The last 18 months have been very interesting for investors. While the equity markets have mounted a strong comeback after several indexes entered the bear market territory in early 2020, Bitcoin and most other cryptocurrencies have also gained momentum, driven by the widespread adoption of these digital assets.
Currently, the BTC rate for a single Bitcoin stands at US$46,400, at the time of writing, significantly higher than its price of just over US$6,000 in March 2020. Despite its astonishing bull run, Bitcoin is also down 25% from its all-time highs. Does this pullback provide crypto enthusiasts with an opportunity to buy the dip, or will the bear run extend in this highly volatile space?
Crypto bulls believe that Bitcoin and other currencies could one day become mainstream, as it is also viewed as an instrument that can provide a hedge against inflation. Further, the use of blockchain technology continues to accelerate rapidly all over the world and could have a massive impact on how business is conducted going forward.
What impacted Bitcoin this year?
In early 2021, Tesla surprised investors after the electric vehicle company disclosed that it holds Bitcoin on its balance sheet. The company’s CEO Elon Musk also emphasized that Tesla may start accepting Bitcoin as payment for its automobiles. However, Musk soon changed his stance, as he was concerned over the huge energy requirements that are associated with Bitcoin mining.
The Chinese government has also cracked down on cryptocurrency stakeholders, as the Communist Party disallowed financial institutions from conducting business with crypto investors. Several Chinese provinces have also outlawed the mining of these digital assets due to environmental concerns.
Crypto miners need to constantly upgrade the mining equipment, and the Antminer S19 (the latest Bitcoin mining machine) has a power consumption of approximately 3,250 watts. Given the current mining costs, a crypto miner spends around $2,000 on electricity each year for one machine. In fact, Bitcoin mining consumes 0.55% of total electricity production, which makes it unsustainable. Further, the energy consumed in each Bitcoin transaction is similar to the energy spent on 1.2 million transactions by fintech giant Visa.
Should you invest in Bitcoin?
We have seen the risks and rewards associated with investing in Bitcoin. This alternative asset class has the potential to increase your wealth at an exponential rate or burn your savings in just a few trading sessions. The cryptocurrency industry remains largely unregulated, making it a high-risk, high-return investment.
If Canadians want to gain exposure to Bitcoin, they can do so by investing in Purpose Bitcoin ETF (TSX: BTCC.B). As of Aug.16, the exchange-traded fund has $1.3 billion in assets under management. The fund has also capped its management expense ratio at 1.5%, while its management fee is 1%.
The BTCC ETF is hedged, which insulates investors from foreign exchange fluctuations. It has a NAV of $9.53, which means you can buy about $0.00016468 of Bitcoin per share.
Further, you can also hold the BTCC ETF in registered accounts, such as the TFSA or RRSP, and benefit from lower taxes.
