{"id":7517,"date":"2024-01-19T09:57:33","date_gmt":"2024-01-19T09:57:33","guid":{"rendered":"https:\/\/www.irstaxapp.com\/?p=7517"},"modified":"2024-01-19T09:57:49","modified_gmt":"2024-01-19T09:57:49","slug":"spot-bitcoin-etfs","status":"publish","type":"post","link":"https:\/\/www.irstaxapp.com\/spot-bitcoin-etfs\/","title":{"rendered":"Spot BitCoin ETFs vs BitCoin ETF: Are They Taxed Differently ?"},"content":{"rendered":"\n<figure class=\"wp-block-image size-large\"><picture><source srcset=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-1024x576.webp 1024w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-300x169.webp 300w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-768x432.webp 768w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-150x84.webp 150w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-750x422.webp 750w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-1140x641.webp 1140w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs.webp 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" type=\"image\/webp\"><img src=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-1024x576.png\" height=\"576\" width=\"1024\" srcset=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-1024x576.png 1024w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-300x169.png 300w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-768x432.png 768w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-150x84.png 150w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-750x422.png 750w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs-1140x641.png 1140w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2024\/01\/spot-bitcoin-ETFs.png 1200w\" sizes=\"(max-width: 1024px) 100vw, 1024px\" class=\"wp-image-7518 sp-no-webp\" alt=\"spot bitcoin ETFs\" decoding=\"async\" loading=\"lazy\"  > <\/picture><\/figure>\n\n\n\n<p>The USA&#8217;s Securities Exchange Commission (SEC) approved\u00a0<a href=\"https:\/\/www.sec.gov\/news\/statement\/gensler-statement-spot-bitcoin-011023\" target=\"_blank\" rel=\"noreferrer noopener\">eleven Spot Bitcoin ETFs on 10 January 2024<\/a>. But , So, anyone can buy and sell these ETF units. However, unlike usual ETFs, there are slight changes regarding the distribution of benefits\/profits by the Funds to the investors. This post will explore and explain the newly approved Spot Bitcoin ETFs from the taxation point of view.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_62 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-662914373c082\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-662914373c082\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.irstaxapp.com\/spot-bitcoin-etfs\/#What_are_Spot_Bitcoin_ETFs\" title=\"What are Spot Bitcoin ETFs?\">What are Spot Bitcoin ETFs?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.irstaxapp.com\/spot-bitcoin-etfs\/#List_of_11_Spot_Bitcoins_Approved_by_SEC_on_10Th_January_2024\" title=\"List of 11 Spot Bitcoins Approved by SEC on 10Th January 2024\">List of 11 Spot Bitcoins Approved by SEC on 10Th January 2024<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.irstaxapp.com\/spot-bitcoin-etfs\/#What_are_Bitcoin_ETFs\" title=\"What are Bitcoin ETFs?\">What are Bitcoin ETFs?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.irstaxapp.com\/spot-bitcoin-etfs\/#Spot_BitCoin_ETFs_vs_Bitcoin_ETFs\" title=\"Spot BitCoin ETFs vs Bitcoin ETFs \">Spot BitCoin ETFs vs Bitcoin ETFs <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.irstaxapp.com\/spot-bitcoin-etfs\/#Taxation_of_Income_from_Spot_Bitcoin_ETFs\" title=\"Taxation of Income from Spot Bitcoin ETFs\">Taxation of Income from Spot Bitcoin ETFs<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_Spot_Bitcoin_ETFs\"><\/span>What are Spot Bitcoin ETFs?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The purpose of Spot Bitcoin Exchange Traded Funds (ETFs) is to mirror the price of bitcoins in the crypto market. So, they invest in real Bitcoins purchased through other holders or an authorized cryptocurrency exchange and hold them in authorized and managed digital wallets. Since it holds Bitcoin directly, the value of the ETF is closely tied to the real-time price movements of Bitcoin.<\/p>\n\n\n\n<p>When you invest in the ETFs listed by these Bitcoin-owning ETFs (Spot Bitcoin ETFs) , the firm that manages these funds issues shares of its holdings in the form of ETF units. Thus, even though you buy financial units (ETFs) on a stock exchange, you are indirectly investing in the underlying asset, Bitcoin.