XBTF’s C-Corp Structure Means You Could See More Of Your Returns

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The VanEck Bitcoin Strategy Fund (XBTF) spear earlier this week, becoming the third bitcoin futures ETF. He joins the ProShares Bitcoin Strategy ETF (BITO) and the Bitcoin Valkyrie Strategy ETF (BTF) using futures contracts to gain exposure to bitcoin, as the SEC has yet to approve an ETF that can directly hold bitcoin.

XBTF differs from other bitcoin futures ETFs in the block in that it is structured as a C company rather than a registered investment company. It has a lower expense ratio – 0.65% versus 0.95% for ProShares and Valkyrie – and the C-corp structure gives it some tax advantages.

Registered investment companies pass all income on to investors. C-corps, on the other hand, must pay taxes at the corporate rate, which will be 22.15% for XBTF. This tax comes directly from the daily net asset value of XBTF, which will make returns “worse than competitors in the short term,” said VanEck’s director of digital asset products Kyle DaCruz in an interview with Barron.

DaCruz is quick to point out how investors can end up asserting themselves in all of this. ETFs structured like RICs distribute 100% of their income, which can be taxed at the ordinary income rate. This can go up to 37%. The C-corp, on the other hand, can distribute 40% of its income in the form of qualified dividend income. Taxes here are similar to long-term capital gains taxes, meaning that instead of potentially suffering a 37% tax impact, investors will only have to pay 15-20%.

The other compelling advantage of a C-corp structure is that it can accumulate tax losses and become even more tax efficient if the price of bitcoin falls. “Our fund is suitable for long-term taxable investors,” said DaCruz.

After a scorching hot November, digital currency has taken a few hits lately, dropping as low as $ 59,000. Some reasons for the sale could be mistrust of China’s crackdown on cryptocurrency and the new infrastructure bill tax rules enacted earlier this week. A new bipartite bill, however, can allay some of these fears.

In the Press release Announcing the launch of XBTF, DaCruz said, “Cost and tax treatment are two key considerations for investors, and we have put both the front and center of the design of XBTF. Investors deserve lower cost, transparent and regulated bitcoin exposures, and we are excited to lead that charge with the launch of XBTF and all of our continued efforts in bitcoin and digital assets.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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