Tax-Free Investing in Bitcoin and Ethereum
Yes, it's possible!
Have ever wondered if you can invest in Bitcoin and Ethereum and not have to pay any capital gains tax?
Good news: you can now be investing in Bitcoin and Ethereum completely tax-free, right in the comfort of your TFSA.
Before we continue, a few cautionary words:
Please understand that investing in cryptocurrencies comes with risks. Cryptocurrencies, or cryptos, are known to be highly volatile investments. While we hope that the value of your investment will appreciate over time, as with all investments there is always a risk that the value may depreciate, and there is a possibility that you may lose your investment.
The content provided in this article is for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. Past investment performance is not a guarantee or predictor of future investment performance.
Prior to investing in cryptocurrencies, we encourage you to conduct your own research and due diligence.
Investing in Bitcoin and Ethereum, Tax-Free
This is possible thanks to the recent development of closed-end cryptocurrency funds by companies 3iQ and Galaxy Digital, and exchange-traded fund (ETF) from Purpose Investments.
While you may not be directly owning Bitcoin and Ethereum like you would in a digital wallet, you will indirectly own these cryptocurrencies through units in funds that already hold Bitcoin and Ethereum.
The primary advantage of having these funds in your TFSA is that your investments will grow tax-free and won’t be charged any capital gains tax, ever. Considering the tremendous investment returns of Bitcoin and Ethereum over the last few years. This would make sense to a lot of investors trying to curb their capital gains tax.
Another great advantage of crypto funds is that the funds directly invest in cryptos and hold the majority of them in cold storage, which are the most secure method of maintaining cryptos.
The disadvantages include all of the benefits that you would otherwise have if you were to hold these cryptocurrencies in your digital wallet or crypto exchange, for instance sending, receiving and converting coins as well as staking. In addition, you can trade cryptos 24/7 in a crypto exchange, while in a TFSA you can only trade within normal market hours.
The Bitcoin and Ethereum Funds
So far, in Canada there just two companies that provide these closed-end funds, and one company that provides an ETF. Also, note that these funds are managed by professional fund managers and therefore have management fees. Keep in mind the management fees are different between these funds.
On another note, there are plans to launch more crypto funds in Canada. Expect more investment management companies to develop their own versions of Bitcoin and Ethereum ETFs, and potentially funds for other cryptos. The more crypto funds are available in the marketplace, the more competitive the management fees will be.
Purpose Investments is offering:
Purpose Bitcoin ETF - tickers are BTCC.B in CAD or BTCC.U in USD (management fee is 1.00%)
3iQ is offering:
The Bitcoin Fund - tickers are QBTC in CAD or QBTC.U in USD (management fee is 1.95%)
The Ether Fund - tickers are QETH in CAD or QETH.U in USD (management fee is 1.95%)
Galaxy Digital is offering:
CI Galaxy Bitcoin Fund - tickers are BTCG in CAD or BTCG.U in USD (management fee is 1.80%)
If you are considering buying these funds in a TFSA, we recommend Wealthsimple Trade, a commission-free trading platform with millions of Canadian users. Sign up here and get $10 to start investing for free.
Major Takeaways
Investing in Bitcoin and Ethereum in your TFSA can save you lots of money on taxes.
Bitcoin and Ethereum funds are publicly available in Canada today.
Extra caution must be taken before investing in cryptocurrencies.
We hope this helps you become more financially independent.
As always, feel free to reach out to us if you have any questions. We are more than happy to help.
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