Bitcoin Futures – Investor Implications:
On December 10, 2017, the Chicago Board Options Exchange (CBOE) became the world’s first
exchange to offer futures contracts for Bitcoin. Shortly after, the Chicago Mercantile Exchange
(CME) followed suit in launching their own futures for Bitcoin on December 17, 2017. Many
believed that the introduction of Bitcoin futures would have an immediate negative effect on the
price of Bitcoin and cryptocurrencies of the like; however, prices have continued to climb in the
short-run.
The common question in many Bitcoin investors’ mind is “what effect will the introduction of
futures have on Bitcoin?” We at MP Group have had the opportunity to speak with some of the
local innovators in the blockchain space and have put together a list of some of the implications
that might arise as a result of the introduction of Bitcoin futures:
1. Financial institutions and investors can build “short” positions in Bitcoin: Prior to the
introduction of Bitcoin futures, it was incredibly difficult (if not impossible) to build a
“short” position in Bitcoin. Now investors can build short positions in Bitcoin by entering
into contracts (futures) to sell Bitcoin at a future date at a prescribed price.
2. Businesses can hedge against Bitcoin fluctuations: Businesses that accept Bitcoin for their
products or services can now enter into futures contracts to sell Bitcoin at a fixed price in the
future. This will allow businesses to more effectively manage their Bitcoin volatility
exposure, and could lead to more businesses accepting Bitcoin for their products or services.
3. Increased legitimacy and liquidity: The introduction of Bitcoin futures will allow
professional and institutional investors to build price exposure in Bitcoin within the confines
of a regulated exchange, such as the CBOE or CME. This will help investors avoid the risks
associated with holding Bitcoin in an online wallet (liquidity risk, security risk).
4. Introduction of Bitcoin Futures ETFs: The introduction of Bitcoin futures will allow
financial institutions to create ETFs with Bitcoin futures as the underlying asset rather than
actual Bitcoin. REX ETFs, VanEck and First Trust have all filed Bitcoin futures ETFs with
the SEC, hoping to be first to market.
Tax implications for investors:
Gains for trading/ investing for longer periods:
Gains on bitcoin and other crptocurrency are treated similar to either trading or buying and holding commodities. Any gains are taxable based on intent. For example if you are actively trading for profits, this would be considered business income. On the other hand if you have a buy and hold strategy, once you sell your positions the gains would be treated as a capital gain for tax purposes (capital gains are taxed at a lower rate since only 50% of the gain is taxable).
Are trading bitcoin or alternative coins for other cryptocurrency dispositions and thus taxable?
There has been a lot of speculation that keeping your positions and gains within the crptocurrency asset class is not taxable. Some positions even make logical sense since a lot of the tokens are built on top of the ethereum blockchain for example. However, when it comes to CRA they will always look at the intent of transaction. For example, if you are looking to invest or trade for capital gains/business profits this will treated as such. Therefore, we recommend you seek professional advice from a qualified tax accountant that understands cryptocurrency.
MP Group is Canada's first Accounting & Advisory Firm for Blockchain. Visit the partner section or contact us for more information.
