How to start investing in crypto for beginners

Investing in crypto carries greater risk compared to traditional asset classes such as bonds, stocks, and mutual funds. Unlike conventional assets, cryptocurrencies are mostly unregulated and highly volatile. If you're a first-time investor considering putting money into digital assets, it's important that you understand what you're getting into before you start.    

In this article, Wealth Professional explains everything beginners need to know about investing in cryptocurrency. We'll discuss how the different types of digital currencies work and what your best options are as a new investor. We'll also provide a step-by-step guide on how to start investing in crypto.   

Keep reading and pick up tips and strategies that can help you make informed investment decisions in this guide.   

How does cryptocurrency work in Canada? 

Cryptocurrency, also referred to as crypto, is a form of digital currency. Bitcoin and Ethereum are some of the biggest names in the crypto market.  

Most types of cryptocurrencies exist in a decentralized network supported by blockchain technology. Blockchain serves as a public ledger that maintains a tamper-resistant record of transactions. This makes it virtually impossible for crypto owners to counterfeit their holdings or spend them twice.    

In Canada, cryptocurrencies can be used in various transactions. They can serve as an alternative mode of payment for goods and services. These digital assets can also be used to participate in certain platforms, such as online games and financial products. Others work as a good option for speculative investing.  

Depending on how it is used, a unit of cryptocurrency can be called a coin or a token. Crypto coins are intended as currency and have their own independent blockchain. Crypto tokens, meanwhile, represent an interest in an asset and are designed to facilitate transactions on blockchain. Tokens are built on an existing blockchain.  

How is cryptocurrency regulated in Canada? 

Canada regulates cryptocurrencies the same way as securities. This means that laws and regulations on securities also apply to crypto. Regulatory requirements, however, vary depending on the province and territory.  

Part of learning how to start investing in crypto is finding out what your jurisdiction’s securities regulations say about digital assets. This overview of Canada’s securities and futures laws from our sister publication Lexpert is a good starting point.  

Note that while Canada allows the use of digital currencies, they aren’t considered legal tender. Only banknotes or coins issued by the Bank of Canada and the Royal Canadian Mint Act are considered legal tender in the country. 

Cryptocurrencies are not issued by any central authority. This also means that they aren’t susceptible to government interference or manipulation.   

How is cryptocurrency taxed in Canada? 

The Canada Revenue Agency (CRA) treats cryptocurrencies as commodities. This means that they are taxed as capital gains or business income, depending on how they are earned.  

Crypto profits are 100% taxable when taxed as business income. When taxed as capital gains, only 50% is taxable, but you must still report your full income.  

Before reporting cryptocurrency gains and losses on your taxes, you need to convert them into Canadian dollars. The CRA doesn’t require a particular method as long as the method you use is “consistent and reasonable.” For example, you can use data from a single exchange or the average across different exchanges. 

In addition, because crypto is not considered legal tender, any transaction involving digital currencies is treated as a barter transaction. To declare this, you need to convert the cryptocurrency value to Canadian dollars.  

Learn more about the key factors that affect cryptocurrency value in this guide. 

How to start investing in crypto: a step-by-step guide for beginners  

The volatile nature of cryptocurrencies makes them a more suitable option for experienced investors with high risk tolerance. But this doesn't mean that beginners can't invest in crypto. Just like with more traditional assets, it's best to start small and put in money that you can afford to lose.   

Here's a quick step-by-step guide on how to start investing in cryptocurrency if you're new to the world of digital assets.   

1. Educate yourself about the different crypto investment options.  
2. Choose a crypto trading platform.  
3. Create and fund your crypto trading account.  
4. Pick a cryptocurrency to invest in.  
5. Store your crypto investment in a secure location.  

Too quick? Let’s delve deeper into the process. 

Step 1: Educate yourself about the different crypto investment options  

There are thousands of cryptocurrencies in the market, with more being started each day. This makes choosing the right crypto to invest in overwhelming, especially for new investors.  

As with more traditional asset classes, picking the digital currency that suits your risk tolerance and financial situation requires careful research. Here are the key factors to consider when searching for the best crypto investments. 

• Market capitalization: This gives you a picture of how much people are using and investing in a cryptocurrency. The higher the market cap, the more popular and credible a crypto is as an investment option.  

• Technology and project goals: Each digital currency has a special technology behind it and a reason why it was created. This information is detailed in its white paper. Understanding why a cryptocurrency exists can help you decide whether it fits your investment goals. 

• Development team: A strong development team is important in keeping a crypto investment strong. Take time to research who’s behind a cryptocurrency to find out their track record. 

• Regulatory requirements: Each province and territory has its own laws and regulations when it comes to investing in crypto. Familiarize yourself with the rules to ensure that your investment is secure and compliant.  

It also helps to be familiar with the ins and outs of investing. This step-by-step guide on how to start investing in Canada can prove useful.  

Step 2: Choose a crypto trading platform 

Another essential step in learning how to start investing in crypto is finding a place to buy one. You can do this in one of the crypto exchanges or trading platforms registered with the Canadian Securities Administrators (CSA).  

