets. While Bitcoin’s rise has investors excited, it’s important to remember that cryptocurrency remains an incredibly volatile asset class.
How Well Adopted is Crypto in Canada?
Canada has positioned itself as a relatively crypto-friendly country, albeit with caution. Canada was one of the first countries to approve Bitcoin ETFs, making it easier for Canadians to invest in Bitcoin through traditional brokerage accounts. The Canada Revenue Agency (CRA) has also issued guidance on crypto transactions, and while no major Canadian banks offer direct cryptocurrency trading, several allow clients to transfer funds to and from regulated crypto exchanges, facilitating access to the market.
In terms of adoption, Canada ranks high globally, though it trails behind countries like the U.S. and much of Europe. Approximately 4 million Canadians or 10% of the population currently own digital assets as of 2024, similar to adoption levels in other developed economies. However, when compared to countries like Nigeria or Turkey, where crypto has become a popular hedge against inflation, Canada’s adoption rate is lower. Despite this, there’s an upward trend in crypto adoption across Canada, which could mean digital currencies are here to stay.
Crypto’s Resilience: Can It Weather a True Recession?
One key factor to consider is that crypto has not yet faced a true recession. Bitcoin was launched in 2009, as the global economy began recovering from the financial crisis, so it hasn’t yet faced a severe, prolonged downturn. How it would perform in a recession remains a big question mark, with some speculating that it could serve as a hedge (like gold), while others warn that it could suffer alongside riskier assets, given its speculative nature.
If Bitcoin and other cryptos can prove resilient during economic downturns, it could further bolster their place as a long-term asset class. However, a recession would likely test their correlation with other asset classes, especially as institutions invest more heavily in crypto, potentially aligning it more closely with traditional markets.
Crypto as a Store of Wealth or Speculative Growth?
Bitcoin’s proponents often argue that it’s a “digital gold” and could serve as a store of value over the long term. Like gold, Bitcoin has a limited supply, which some believe gives it inflation-resistant qualities. However, Bitcoin and other cryptocurrencies differ from gold because of their price volatility and shorter track record.
Unlike tech stocks, which are tied to companies generating revenue, crypto assets don’t have cash flows or intrinsic value. This has led many experts to classify them as speculative investments rather than true stores of wealth. If you’re a Canadian investor, it’s important to view crypto with a balanced perspective, seeing it as a high-risk, high-reward asset rather than a safe haven.
How Are Canadian Investors Exposed to Crypto?
Canadian investors have several ways to gain exposure to crypto, not only through direct investments but also through ETFs and mutual funds that hold shares of crypto-exposed companies. While the major Canadian ETFs, like the Vanguard U.S. Total Market Index ETF (VUN) and iShares Core S&P/TSX Capped Composite Index ETF (XIC), don’t hold cryptocurrencies themselves, they often invest in companies involved in the crypto ecosystem, providing indirect exposure.
For example, VUN, which mirrors the U.S. market, includes tech giants like Tesla and MicroStrategy, companies that hold substantial Bitcoin reserves on their balance sheets. Tesla made headlines by investing over $1 billion in Bitcoin, while MicroStrategy has become famous for adopting Bitcoin as its primary treasury asset. Both companies’ crypto holdings contribute to VUN’s indirect exposure to Bitcoin’s price fluctuations. Although crypto assets themselves don’t trade directly on major stock exchanges, the valuations of companies holding Bitcoin can be affected by the overall cryptocurrency market, thereby impacting ETFs like VUN.
Similarly, the iShares Core S&P/TSX Capped Composite Index ETF (XIC) gives investors exposure to Canadian companies with crypto involvement. For instance, Hut 8 Mining and Bitfarms are Canadian mining companies focused on Bitcoin mining and blockchain infrastructure. These companies are part of the broader Canadian market and often make their way into funds like XIC. This indirect exposure can be beneficial for investors seeking some connection to crypto without direct ownership.
Potential Future Exposure: As crypto adoption grows, more companies, especially in the financial and tech sectors, may start holding crypto or incorporating blockchain solutions. This could mean even broader exposure for Canadians; especially as traditional asset managers incorporate crypto into their portfolios.
Would a Crypto Crash Impact Canadian Investors?
A severe crypto downturn could indeed impact Canadian portfolios, especially if it coincides with a broader tech crash. Because crypto is still correlated with high-growth tech stocks, a market downturn affecting one could amplify losses in the other. However, the extent of the impact would depend on your exposure. For most Canadians, crypto likely represents a small portion of their portfolios, which would mitigate risk. However, those with significant investments in crypto-focused ETFs, mining companies, or tech stocks may feel the effects more acutely.
What Should Canadians Keep in Mind?
- Risk Management: Crypto can be an exciting investment opportunity, but its high volatility makes it unsuitable for risk-averse investors. Additionally, the decentralized and largely unregulated nature of cryptocurrencies increases the risk of fraud and scams. Investors should thoroughly research platforms, verify the legitimacy of projects, and exercise caution when sharing personal or financial information. Always align investments with a clear risk appetite and take steps to protect against potential fraud.
- Tax Considerations: The CRA treats crypto as a taxable commodity, meaning capital gains and losses must be reported. It’s essential to keep records and understand how crypto income will affect your taxes.
- Stay Informed: The crypto landscape is evolving quickly, with new regulatory developments and technological advances occurring regularly. Staying updated on these can help you make informed decisions.
- Diversification Matters: Even if you’re optimistic about crypto, remember that diversification is essential for a balanced portfolio. Consider crypto as a part of your overall strategy, rather than an all-in bet. While crypto is growing rapidly, it still represents a relatively small portion of the global investment world. As of early 2025, the total crypto market is valued at around $3.4 trillion, roughly the same as the market capitalization of Apple. This highlights that while crypto holds significant potential, it is still a niche compared to traditional asset classes like stocks and bonds. Diversifying across different asset types can help manage risk and optimize long-term growth.
Final Thoughts
For Canadian investors, cryptocurrency exposure may already be present in their portfolios through passive index funds, even if they haven't actively chosen to invest in crypto. Major ETFs like VUN and XIC, which track broad market indices, often include companies that are heavily involved in the crypto ecosystem. These companies, whether through direct holdings of digital assets or investments in blockchain technology, can introduce a degree of crypto exposure into portfolios focused on the Canadian and U.S. markets.
This indirect exposure means that investors in broad-market index funds may already benefit from crypto’s growth potential while avoiding the direct risks and volatility associated with holding cryptocurrency. However, as crypto becomes more mainstream and companies increase their investments in blockchain and digital assets, this exposure could also bring added sensitivity to market shifts in the crypto space.
For Canadian investors who are cautious about crypto, it's a good idea to understand how much exposure they already have through their passive index funds. And for those who are interested in increasing their crypto exposure, it’s worth noting that this may be possible without needing to take on the high-risk profiles of direct crypto investments. As always, staying informed and diversifying remains essential, especially as the lines between traditional finance and digital assets continue to blur.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations
of Richardson Wealth Limited or its affiliates. Richardson Wealth Limited is a member of Canadian Investor Protection Fund. Richardson Wealth is a trademark of James Richardson & Sons, Limited used under license