The XBTF structure offers potential tax advantages

RRegulators still haven’t approved a spot bitcoin exchange-traded fund, and the near-term outlook for that remains murky, but U.S. investors still have bitcoin futures-based ETFs to consider.

This group includes the VanEck Bitcoin Strategy ETF (XBTF). The actively managed XBTF debuted last November and currently holds June and July bitcoin futures as well as treasury bills. While a familiar approach among US-listed Bitcoin futures ETFs, XBTF is proof positive that structure matters.

Simply put, XBTF stands out from its rivals because it is structured as a C-corporation (C-corp), not a regulated investment company (RIC). Most traditional ETFs, such as those holding stocks and bonds, are formed as RICs, but with an asset like bitcoin, the C-corp structure is preferred.

“If a fund elects to be treated as a C-Corp for tax purposes, it does not have the same diversification and qualifying income requirements. It will have to pay tax at the fund level and all distributions to investors are also taxable to investors,” noted VanEck Product Manager John Patrick Lee. “This potential for ‘double taxation’ is generally something to be avoided and is why most funds choose to comply with the requirements of the RIC. However, the tax treatment of bitcoin futures, and specifically how a fund structures its investments to meet RIC requirements, can make a C-Corp more tax-efficient, especially for individuals in the highest tax brackets and for corporations.

Adding to XBTF’s appeal is its annual fee of 0.65%, or $65 on a $10,000 stake. This is favorable compared to its rivals in this still young ETF category. However, XBTF has more compelling features, including tax advantages, which could make the fund suitable for satellite positions in retirement accounts.

“While nuanced, tax differences can have a significant impact on shareholder outcomes and are an important consideration for any taxable investor. Investors looking for exposure to Bitcoin futures may find that an ETF structured as a C-Corp can offer better after-tax returns. Considering this, XBTF was deliberately structured as a C-Corp,” VanEck’s Lee added.

In fact, as Lee pointed out, investors who opt for C-body structured bitcoin futures ETFs, such as XBTF, can generate returns up to 16% higher than those offered by RICS-structured rivals in the world. over the years where bitcoin rallies. This difference comes from the fact that XBTF is taxed at 21% at the fund level, while an RIC bitcoin ETF can have taxes of up to 37%.

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