Here’s the latest list of crypto trading platforms authorized to do business with Canadians. You can find more details about these platforms on CSA’s website.  

Step 3: Create and fund your crypto trading account 

Once you’ve chosen a crypto trading platform, you will need to create an account. While the requirements may vary, most platforms will ask you to provide proof of identification and connect them to a source of funding. You can fund your account in several ways, including through: 

• wire transfers 
• e-transfers 
• credit card 
• debit card  
• in-person payments at your local Canada Post 

The funds must be in fiat currency. That’s industry term for national currencies such as the Canadian dollar. You can use the funds to buy cryptocurrency.  

Some platforms charge deposit or payments. The rate varies, that’s why it’s important to verify what fees are charged and how much before choosing a cryptocurrency exchange or trading platform.  

Step 4: Pick a cryptocurrency to invest in 

As there are thousands of cryptocurrencies to choose from, picking the one that suits your investment goals can be challenging. But if you’re in the process of learning how to start investing in crypto, it may be best to go with the biggest names in the market: 

Bitcoin (BTC) 

Bitcoin is considered the world’s first cryptocurrency. Its release in 2009 has paved the way for the development of blockchain technology, en route to becoming a multi-billion-dollar industry. Bitcoin has grown exponentially since its release. It has also outperformed nearly all asset classes in the past several years.   

Ethereum (ETH) 

Ethereum is considered among the most liquid investment assets in the crypto market. It is widely available in cryptocurrency exchanges, trading platforms, and online brokerages worldwide. Ethereum can easily be traded for cash and other assets such as gold. You can do so with very low fees.  

Learn more about the basics of trading in this beginner’s guide on how to start trading.  

Other types of cryptocurrencies that you can consider investing in include:  

• Binance Coin (BNB) 
• Cardano (ADA) 
• Dogecoin (DOGE) 
• Solana (SOL) 
• Tron (TRX) 
• XRP (XRP) 

Cryptocurrencies work differently, that’s why investing in them can be complicated, especially for the inexperienced investor. If you don’t feel prepared enough to handle crypto investments on your own, you can enlist the services of an experienced financial advisor.  

You can check out the five-star winners of our Best Financial Advisors and Professionals Under 40 in Canada awards to find one.  

Step 5: Store your crypto investment in a secure location 

Once you have your first crypto investment, the next step is ensuring that this is stored in a secure location. You can do so using crypto wallets.  

Through blockchain, your digital currency can only be accessed using a private key. This key proves your ownership of the cryptocurrency, allowing you to make transactions.  

There are two popular types of crypto wallets: 

1. Hot wallet 

This type of crypto storage is connected to the internet. This allows for easy access to digital assets, making it suitable for frequent traders. You can opt for a hosted hot wallet, where the exchange or trading platform maintains control over your private keys. You can also choose a personal hot wallet, giving you full control over who can access your digital assets. 

2. Cold wallet 

Also referred to as offline storage or cold storage, cold wallets aren’t connected to the internet. This is designed to provide maximum security for storing your cryptocurrency.  

Another way to keep your digital assets secure is learning how to identify crypto investment scams. Find out how to spot the red flags in this guide.  

What are the alternative ways to invest in crypto? 

While purchasing directly is the most popular way of investing in cryptocurrency, there are other ways to get into the crypto market. These include: 

• Cryptocurrency stocks: Buying stocks of companies with exposure to cryptocurrencies, such as exchanges and online brokerages, offers a safe option of investing in crypto. Here’s a primer on how to invest in stocks. 

• Crypto exchange-traded funds: Some cryptocurrencies, including Bitcoin and Ethereum, are available as spot-price exchange-traded funds (ETFs). You can learn more about how this type of investment works in this beginner’s guide to ETFs.  

• Crypto futures: These allow you to speculate on the future price of a cryptocurrency before investing. But because of the volatile nature of crypto, this type of investment is more suitable for those who have a deep understanding of how cryptocurrencies work.  

• Crypto coin trust: This lets you trade shares in trusts holding large pools of crypto. This investment option, however, often comes with hefty fees and greater risks, making it more suited for experienced investors. 

Is crypto worth investing in Canada? 

Investing in cryptocurrency presents lucrative opportunities, even for beginners – but it also comes with inherent risks. While you can make lots of money, especially when there’s a surge in demand, there’s also the risk of losing everything in a snap.  

As with all highly speculative and volatile assets, cryptocurrency can be a good option if you have a deep grasp of how the crypto market works. It’s also advisable that cryptocurrencies account for only a small portion of a diversified portfolio. This way you’re protected from potential market fluctuations.  

A safer but potentially less profitable alternative is buying stocks of companies with exposure to crypto. Some digital currencies are also available as spot-price ETFs, which can be a suitable choice for investors starting out in the world of cryptocurrencies. 

If you’re seeking guidance as you begin your investment journey, you can turn to our Best in Wealth Special Reports page for assistance. The professionals and companies featured in our special reports have been handpicked by their peers and vetted by our panel of experts as respected and reliable market leaders.  

By partnering with these industry experts, you can be sure that you're making sound investment decisions and building a solid portfolio. 

Did you find this guide on how to invest in crypto helpful? Let us know in the comments.