<\/p>\n\n\n\n<p>This is so because these approved Spot Bitcoin ETFs are not allowed to have one specific type of redemption, i.e., in-kind redemption. They are permitted cash-only redemption, which means when you sell on an exchange, you get a Dollar bill and not the actual Bitcoin equal to the redemption value.\u00a0<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"List_of_11_Spot_Bitcoins_Approved_by_SEC_on_10Th_January_2024\"><\/span>List of 11 Spot Bitcoins Approved by SEC on 10Th January 2024<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Securities Exchange Commission (SEC) has approved the following list of spot Bitcoin ETFs<\/p>\n\n\n\n<ol>\n<li><strong>ARK 21Shares Bitcoin ETF<\/strong>&nbsp;(NYSE:<strong>ARKB<\/strong>)<\/li>\n\n\n\n<li><strong>Bitwise Bitcoin ETF&nbsp;<\/strong>(NYSE:<strong>BITB<\/strong>)<\/li>\n\n\n\n<li><strong>Blackrock&#8217;s iShares Bitcoin Trust<\/strong>\u00a0(NASDAQ:<strong>IBIT<\/strong>)<\/li>\n\n\n\n<li><strong>Franklin Bitcoin ETF<\/strong>&nbsp;(NYSE:<strong>EZBC<\/strong>)<\/li>\n\n\n\n<li><strong>Fidelity Wise Origin Bitcoin Trust<\/strong>&nbsp;(NYSE:<strong>FBTC<\/strong>)<\/li>\n\n\n\n<li><strong>Grayscale Bitcoin Trust<\/strong>\u00a0(NYSE:<strong>GBTC<\/strong>)<\/li>\n\n\n\n<li><strong>Hashdex Bitcoin ETF<\/strong>\u00a0(NYSEARCA:<strong>DEFI<\/strong>)<\/li>\n\n\n\n<li><strong>Invesco Galaxy Bitcoin ETF<\/strong>&nbsp;(NYSE:<strong>BTCO<\/strong>)<\/li>\n\n\n\n<li><strong>VanEck Bitcoin Trust<\/strong>&nbsp;(NYSE:<strong>HODL<\/strong>)<\/li>\n\n\n\n<li><strong>Valkyrie Bitcoin Fund<\/strong>&nbsp;(NASDAQ:<strong>BRRR<\/strong>)<\/li>\n\n\n\n<li><strong>WisdomTree Bitcoin Fund<\/strong>&nbsp;(NYSE:<strong>BTCW<\/strong>)<\/li>\n<\/ol>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_Bitcoin_ETFs\"><\/span>What are Bitcoin ETFs?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Often, when people refer to a &#8220;Bitcoin ETF&#8221; without the &#8220;spot&#8221; qualifier, they are referring to a fund that invests in Bitcoin\u00a0<strong>futures<\/strong>\u00a0<strong>contracts<\/strong> rather than directly holding Bitcoin.\u00a0These ETFs<strong> track the price of Bitcoin futures traded on commodities exchanges.<\/strong> So, their underlying asset is not the actual Bitcoins .<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Spot_BitCoin_ETFs_vs_Bitcoin_ETFs\"><\/span>Spot BitCoin ETFs vs Bitcoin ETFs <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Here&#8217;s a comparison between Spot Bitcoin ETFs and Bitcoin ETFs (often futures-based) in a tabular format:<\/p>\n\n\n\n<figure class=\"wp-block-table has-medium-font-size\"><table class=\"has-black-color has-text-color has-background\" style=\"background-color:#fee9b1\"><thead><tr><th>Aspect<\/th><th>Spot Bitcoin ETF<\/th><th>Bitcoin ETF (Futures-Based)<\/th><\/tr><\/thead><tbody><tr><td><strong>Underlying Asset<\/strong><\/td><td>Directly holds Bitcoin.<\/td><td>Invests in Bitcoin futures contracts, not actual Bitcoin.<\/td><\/tr><tr><td><strong>Price Tracking<\/strong><\/td><td>Tracks the current (&#8220;spot&#8221;) price of Bitcoin.<\/td><td>Tracks the price of Bitcoin futures, which may differ from the current Bitcoin price.<\/td><\/tr><tr><td><strong>Regulatory Status<\/strong><\/td><td>Faces more regulatory hurdles, less common.<\/td><td>More commonly approved by regulators like the SEC in the U.S.<\/td><\/tr><tr><td><strong>Market Exposure<\/strong><\/td><td>Provides direct exposure to the actual price of Bitcoin.<\/td><td>Provides exposure to the performance of Bitcoin futures, which can be influenced by market sentiment, contango, and backwardation.<\/td><\/tr><tr><td><strong>Investor Consideration<\/strong><\/td><td>Suitable for investors looking for direct exposure to Bitcoin&#8217;s market price.<\/td><td>Suitable for investors seeking exposure to Bitcoin&#8217;s price movements through a regulated futures market.<\/td><\/tr><tr><td><strong>Storage and Security<\/strong><\/td><td>No need for investors to deal with Bitcoin storage and security.<\/td><td>No direct interaction with actual Bitcoin, as it deals with futures contracts.<\/td><\/tr><tr><td><strong>Potential Price Discrepancy<\/strong><\/td><td>Less likely to have a discrepancy between ETF value and Bitcoin market price.<\/td><td>Futures prices can deviate from the current Bitcoin price, leading to potential discrepancies.<\/td><\/tr><tr><td><strong>Liquidity and Trading<\/strong><\/td><td>Dependent on the liquidity and trading volume of the underlying Bitcoin market.<\/td><td>Relies on the liquidity and depth of the Bitcoin futures market.