Speaking of basics, the ultimate difference between the VanEck Bitcoin Strategy ETF (XBTF) and the ProShares Bitcoin Strategy ETF (BITO) is the price, where VanEck is cheaper by 30 basis points.
This is the major differentiator between all – XBTF, the BTF Valkyrie Bitcoin Strategy ETF, and BITO in the segment of the market, defined by how minimal the SEC has provided for regulated vehicles of investment underlying the use of Bitcoin.
Here, all the three funds, as mentioned above, are competing for similar sets of near-month futures contracts of Bitcoin, battling to serve the investor of the market who wishes to get exposure in crypto without any direct hold of the asset.
Having said that, both ProShares and VanEck have their product – the corporate structure, often overlooked as a part of the ETF launch.
Let’s get to the basics through the blog post below, and understand the tax on Bitcoin futures ETFs.
The Argument
ETFs vast majority, this includes BITO, are structured as RICs, or the Registered Investment Companies as they distribute about 90% of their capital gains and income to the investors.
While, on the other hand, XBTF is a structured C corporation where the investors are expected to pay a corporate tax over what they pay from distributions. C corporations also give the ability to carry years of losses back or forward when it’s time for tax. There are only a few ETFs that take advantage of the C corporation structure, and those who do are a group primarily within funds, providing access to energy-focused partnerships.
At present, the issue is whether the potential of this structure outweighs its obvious downsides.
VanEck’s director, Kyle DaCruz, says that the structure of RIC does not have the flexibility of tax while Bitcoin suffers from a prolonged period of down gradation.
“The RIC cannot do much with the losses of a year where Bitcoin is noted to have faced a down period of 50% to 60%, or even more. They just lose that value.”
However, adding on, in a conversation with ETF.com, Heather Bell, the Managing Editor; and Simeon Hyman, the ProShares Head of Investment Strategy argued that the benefits can only be fruitful in the event of a down year, whereas the costs associated with its benefit will be collected in bull times.
Who Weighs More?
Unfortunately, there is no all-encompassing and straight-up answer to this.
The tax Partner at Cohen & Co. Robert Velotta recommends investors have a conversation with the tax advisor to help with specific goals and situations to help purchase Bitcoin-futures-powered ETF shares.
To help you, here is a tabular representation of a few factors that can help the investors to consider, especially when comparing with an expert. These are in fact broad guidelines and must not be considered as the “only truths” since any combination and other factors can possibly alter what product can suit the investors the best.
| C Corporation (XBTF) | RIC (BITO) | |
| Qualified Distributions | Are classified as qualified distributions similar to dividends from a normal company | Can only pay dividend income if it generates income, keeping the rules of the IRS.
If that doesn’t occur, the investors would end up paying higher income taxes rather than the capital gains rate |
| Carry Back/Forward | Can carry capital losses back 3-5 years | No option to carry losses forward and back |
| Tax-exempt/tax-deferred accounts | The benefits aren’t applicable to users in tax-exempt/tax-deferred accounts and can see reduced performance from the NAV drag | Without the NAV, the corporate tax drag would be a closer representation of the overall value of the fund |
| NAV | The funds accrued to pay tax expenses will show in NAV, creating a corporation tax drag | Don’t accrue tax expenses |
To Conclude, The Takeaways!
We hope this quick guide has helped you gain better clarity on the tax structures of the Bitcoin futures ETFs.
Here is a quick recap!
- An ETF Bitcoin mimics the digital currency price and allows the investors to purchase ETF without trading Bitcoin
- Investing in an ETF Bitcoin eliminates issues of complex security procedures and storage required of cryptocurrency investors
- ProShares is a specialized provider of traded exchange products that began trading the Bitcoin Strategy Fund, marking the first ETF Bitcoin trade in the U.S
FAQs: Tax Structures Of Bitcoin Futures ETFs: A Quick Guide!
- What is BITO ETF?
BITO is the US’s first Bitcoin-linked to an ETF. It is an opportunity for investors to gain Bitcoin return exposure in a convenient, transparent, and liquid way. Its Fund provides capital through exposure to the contracts of Bitcoin futures.
- Is there an ETF that owns Bitcoin?
There is only one publicly traded exchange fund investing in Bitcoin, as per January 2020 – the Grayscale Bitcoin Trust (GBTC). Here, the investors can get indirect Bitcoin exposure through the ARK Next Generation Internet ETF, holding the Bitcoin Trust in its portfolio.
- When to purchase BITO?
This first crypto-based fund was approved for US markets, which started trading on Tuesday, Oct. 19 in the NYSE under the symbol BITO.
