Rewards can be great with cryptocurrency investing

The growing frenzy around bitcoin and other cryptocurrency offerings has prompted warnings from a range of financial heavyweights on the risks that current and potential investors should keep in mind.

Bank of Canada governor Stephen Poloz sounded the alarm last week, saying that buying into the trend is "closer to gambling than investing", while Canada's securities regulators association issued a special warning on Monday about the high level of risk associated with digital currency-linked products.

Top of mind for many is the question of just how big a bubble bitcoin is in. Virtually worthless in early 2009, the cryptocurrency hit $1,000 US by early 2017 and then soared to its current price of just under $17,000 US, a 12-month gain of more than 1,900 per cent.

The disruptive potential of bitcoin and its underlying blockchain technology is only helping fuel the speculation and could lead it to go higher still, said BMO Financial Group chief economist Doug Porter.
Another seldom-mentioned risk is as old as money itself: taxes.

While some believe their offshore wallets and decentralized ledger will allow them to hide their gains, Toronto tax lawyer Evan Kwok said the Canada Revenue Agency is actively looking into the issue and could begin a crackdown at any time.

Active traders of digital currencies will likely have their profits taxed as business income, while those who have sat on their holdings would be taxed under capital gains, said Kwok.

However, keeping track of gains can become complicated, since the digital exchanges don't always provide complete transaction history, while those who actually use bitcoin to buy real-world items have to keep track of those transactions as well.

"Once you transact away from that currency, let's say you buy a coffee using bitcoin, that triggers a capital gain, you actually used it and liquidat