The popularity of cryptocurrency is undeniable. Over the last few years, the buzz surrounding this new, largely speculative investment opportunity has moved beyond financial circles, entering mainstream media, pop culture, and everyday conversations between Canadians and their financial advisors. In an Angus Reid Forum online poll, 52% of advisors across the country selected cryptocurrency as the most asked-about topic, by far.
If you’re thinking of cryptocurrency as an investment, you’re not alone. But there’s a lot to consider before you commit your money to a such new asset class – especially the risks.
What is cryptocurrency?
The Canadian Securities Administrators (CSA) defines cryptocurrency as a digital currency or medium of exchange: “It can be used to buy products or services, or for speculative purposes, such as trading on a crypto asset trading platform (CTP). Cryptocurrencies have no inherent value; their perceived value is based largely on supply and demand in the market. Examples include Bitcoin, Ether, Ripple, and Litecoin.”
As a financial services provider, Co-operators views cryptocurrency as a type of ”alternative” asset class, separate from the three most common investment fund asset classes, which include:
- Cash and cash equivalents – like currency held at a bank or money market securities
- Fixed income investments – like bonds or other debt instruments
- Equities – like stocks
Other types of crypto-related alternative assets include investment and exchange traded funds (ETFs) that allow investors to access cryptocurrency without directly owning and trading the coins, as well as non-fungible tokens (NFTs) that provide ownership over digital property like songs, images or videos.
What are the risks?
Unlike dollars, pounds or euros, cryptocurrencies are not backed by public or private entities like a government or a monetary authority. No central bank manages and maintains the value of a cryptocurrency. They exist on uninsured, non-regulated, 24-hour markets. And that means they are highly volatile.
Before you decide to invest in one or more cryptocurrencies, be aware that they are susceptible to unexpected changes in market sentiment, which can lead to sharp and sudden moves in price. These intangible investments are also prone to fraud and scams, which can affect individual investors directly.
It’s important to distinguish cryptocurrencies as “investments” because they are not a legal tender in Canada. They can’t be used for everyday financial transactions. As of December 2021, El Salvador was the only country to accept Bitcoin as a currency for financial transactions.
Can you invest in cryptocurrency with Co-operators?
Given the existing risks and the additional socio-economic uncertainty, as global economies and financial markets recover from the COVID-19 pandemic, we do not offer significant exposure to crypto assets through our investment solutions at this time.
Your financial situation and goals are unique. While you may decide that cryptocurrency is right for your portfolio, when it comes to risk, it makes sense to strike the right balance. And that’s where solutions like our mutual funds and segregated funds can help.
Looking for one-one-one support and personalized advice? Speak with a Co-operators financial representative. We’ll work together to understand where you’re coming from and to find your best way forward – from building a comprehensive, easy-to-follow roadmap to regularly reviewing your strategy to keep you on track.