Bitcoin has experienced two different growth phases since 2020, though the two are completely disassociated with each other on scale. The first growth phase pushed the value of the leading crypto up 10 times, and the next growth phase merely doubled it. It couldn’t maintain either peak for too long and is trading at a sizeable discount from its last peak.
Another 10 times growth spurt, in both short and long-term, is currently too distant a prospect. However, if you are looking for more realistic growth, somewhere in the order of 70% to 100% within 2022, Bitcoin could be a smart option. That’s the level it can achieve just by re-reaching its former peak or slightly going beyond.
The problem with that is since Bitcoin cannot be kept in your TFSA and you might need to sell it (to cash in the gains) within the year, the short-term capital gains tax alone shaves off a significant portion of the profits.
The solution: a Bitcoin ETF
A Bitcoin ETF like CI Galaxy Bitcoin ETF (TSX:BTCX.U), which is hedged in U.S. dollars (you can also get a CAD version), can be a perfect solution. As a purely bitcoin-focused ETF, it offers you direct exposure to Bitcoin. It’s a relatively new ETF, and only started trading on the TSX in March 2021. So far, it has been quite faithful in following Bitcoin’s appreciation.
In the last 12 months, Bitcoin rose slightly over 122% between the lowest and highest point. The ETF rose 125% over the same period. This slight magnification might simply be a result of the currency difference (USD/CAD), which means sometimes it might underperform the underlying asset, but only by a very small margin.
Also, it’s partially balanced out by the MER of 0.4%.
The TFSA advantage
Investing in a relatively unfamiliar asset class, especially one as volatile as Bitcoin, might not be every investor’s cup of tea. However, ETFs are an investment medium most investors understand and are comfortable with. And since it’s trading at $8.14 share, you can get several full units for the dollar amount that would have only gotten you a few fractions of a full Bitcoin.
But the real advantage of choosing the ETF over the crypto is the fact that it can be placed in your TFSA. This way, you can take advantage of its short-term growth potential, and if it’s expected to grow by 100% within 2022, you will be able to double part of your TFSA capital (what’s invested in this ETF) in under a year and can use it for other investments.
The risk rating for this ETF is high, which is reasonable considering the underlying asset class. But like most other risky investments, the reward potential is proportionally high. And even though holding it long-term is highly likely to be profitable even if you buy at the current price, you may consider buying the dip, which might not be too far away, considering recent fluctuations in the Bitcoin price.