<\/td><\/tr><\/tbody><\/table><figcaption class=\"wp-element-caption\"><mark style=\"background-color:#ff6900\" class=\"has-inline-color has-white-color\">irstaxapp.com<\/mark><\/figcaption><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Taxation_of_Income_from_Spot_Bitcoin_ETFs\"><\/span>Taxation of Income from Spot Bitcoin ETFs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>An ETF can give income in various forms. It can provide you with Interest , Dividends or share the profits on selling of assets it holds. But most of the time , you can earn (or lose) on the buying and selling of ETFs like any mutual fund units.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">(i) Buying &amp; Selling of ETFs<\/h3>\n\n\n\n<p>The first rule of taxation of Spot Bitcoin ETF is that nothing related to cryptocurrency applies here. Every rule of computing capital gains that applies to mutual fund units or shares also applies to the purchase and sale of Spot Bitcoin ETFs. If you invest, capital gains or losses may arise, whether short-term or long-term, depending on the Spot BitCoin ETF units&#8217; holding period.<\/p>\n\n\n\n<p>For example, say Richard bought 100 units of Bitwise Bitcoin ETF Trust (BITB ) on 11 January 2024 at $20.00 and sold the same after one year at $ 40. He earns <a href=\"https:\/\/www.irstaxapp.com\/capital-gains-under-us-tax-law\/\">Long-term Capital gain<\/a>s (LTCG) of $20( 40-20). The LTCG is taxed at a long-term capital gains rate applicable to the year the sale was made .<\/p>\n\n\n\n<p>Please also note that <strong>IRC Section 1091<\/strong> prevents adjustment of losses incurred on  selling ETF shares at a loss and then repurchase similar shares within 30 days. The <strong>wash sale rule<\/strong>  prevents the recognition of a capital loss in such situations.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">(ii) Dividend by ETFs<\/h3>\n\n\n\n<p>Like stocks, ETFs that pay dividends or interest to investors are taxed at the individual&#8217;s income tax rate. For example, if you receive $100 in dividends from an ETF, this amount is added to your taxable income for the year.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">(iii) In- Kind Redemption<\/h3>\n\n\n\n<p>Many ETFs, especially those that track indexes, is the ability to use in-kind redemptions. This allows the ETF to avoid selling securities to meet redemptions, which can reduce capital gains distributions. But , Spot Bitcoin ETFs are <strong><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-luminous-vivid-orange-color\">NOT allowed for in-kind redemption. It means that when you asked for redemptions , they have to settle in dollars only and they can can give you equal value Bitcoins.<\/mark><\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">(iv) Capital Gains Distribution by Spot BitCoin ETFs<\/h3>\n\n\n\n<p>If the Spot Bitcoin ETFs shares with you the proceeds from the fund&#8217;s sales of Bitcoins from within its portfolio, It is the investor&#8217;s pro-rata share of the proceeds from the fund&#8217;s transactions and taxable in your hand as long term capital gains. <\/p>\n\n\n\n<p>In the current avatar , the taxation rule that applies to general ETFs are also applicable to Spot Bitcoin ETF or Bitcoin ETF. No difference !<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The USA&#8217;s Securities Exchange Commission (SEC) approved\u00a0eleven Spot Bitcoin ETFs on 10 January 2024. But , So, anyone can buy and sell these ETF units. However, unlike usual ETFs, there are slight changes regarding the distribution of benefits\/profits by the Funds to the investors. This post will explore and explain the newly approved Spot Bitcoin [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":7518,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[3848,8],"tags":[],"amp_enabled":false,"_links":{"self":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/7517"}],"collection":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/comments?post=7517"}],"version-history":[{"count":1,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/7517\/revisions"}],"predecessor-version":[{"id":7522,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/7517\/revisions\/7522"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media\/7518"}],"wp:attachment":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media?parent=7517"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/categories?post=7517"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/tags?post=7517"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}