Another Bitcoin Futures ETF was launched today. But Bitcoin itself is sick.

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Three Bitcoin futures exchange-traded funds are currently being traded. The time of dreams

Another exchange-traded fund holding Bitcoin futures is hitting the market, even as the prices of the world’s largest cryptocurrency continue to fall.

The VanEck Bitcoin Strategy Fund (ticker: XBTF) began trading on Tuesday, holding Bitcoin futures contracts listed on the Chicago Mercantile Exchange.

The fund joins two other Bitcoin futures ETFs launched in October: the ProShares Bitcoin Strategy ETF (BITO) and the Valkyrie Bitcoin Strategy ETF (BTF)

All funds get exposure to Bitcoin through futures because the Securities and Exchange Commission has not approved an ETF that could directly hold Bitcoin. Regulators last week rejected VanEcks’ request for a spot ETF, arguing the market could still be manipulated.

The VanEck fund will be less expensive than its competitors, according to the investment management company. Its expense ratio is 0.65% versus 0.95% for the ProShares and Valkyrie ETFs.

VanEck also said his ETF could be more tax efficient for long-term investors because it is structured like a C company rather than a registered investment company, or RIC, the structure of the other two ETFs.

ETFs structured as C-corps must pay taxes at the corporate rate, which is 22.15% for the VanEck fund at state and federal levels. ETFs structured like RICs can avoid fund-level taxation by passing the income on to investors.

This tax burden arises from the daily net asset value of VanEck ETFs, which will make returns worse than those of its competitors in the short term, explained Kyle DaCruz, director of digital asset products at VanEcks.

But DaCruz said long-term investors could get away with it for several reasons. On the one hand, an ETF structured like a C-corp can accumulate tax losses at the fund level, thus offsetting the gains; and he can recover taxes paid on earnings from previous years.

Additionally, a term ETF structured like C-corp can only distribute 40% of the income, which is tax-eligible as qualified dividend income, which equates to long-term capital gains rates typically. from 15 to 20%. The remaining 60% of income is held at the fund level, subject to corporation tax.

An ETF structured like an RIC, on the other hand, must distribute 100% of earnings and income, and it can be taxed at the ordinary income rate of up to 37%.

Both the ProShares and Valykrie ETFs hold Bitcoin futures contracts through a Cayman Islands affiliate, making them ineligible for tax losses accrued at the fund level.

The bottom line: the different tax treatments each have their advantages and disadvantages. If an investor holds a Bitcoin futures ETF in a tax-free account such as an IRA, an ETF structured like a RIC may be the best choice since the investor would not pay taxes anyway.

On the other hand, a C-corp ETF that can accumulate tax losses could prove to be more tax efficient if the price of Bitcoin drops. Its distributions may also be taxed at lower rates if it has a taxable account, compared to an ETF structured like an RIC.

Our fund is suitable for long-term taxable investors, DaCruz said.

Another note: VanEcks ETF can use leverage to maintain targeted exposure to Bitcoin’s debt capital in order to push fund exposure above 100%. This can be great if Bitcoin recovers, but could amplify losses in a declining market.

Indeed, the performance of Bitcoin itself may be more important than taxation and the world’s largest cryptocurrency has struggled in recent times. It fell 5.9% to around $ 60,600 in trading on Tuesday, after plunging to $ 59,000. It is now well below its all-time high of $ 69,000 almost a week ago.

The massive sell-off may reflect new nervousness over China, which has said it will crack down on state-owned enterprises that are involved in mining or producing Bitcoin, according to the digital asset research firm Fundstrat. China also blames crypto mining for its strained energy infrastructure, Fundstrat said.

Another factor weighing on Bitcoin could be the new tax rules in the infrastructure bill that President Joe Biden signed into law on Monday. Crypto brokers may soon be required to issue standard 1099-B forms for transactions, and any business that receives more than $ 10,000 in crypto will need to report it as a cash transaction, including sender identification details. .

Write to Daren Fonda at [email protected]

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