The rise of Bitcoin has shown a potential to revolutionize the way people transact, similar to the way currency changed the dynamics of trade.
The initial rationale behind this virtual currency was to provide a peer-to-peer system for online payments that does not require any trusted central authority. Transactions are done without a middleman, therefore eliminating barriers like foreign exchange rates, transaction fees, and the need to provide personal information. More so, it takes the power of creating money away from central banks.
Think of bitcoins as gold coins which have their own value. When Bitcoin prices go up, those who have bitcoins in their wallets can trade their currencies. But unlike physical currencies, Bitcoin has a self-contained value and does not have any collateral.
A brief Bitcoin history
Investopedia attributes the creation of the decentralized cryptocurrency payment system to Satoshi Nakamoto. It was first introduced to the public in 2009, but it was not until 2013 that Bitcoin became the talk of the town.
The first purchase using Bitcoin was on 22 May 2010 when Florida-based programmer Laszlo Hanyecz spent 10,000 coins to buy two boxes of pizza. At the time, a bitcoin was valued at less than a cent. From 2011 to 2012, the virtual currency managed to grow three-fold. In 2016, Bitcoin saw its value grow by a massive 400%.
If the same programmer had to order at Domino’s today with that many bitcoins, he would have received $82 million-worth of pizza. That’s how swift Bitcoin’s growth has been.
Investing in Bitcoin
For people who want to get a hold of bitcoins, they first have to own a Bitcoin wallet. Some of the well-known digital wallet providers in Canada include Coinbase, Coinmama, Canadian Bitcoins, and LocalBitcoins.
Most of these providers allow investors to buy bitcoins using credit and debit cards, subject to a purchase fee. From there, Bitcoin holders can buy goods and trade using their coins.
A number of Canadian financial firms have already laid out their plans for taking advantage of Bitcoin’s growth potential.
On 6 September 2017, First Block Capital was given the green light to be registered as a Bitcoin investment fund manager by the British Columbia Securities Commission (BCSC). With the landmark approval, investors were able purchase a stake in a pool of Bitcoin managed by First Block.
First Block Capital founder Sean Clark told the Digital Journal that as the world’s first regulated open-ended Bitcoin Trust, the FBC Bitcoin Trust is a milestone in the world of cryptocurrencies.
“Our principal regulator is the BCSC and we worked with other jurisdictions in Canada as well, namely the OSC. The Canadian Securities Administrators were extremely cooperative, and we spent six months educating them on our process and on cryptocurrency and blockchain,” he said.
A month after the launch of the investment fund, Evolve Funds filed a preliminary prospectus with Canadian securities regulators to list Canada’s first bitcoin ETF.
The Ontario Securities Commission (OSC) has already expressed their support for firms planning to launch their cryptocurrency offerings, recognizing that these alternative investments as a new asset class. OSC followed other international regulators in the US, Asia, and Europe in publishing its comprehensive guidelines on how companies can create compliant cryptocurrency products.
Some industry experts are still wary of Bitcoin given its often volatile nature. In early September Bitcoin lost over 8% of its value following an announcement that the Chinese government was planning to shut down cryptocurrency exchanges.
Meanwhile, Shaunessy Investment Counsel president and portfolio manager Terry Shaunessy urged investors to be cautious of making investments in the currency. “Be careful, you are basically rolling the dice on this. Don’t think that just because it is in ETF form that it’s going to be less risky,” he noted in an interview with BNN.
For Royal Bank of Canada CEO David McKay, there is a conflict when it comes to Bitcoin’s legitimacy, stressing that the currency still has the dangerous potential to be used in illicit activities and should therefore be carefully regulated. “It has a chance to transform everything from our capital markets, and our trading businesses, our security settlement businesses, right into our retail franchise. And so that technology (blockchain), that ability to work in code and build solutions, are two new technologies and areas that we need,” McKay concluded.