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Is now the time to jump into cryptocurrencies?

The Bitcoin market

The world of cryptocurrency has witnessed its fair share of ups and downs, with Bitcoin, the pioneer of the digital asset class, leading the charge.

After a remarkable bull run, Bitcoin experienced a notable fall, only to demonstrate its resilience with a recent recovery. The approval (for the first time ever) of a Bitcoin-based exchange-traded fund (ETF) in the United States on Jan. 10 has further stirred the waters, leaving Canadian investors contemplating whether now is the opportune moment to dive into this dynamic asset class.

For those of you considering whether this type of investment is appropriate for your portfolio, I’ll break down what has happened to date and some of the key points to consider before jumping in.

The fall and rise of Bitcoin

Bitcoin's journey has been marked by unprecedented volatility. In 2021, the cryptocurrency reached new heights, surpassing the $60,000 (US) mark in the spring. However, the latter half of the year saw a significant correction, with Bitcoin's value dropping to around $30,000 in the summer months.

Several factors contributed to Bitcoin's fall, including regulatory concerns, environmental criticisms related to energy consumption, and market sentiment shifts. Investors who had enjoyed the earlier bull run found themselves facing a period of uncertainty and heightened market fluctuations.

Toward the end of 2021 and into 2022, the cryptocurrency staged a recovery, climbing back toward the $60,000 mark before an even bigger drop later that year, bottoming out just above $16,000. That demonstrated both the enduring appeal of Bitcoin and the continued volatility that comes with it.

Most of 2023 saw a slow but steady recovery until the fall, when the value started climbing steeply again.

The game-changer—U.S. approval of a Bitcoin ETF

A significant development in the cryptocurrency space was the approval of a Bitcoin ETF by the U.S. Securities and Exchange Commission (SEC). The launch of a Bitcoin ETF in the United States is seen as a game-changer, providing traditional investors with a regulated and accessible way to gain exposure to Bitcoin without directly holding the cryptocurrency.

That approval was a milestone for the cryptocurrency market, potentially opening the door to increased institutional involvement and mainstream acceptance. The ETF structure allows investors to buy and sell shares on traditional stock exchanges, offering a level of familiarity and ease that may attract a broader range of market participants.

The big question: Should investors on the sidelines jump in?

With Bitcoin's recent recovery and the U.S. approval of a Bitcoin ETF, investors may be considering whether now is the right time to venture into the world of cryptocurrency. Here are some of the key considerations to consider before making that decision.

1. Volatility awareness: Cryptocurrencies are known for their volatility, and Bitcoin is no exception. While the potential for high returns exists, so does the risk of substantial losses. Investors should be prepared for price swings and assess their risk tolerance before diving into this asset class.

2. Regulatory environment: The regulatory environment for cryptocurrencies is evolving. Canadian investors should stay informed about regulations governing cryptocurrency investments in their jurisdiction. Regulatory developments can impact market sentiment and the overall stability of the cryptocurrency market.

3. Long-term vs. short-term perspective: Investing in Bitcoin or other cryptocurrencies requires a clear understanding of one's investment horizon. While short-term price movements can be unpredictable, some investors view Bitcoin as a long-term store of value, akin to digital gold. Deciding on an investment strategy aligned with personal goals is crucial.

4. Diversification strategy: Cryptocurrencies can play a role in a diversified investment portfolio. However, it's essential to consider the proportion of the portfolio allocated to this asset class. Diversification helps spread risk and balance overall portfolio performance.

5. Due diligence: Conduct thorough research before making any cryptocurrency investments. Understand the technology, market trends, and potential risks associated with each digital asset. Knowledgeable decision-making is key to navigating the complexities of the cryptocurrency market.

6. Accessibility: Canadian investors can access cryptocurrencies through various platforms, including cryptocurrency exchanges and investment products like ETFs. Choose reputable platforms with strong security measures and regulatory compliance.

7. Global developments: Keep an eye on global developments that may impact the cryptocurrency market. Market sentiment, regulatory changes, and technological advancements can all influence the performance of Bitcoin and other digital assets.

The fall and recovery of Bitcoin, coupled with the recent approval of a Bitcoin ETF in the U.S., have reignited interest in cryptocurrency investments. Investors contemplating entry into this dynamic asset class should carefully weigh the risks and rewards, considering their risk tolerance, investment horizon, and overall financial goals.

While cryptocurrencies offer the potential for diversification and growth, they come with inherent volatility and regulatory considerations. Staying informed, conducting due diligence, and adopting a strategic approach are essential for navigating the cryptocurrency landscape.

As the market continues to evolve, investors should approach cryptocurrency investments with a thoughtful and informed mindset, recognizing both the opportunities and challenges inherent in this rapidly changing space.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett Millard is vice-president and a member of the executive leadership team at FP Canada, the national professional body for the financial planning industry. A not-for-profit organization, FP Canada works in the public interest to foster better financial health for all Canadians by leading the advancement of professional financial planning in Canada. 

He has worked in the financial advice industry for more than 15 years and is designated as a chartered investment manager (CIM) and is a certified financial planner (CFP).

He has written a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges they face in every stage of life. Enhancing the financial literacy of Canadian consumers is a top priority for Brett and his ongoing efforts as a finance writer focus on that initiative. 

Please let Brett know if you have any topics you’d like him to cover in future columns ,or if you’d like a referral to a qualified CFP professional in your area, by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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