How to Buy Bitcoin in Your TFSA

Bitcoin may not qualify as an appropriate investment in your TFSA. But a BTC mining stock like HIVE Blockchain Technologies (TSXV:HIVE) or ETF could be ideal.

| More on:
New virtual money concept, Gold Bitcoins

Image source: Getty Images

Bitcoin broke a record this week and is now trading at an all-time high. Some experts believe the cryptocurrency could surge much higher in the months ahead. If past boom/bust cycles in Bitcoin are any indication, they’re probably right. However, whether Canadian investors can bet on Bitcoin through their Tax-Free Savings Account (TFSA) is up for debate. 

If you’re looking into this market and wondering if there’s any potential tax savings, here’s what you need to know.

Why is Bitcoin surging?

At the time of writing, the price of a single Bitcoin is US$23,000 (CA$30,000). Over the past year, this price has roughly tripled. That’s because some institutional investors and major tech companies have adopted the digital currency this year. 

PayPal and Square, for instance, have integrated BTC on their platform. Now users of these popular mobile wallets can buy and exchange the digital currency effortlessly. That’s added liquidity to the market. 

Meanwhile, hedge fund titans Paul Tudo Jones and Stanley Druckenmiller have added exposure to the asset. One of them even compared it to the digital equivalent of gold. This week, Scott Minerd of Guggenheim Investments — one of the largest asset managers in the world — said his team estimates the price of a single Bitcoin could reach US$400,000 (CA$508,000) at some point. 

The culmination of these factors has probably driven Bitcoin higher. It may be a good time to add some exposure. But if you’re expecting multibagger returns, you may also want to consider the tax implications.  

Can you buy Bitcoin in your TFSA?

If Bitcoin really surges from $30,000 to over $500,000, it’s worth considering if the gains could be protected from the taxman. Now, strictly speaking, you cannot hold Bitcoin (or any other digital asset) in your TFSA directly. However, there are publicly listed proxies that could qualify. 

The Bitcoin Fund (TSX:QBTC), for instance, is designed as an exchange-traded fund (ETF). Each unit of the fund represents 0.001116 BTC. This ETF is up 168% year to date, just like the digital asset in its portfolio. 

In my opinion, this ETF should qualify for your TFSA. However, you may want to check with your accountant or financial advisor to be sure. Another alternative that could be more likely to qualify would be a listed Bitcoin mining stock. 

HIVE Blockchain Technologies (TSXV:HIVE) owns and operates server farms that generate new BTC. Part of these freshly created digital assets are sold to fund expansion, while the rest are held in reserve. At the moment, HIVE has BTC reserves worth millions of dollars. 

HIVE stock has done much better than Bitcoin itself. The stock is up a jaw-dropping 2,600% year to date. In other words, a $5,000 investment in HIVE at the start of this year would be worth $135,000 right now. If the stock was held in a TFSA, those gains would be tax-free right away.

Bottom line

Bitcoin may not qualify as an appropriate investment in your TFSA. But a BTC mining stock or ETF could be ideal.  

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned. Tom Gardner owns shares of Square. The Motley Fool owns shares of and recommends PayPal Holdings and Square and recommends the following options: long January 2022 $75 calls on PayPal Holdings.

More on Investing

analyze data
Dividend Stocks

Got $250? Here Are 3 Smart Stocks to Buy Now

Are you looking for some smart stocks to buy? Here are three options that offer growth and income that you…

Read more »

Maxar Technologies
Tech Stocks

2 Incredible Deals for Your TFSA Today

Investing in MDA Ltd. (TSX:MDA) could increase capital gains in a TFSA account, and here's one REIT to boost tax-free…

Read more »

Profit dial turned up to maximum
Dividend Stocks

2 TSX Stocks to Buy With Dividends Yielding More Than 3%

These two TSX stocks offer ultra-high dividends and, more importantly, stability towards a solid future of passive-income payments.

Read more »

Happy shoppers look at a cellphone.
Investing

Millennials: 3 TSX Stocks to Buy on the Dip

Millennial investors navigating this volatile market should look to snatch up promising TSX stocks like Capital Power Inc. (TSX:CPX).

Read more »

Online shopping
Tech Stocks

Rebound Rockets: 2 TSX Tech Stocks to Buy Before They Soar

Beaten-down TSX stocks such as Lightspeed and Shopify should be on the top of your shopping list given they remain…

Read more »

Female hand holding piggy bank. Save money and financial investment
Dividend Stocks

Passive Income: 3 Top TSX Stocks That Pay Dividends Monthly

Given their high yields, attractive valuations, and stable cash flows, these three TSX stocks are excellent buys for income-seeking investors.

Read more »

stock research, analyze data
Tech Stocks

3 No-Brainer U.S. Stocks for Canadian Investors

Tech stocks may not seem like the best option right now, but these U.S. stocks are simply no-brainers in this…

Read more »

Man making notes on graphs and charts
Dividend Stocks

Put Your Cash to Work: 3 Cheap TSX Stocks (With Dividend Yields of +5%) to Buy Now

Make your money work for you. Earn over 5% dividend yields with these under-$20 stocks.

Read more »