How to buy Bitcoin ETFs in Canada vs. the USA?

Regulatory Framework Differences

1. In Canada, Bitcoin ETFs operate under the oversight of provincial securities commissions coordinated by the Canadian Securities Administrators (CSA). These regulators require strict custody arrangements, with assets held by qualified custodians meeting stringent capital and operational standards.

2. The U.S. Securities and Exchange Commission (SEC) maintains a more restrictive stance, historically rejecting spot Bitcoin ETF applications on grounds of market surveillance and manipulation concerns. Approval only came in early 2024 after prolonged legal pressure and structural concessions from issuers.

3. Canadian ETFs launched as early as February 2021, making the Toronto Stock Exchange (TSX) the first major exchange globally to list a physically backed Bitcoin ETF. This head start enabled local firms like Purpose Investments and Evolve Funds to establish robust trading infrastructure and investor education programs.

4. U.S. ETFs are subject to Rule 12b-1 fees and additional compliance layers tied to the Investment Company Act of 1940, which do not apply to Canadian counterparts governed under National Instrument 81-102.

Trading Access and Brokerage Requirements

1. Canadian investors can purchase Bitcoin ETFs through any IIROC-regulated brokerage—such as Questrade, Wealthsimple Trade, or RBC Direct Investing—using standard registered accounts like RRSPs, TFSAs, or non-registered accounts without special permissions.

2. U.S. retail investors face tighter brokerage gatekeeping. While platforms like Fidelity, Charles Schwab, and Interactive Brokers support Bitcoin ETFs, some require margin eligibility verification or minimum account balances before enabling trades.

3. Canadian ETFs trade in CAD and settle in Canadian dollars, eliminating currency conversion friction for domestic investors. U.S. ETFs trade in USD, forcing Canadian residents using U.S.-based brokers to manage FX exposure and potential withholding tax complications.

4. Order types available differ: TSX-listed Bitcoin ETFs support limit orders, stop-limit orders, and market orders during regular and extended hours. Nasdaq- and NYSE-listed ETFs restrict certain order types outside core market hours, affecting arbitrage responsiveness.

Custody and Asset Backing Standards

1. All CSA-approved Bitcoin ETFs must hold 100% of underlying assets in cold storage with third-party custodians audited annually by Big Four accounting firms. Purpose Bitcoin ETF (BTCC), for example, uses Coinbase Custody under a multi-signature governance model.

2. SEC-approved U.S. ETFs also mandate cold storage but allow hybrid custody structures where up to 2% may reside in hot wallets for liquidity management—subject to real-time monitoring and insurance coverage thresholds exceeding $250 million.

3. Canadian ETFs disclose wallet addresses publicly via quarterly holdings reports filed on SEDAR+. U.S. ETFs file Form N-PORT with the SEC, but wallet transparency remains limited due to confidentiality provisions tied to cybersecurity risk disclosures.

4. Theft insurance coverage differs significantly: Canadian funds typically carry policies covering 95% of cold storage value with no self-insured retention. U.S. ETFs often include deductibles ranging from $10 million to $50 million depending on the custodian’s internal risk framework.

Tax Treatment Implications

1. In Canada, gains from Bitcoin ETFs held in non-registered accounts are treated as capital gains, with only 50% of realized gains included in taxable income. Losses can be carried forward indefinitely to offset future capital gains.

2. U.S. investors face ordinary income tax treatment on short-term gains (held under one year) and preferential long-term capital gains rates for holdings over 12 months. No stepped-up basis applies upon inheritance, unlike traditional equities.

3. Canadian TFSA holders enjoy full tax-free growth and withdrawals on Bitcoin ETF returns, including dividends or distributions—even if derived from staking or lending activities embedded in certain fund structures.

4. U.S. IRAs prohibit direct ownership of cryptocurrencies but permit Bitcoin ETFs. However, unrelated business taxable income (UBTI) triggers can arise if the ETF engages in derivatives-based yield strategies, potentially exposing retirement accounts to unexpected tax filings.

Frequently Asked Questions

Q: Do Canadian Bitcoin ETFs pay distributions?Most do not distribute income, as they hold only Bitcoin and generate no yield. A few newer funds incorporating DeFi yield strategies may issue taxable distributions, disclosed in their management information circulars.

Q: Can U.S. citizens buy Canadian-listed Bitcoin ETFs?Yes, but only through brokers offering cross-border trading access—such as Interactive Brokers or Saxo Bank—and subject to IRS reporting requirements including FBAR and Form 8938 if thresholds are met.

Q: Are Bitcoin ETFs in Canada eligible for RESP accounts?Yes, provided the ETF is listed on a designated stock exchange like the TSX and meets the Canada Revenue Agency’s definition of a “qualified investment,” which all CSA-approved Bitcoin ETFs satisfy.

Q: What happens if a Canadian Bitcoin ETF’s custodian fails?The ETF’s trust indenture mandates immediate transfer to a replacement custodian approved by the trustee and securities commission. Investor assets remain segregated and legally protected under the Trust Indenture Act and CSA guidance.