On January 10, 2024, the SEC approved the listing and trading of 11 spot bitcoin exchange-traded products. These products, known as spot bitcoin ETFs, began trading on January 11, 2024. Now that they are officially on the market, a natural — and important — question is, how will they be taxed?
Tax Treatment of Bitcoin in Prior Years
For the last several years, investors have been able to gain exposure to bitcoin through funds that traded futures contracts. Many of these funds are taxed as regulated investment companies (RICs), similar to open-end mutual funds and ETFs. RICs use a blocker corporation, such as a Controlled Foreign Corporation, to trade bitcoin futures. While this may be an inefficient approach from a tax perspective, it allows the fund to meet RIC qualification requirements.
