“Bitcoin Futures ETF Sidesteps the Character Questions Through Structuring”

Ryan Reneau and Kevin Sweeney article on “Bitcoin Futures ETF Sidesteps the Character Questions Through Structuring”

In an article published on November 23, 2021 in Bloomberg Tax, Senior Counsel Ryan Reneau and Shareholder Kevin Sweeney discuss the structure and tax implications of a newly-created exchange-traded fund (ETF) designed to provide investors exposure to Bitcoin. Due to the popularity of cryptocurrency investors had to find creative ways to invest.

“It is the first of its kind,” explains Sweeney and Reneau. “It achieves this goal through a creative structure, which comes at the cost of increased complexity and potentially unfavorable treatment to its taxable shareholders.”

Sweeney and Reneau further explain that although Bitcoin has been determined to be a commodity in other contexts, IRS guidance to date merely states that Bitcoin should be considered personal property and not a currency for federal tax purposes. “Investing directly in Bitcoin and Bitcoin futures results in significant risk to funds if they desire RIC status,” said Sweeney and Reneau.

The structure implemented by the Fund avoids significant uncertainties plaguing the blockchain fund community concerning the federal tax characterization and treatment of cryptocurrency investments. However, the creative structure employed is not without costs due to its complexity and interaction with the US international tax regime. In addition to the financial impact, investors should consider that laws and regulations concerning these international tax regimes often change.

To view the article on Bloomberg Tax, click here.