Crypto assets come in different forms, and each works a little differently. Before you invest, remember that prices can change quickly—sometimes dramatically—and you could lose some or all of your money. Make sure you understand the risks and check your comfort level before diving in.
Make sure you understand the risks and check your comfort level before diving in. Before investing or purchasing crypto assets, check your risk tolerance and learn about the risks of crypto assets.
Cryptocurrency is the most well-known type of crypto asset. It’s a digital currency that can be used to pay for goods and services, traded on a crypto platform, or held as a store of value—similar to an investment.
Unlike Canadian dollars, cryptocurrency isn’t legal tender in Canada. It doesn’t have inherent value; its price depends on supply and demand. Bitcoin and Ether are two common examples.
Value-referenced crypto assets (VRCAs) are designed to stay steady in value. They’re often pegged to something like the Canadian dollar, so one coin could equal one Canadian dollar. But don’t let the name fool you: stablecoins can still be risky.
If the company behind the coin doesn’t have enough real assets to back it, the coin can “break the buck,” meaning it suddenly drops below its pegged value. Some VRCAs are tied to gold, other crypto assets, or even algorithms—the riskiest type.
Don’t be misled into thinking “stablecoins” are risk free – they are not the cash equivalent that they are sometimes promoted to be. Always check how a stablecoin is backed and whether the issuer is transparent about its reserves.
Utility tokens give you access to a specific product or service, often through a distributed ledger or blockchain platform. They’re usually issued by the company that provides the service or product and can only be used within that company’s network. Sometimes, the product or service is still in development, so you’re buying access to something that may not exist yet.
Security tokens are often sold through Initial Coin Offerings (ICOs) or Initial Token Offerings (ITOs). These are fundraising tools for businesses to develop an idea or model. Keep in mind: when you buy a security token, you’re supporting an idea—not a finished product. There’s no guarantee the project will succeed.
NFTs represent ownership of a unique tangible or intangible object —like a digital image, video, or song. “Non-fungible” means they can’t be swapped for another token because each one is different. NFTs are popular in art and entertainment, but they’re still speculative and risky.
Every type of crypto asset comes with its own risks. Learn how each works, understand what backs it, and make sure it fits your financial goals before you invest.