Why Is Bitcoin Surging and How Can You Invest?
Bitcoin is having a moment, to say the least. The cryptocurrency is at record highs with one Bitcoin worth about $61,500 in Canadian dollars, up from just $13,000 in the summer. Some experts are saying it could reach $130,000 by the end of the year. A truly astounding leap for a currency that many don’t fully understand and that isn’t available to purchase on any stock exchange.
What exactly is driving this recent boost in Bitcoin? Let’s look at a few reasons.
In This Article:
The Elon Musk Effect
Elon Musk, the world’s richest person and founder of the electric car company, Tesla, is notorious for how his seemingly offhand tweets affect share prices.
Take his “Gamestonk” Tweet on January 26th, complete with a link to the WallStreetBets Reddit thread. GameStop, the company he was referring to in slang, a struggling retail store that sells video games, was being aggressively shorted by hedge funds. Amateur Reddit investors on the thread had been chatting non-stop about buying up the stock with the goal to drive the share price so high it would cause the shorts to fail, and the price to thus skyrocket further.
— Elon Musk (@elonmusk) January 26, 2021
After Musk’s tweet, GameStock rocketed to a $10 million dollar valuation in after-hours trading. With his help, social media users managed to have a profound effect on the stock market.
A few days later he Tweeted “I kinda love Etsy,” which sent shares of the crafty e-commerce website jumping up by 9%.
He can also make share prices go down. In 2017 he tweeted that Tesla’s stock was “too high” which sank shares by 10% temporarily.
His wizard-like effect on prices, where he waves his magic Twitter wand, recently had the same effect on Bitcoin prices.
Bitcoin’s value jumped more than 20% on Friday, January 29th in a single hour after Musk changed his personal Twitter bio to #bitcoin. And that wasn’t the first time he’s shown his love. On December 20, 2020, he Tweeted “Bitcoin is my safe word.”
In early February 2021, he filed with the SEC announcing that Tesla had bought $1.5 billion worth of Bitcoin and will begin accepting the cryptocurrency as a form of payment. That signified an incredible amount of confidence and support of the currency.
To his fans and supporters, Musk has reached an almost mythical status as a visionary. So his stamp of approval in the cryptocurrency isn’t the only reason Bitcoin has reached record heights, but it is a significant factor.
Mainstream Acceptance of Bitcoin
It’s not only Musk who has invested and shown confidence in the future of Bitcoin, and cryptocurrency in general. Massive, mainstream tech and financial companies are starting to show their support. Apple Pay now accepts Bitcoin payment for the first time through the app bitpay, for example, and BitPay has plans to support Google Pay and Samsung Pay in the near future. PayPal users in the United States can also buy, hold, and sell cryptocurrency right in their account, and Fidelity, one of the world’s largest asset managers, created a whole subsidiary, Fidelity Digital Assets, devoted just to cryptocurrency
Institutional investors have also started their entry into Bitcoin, including billionaire hedge fund managers Paul Tudor Jones and Stanley Druckenmiller.
It was just a few years ago that Bitcoin was seen as fake online money that only hipsters and people in the Bay area knew about, so the fact that it’s now gathering institutional support signifies its entry to the mainstream and as something legitimate.
Pandemic Inflation Fears
It’s not only confidence that’s boosting Bitcoin, it’s also fear, namely the fear of inflation due to massive government stimulus spending during the Covid-19 pandemic. Central banks are printing money, frankly, like no tomorrow. Canada spent well over $300 billion on relief efforts and is now in the hole for nearly a trillion dollars. Emergency benefits like paying 8.9 million residents $2000 a month in CERB and helping hundreds of thousands of businesses with their payroll adds up.
But where is Justin Trudeau’s Liberal government getting the money from? Our government is actually issuing bonds which the Bank of Canada is purchasing. In other words, our own bank is giving us credit.
These kinds of actions are in line with the Modern Monetary Theory, which holds that a country that controls its own currency is well within its right to go into as much debt as it needs to in order to achieve a balanced economy and reduce economic suffering of the population. But critics of the Modern Theory say it can lead to a subsequent rise in taxes and rampant inflation. It’s this fear, of devalued currency, that’s pushing more and more people into Bitcoin.
The limited supply of Bitcoin means that it can’t be touched by typical inflation. There are only 21 million Bitcoins in the world.
That’s in direct contrast to a fiat currency, like the Canadian or American dollar which is essentially just paper and not backed by anything tangible.
Buying Bitcoin is akin to how people used to buy gold except it’s even more of a hedge since we don’t know how much gold can yet be mined. Keeping a certain amount of Bitcoin in a portfolio, its supporters say, can protect you from the inflation likely to happen in a post-pandemic world.
How Can You Get in on the Bitcoin Action?
First, you should familiarize yourself with cryptocurrency to make sure you understand what you’re getting yourself into. Then, if you’ve decided that you’re interested in purchasing Bitcoin either because you think it will go up and you’ll make money or because you think it will be a good hedge against inflation, there are two main ways you can buy it. You can purchase it directly through a trading app, or by purchasing an ETF on the market like a regular stock.
Another option is investing in Canada’s new Bitcoin ETF. The coin is provided by Purpose Investments, is the first Bitcoin ETF to be backed by Bitcoin North America, and can be traded on the Toronto Stock Exchange.
Wealthsimple Trade is launching a cryptocurrency trading platform that’s a great option for Canadians to buy and sell Bitcoin. They provide the same digital-first ethos that makes their stock trading app so clean and user-friendly. Opening an account is also just as easy as opening a brokerage account and can be done entirely online. You can fund and withdraw cash by linking your regular bank chequing account, or you can transfer funds between your Wealthsimple trading account. There are no account minimums or fees to deposit and withdraw funds but there is a 1.5% transaction fee that will apply when you buy or sell Bitcoin. So if you bought $100 of Bitcoin your fee would be about $1.50.
Another great Canadian platform to trade Bitcoin on is bitbuy. It’s been around since 2016 and you can purchase six additional cryptocurrencies. You can start your application online and once your identity is confirmed you can transfer money in and start trading. What’s neat about bitbuy is that you can email money in through an Interac e-transfer, along with a bank wire. They charge deposit and withdrawal fees of around 1.50% and it costs up to 0.50% to make a trade.
Purpose Bitcoin ETF
If you don’t want to buy Bitcoin directly, perhaps because you don’t want to go through the process or hassle of downloading an app and adding an additional trading platform, there is soon going to be an option of ETF on the TSE. Purpose Bitcoin ETF is the first fund to gain regulatory approval in North America – and it’s Canadian! Canadians are surprisingly ahead of the curve on emerging markets, we were also the first to get a cannabis ETF, too. You can buy and sell the ETF just like any stock. It has a 1% management fee and it will follow the TradeBlock XBX Index. More options for crypto-ETFs are in the works and should be available soon.
The Future of Bitcoin
Let’s be clear about a few things: Bitcoin is volatile, speculative, and its future is uncertain. No one knows if its popularity will continue to surge or it’s a bubble about to burst. Almost all market indexes, in both Canada and the United States, are at an all-time high right now, so Bitcoin may just be jumping on the bandwagon of general exuberance. Or we’ll look back in five years and see the deal of a lifetime. That’s a decision you have to make for yourself after careful consideration and a lot of financial analysis based on your risk tolerance. If you do decide to jump in, experts recommend keeping Bitcoin to about 10% or less of your portfolio, similar to a commodity like gold.