The ‘Pot of Gold’ in the Canadian FBC Bitcoin Trust

 

Executive Brief

Approved by the B.C. Securities Commission, as well as registered in the province of Ontario, the Canadian FBC Bitcoin Trust  is the first registered cryptocurrency investment fund in the country. Created by the co-founders of First Block Capital , the trust will allow for the ease of access to bitcoin investing that is badly needed within an industry that has seen many potential investors forced to sit on the sidelines. The open-end investment fund will track the market price of bitcoin, and be offered to accredited investors in a private placement offering through GMP Securities L.P. at the end of September.

Read the full story below. 

Using traditional investment vehicles is key to reaching the mainstream investor. These investors are looking for exposure to bitcoin, but may not be interested in taking on the multi-step tasks, or have the required technical knowledge, to purchase, store, and secure cryptocurrencies. These traditional financial products also allow for more flexibility in retirement and income tax planning, among other things. Once the trust units have been purchased, they can be transferred to a self-directed RRSP (Registered Retirement Savings Plan) or TFSA (Tax Free Savings Account).

It is debatable whether or not wealthy individual accredited investors would benefit from holding this trust in an RRSP. High salaries of over $200,000 often come with a solid pension plan that may leave very little allowable room for contributing to a RRSP. Furthermore, while the contribution is income-tax deductible, the entire withdrawal is taxed as regular income, which means the taxpayer would lose the benefit of any capital gains exemptions on growth. The decision to hold the FBC Bitcoin Trust units in a Registered Retirement Savings Plan should be examined on a case by case basis.

The 'pot of gold' moment for the Canadian taxpayer occurs when they transfer their trust units to a self-directed Tax Free Savings Account. The TFSA was introduced in 2009, and gives every citizen over the age of 18 the opportunity to contribute to a registered account that allows any associated investment income or gain in value, to accumulate tax free. There is a maximum amount you can deposit into a TFSA per year, but it is cumulative, so if you've never opened one until now, your total allowable contribution for 2017 could be as high as $52,000. The limit for 2017 is $5,500.

Even though the maximum yearly contribution is capped at what may seem like a small dollar amount to an accredited investor, the explosive growth potential of cryptocurrencies is too big to ignore. If there had been a registered bitcoin trust like this in 2011 that Canadians were able to invest in, they could be sitting on a gold mine of value appreciation. By transferring the maximum allowed annually to a TFSA on Dec 31st of every year, an investor would be holding the approximate 'equivalent' of 1,470 bitcoin, worth $6.5 million CDN (depending on fees and how the fund is valued). To go out even further on the arm of wishful thinking, if this had been available in 2010, it would have been possible for a limited number of people to accumulate the value of 21,500 bitcoin, or about $95 million CDN. Since it was being held in a TFSA, every dollar of this would be tax free.

It is extremely unlikely bitcoin will ever see the gains of its past, but it still continues to beat the current returns of other available investments by a significant margin. Bitcoin is also not the only coin in town, and the best returns may come from other cryptocurrencies. There is no specific mention of adding additional cryptocurrencies or blockchain projects to this trust, but it is fairly safe to assume that every informed investment firm is scrutinizing the market for that undervalued gem that everyone else seems to have missed. 

If there is a downside to this, it is that investing in the Canadian FBC Bitcoin Trust is limited to accredited investors. Unless you have financial assets totalling $1 million, or total net assets (assets minus liabilities) of $5 million, or a $200,000 salary ($300,000 salary if combined with spouse), you cannot invest. However, should this trust or other products like it become available for investors from all walks of life, people that are receiving any type of income support such as Old Age Security, Disability Benefits, Unemployment Insurance, and/or other income based tax benefits, will not have their benefits reduced by TSFA withdrawals.

The views expressed by the authors on this site do not necessarily represent the views of DCEBrief or the management team.

Author: Cindy Williamson

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