Did you know you can hold Bitcoin indirectly in your registered accounts in Canada with Bitcoin ETFs? ETFs (exchange-traded funds) now exist that allow Canadians to gain exposure to Bitcoin in a Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP). Purpose Investments was the first to launch a Bitcoin ETF in early 2021 and also an Ethereum ETF (the second largest cryptocurrency) shortly after.
We go over the benefits and disadvantages as well as how to hold these ETFs below.
Note: this guide is strictly for educational purposes and is not investment advice. Investing in cryptocurrency is highly risky and we recommend always doing your research!
Benefits of Holding a Bitcoin ETF in Your Registered Accounts
One of the main benefits of holding a Bitcoin ETF in your TFSA or RRSP is that capital gains taxes are not incurred when you sell inside your accounts.
Inside a TFSA, any gains from the sale of an ETF are never taxed, even when you withdraw the full amount from your account. For an RRSP, which is a tax-deferred account, capital gains taxes are also avoided. However, withdrawals from an RRSP will be treated and taxed as ordinary income. Always ask your accountant or financial advisor to determine what works best for you.
Simple to Trade
With a Bitcoin ETF, it is very easy to trade as they can be bought and sold like any other stock or ETF. ETFs reduce the complexity of holding Bitcoin directly because you avoid the hassle of owning a digital wallet and private keys.
Holding a Bitcoin ETF in a registered account is a good alternative to gain exposure to Bitcoin. However, there are also some disadvantages.
Disadvantages of Holding a Bitcoin ETF in Your Registered Accounts
You Don't Own Your Private Keys
“Not your keys, not your coins” is one of the most important rules when holding Bitcoin. When you own your private keys, (a unique password consisting of a string of words), you have 100% control and access to your Bitcoin.
However, when you purchase shares of an ETF, the fund manager is responsible for buying the coins and holding them in their custody. The investment company holds the Bitcoin in cold storage under their own private keys. You do not physically own your Bitcoin, only the shares of the ETF.
Limited Trading Hours
Another disadvantage of owning a Bitcoin ETF is that it can only be bought and sold when the stock market is open: between 9:30 AM to 4 PM Eastern Time on Weekdays (except holidays). This is different from buying and selling Bitcoin directly, which is possible 24/7, 365 days a year on cryptocurrency brokerages and exchanges.
When holding a Bitcoin ETF, there are fees paid to the investment company for managing the fund. This is called a management expense ratio (MER). A management expense ratio is a percentage of your investment that is paid to the fund manager for the year.
How to Buy Bitcoin ETFs
Bitcoin ETFs can be held in any self-directed brokerage accounts, such as Questrade, WealthSimple, or TD Direct Investing. Any brokerage that allows for the buying and selling of stocks will most likely allow you to buy Bitcoin ETFs.
To buy a Bitcoin ETF, you will first have to open a TFSA or RRSP account at your preferred brokerage. Then you will be required to fund the account in order to buy the ETF. Some Bitcoin ETFs that are bought on the Toronto Stock Exchange (TSX) include:
- BTCC: Purpose Bitcoin ETF FX Hedged
- BTCC.B: Purpose Bitcoin ETF Non-FX Hedged
- BTCC.U: Purpose Bitcoin ETF USD
- EBIT: Evolve Bitcoin ETF
- EBIT.U: Evolve Bitcoin ETF USD
- BTCX.B: CI Galaxy Bitcoin ETF Unhedged
- BTCX.U: CI Galaxy Bitcoin ETF USD
As the cryptocurrency space grows, holding bitcoin ETFs may be a good option to get exposure to the industry. With funds and companies creating more ETF products, other crypto ETFs may become available over time.