Can You Buy Cryptocurrency in Your TFSA?
Yes, you can have exposure to cryptocurrencies in your Tax-Free Savings Account (TFSA).
Cryptocurrencies such as Bitcoin and Ether have delivered total returns that far outpace any other asset class since 2009.
The Tax-Free Savings Account or TFSA is an essential tool for Canadian investors trying to generate or preserve wealth.
However, the account wasn’t designed for innovative new digital assets that have been incredibly effective at generating wealth over the past decade.
As such, you unfortunately cannot hold BTC, ETH, or any other cryptocurrency directly in your TFSA.
But there are ways to gain indirect exposure to this asset class.
Here’s a closer look at some of these strategies and crypto-related financial products.
4 Ways to Buy in Crypto in a TFSA
Canada is one of the few countries with publicly-listed crypto firms and exchange-traded funds (ETFs).
These stocks and ETFs have passed through multiple layers of compliance and are structured like any other traditional financial product.
That makes most of them eligible for government-registered tax-efficient accounts such as the TFSA or Registered Retirement Savings Plan (RRSP).
Some of these ETFs closely track the market value of specific cryptocurrencies.
That means you can get nearly-full exposure to the potential upside in these assets.
Other ETFs and stocks enhance the returns which means your potential upside could be even greater than the underlying assets.
Here’s a look at four ways you can buy crypto in your TFSA or RRSP.
1. Crypto ETFs
Crypto ETFs are probably the most convenient way to add digital assets to your TFSA.
Fortunately, Canadian regulators have been ahead of the curve in this sector.
The Ontario Securities Commission (OSC) approved the Purpose Bitcoin ETF (TSX:BTCC) in February 2021, making it the world’s first publicly-traded crypto fund.
Since then, the universe of crypto ETFs has expanded.
There are now over 56 crypto and blockchain-themed ETFs on the Canadian stock exchange.
Most of these qualify for your TFSA, which means you can easily add exposure to any blockchain strategy or cryptocurrency.
A simple Bitcoin ETF should track the market value of BTC within a reasonable margin of error.
You should also consider the management fees and cybersecurity practices of the fund management company to make the right choice for your portfolio.
2. Crypto ETFs With Dividends
A new crop of crypto ETFs has tried to differentiate their products by offering a dividend yield on top of the crypto exposure.
The Purpose Bitcoin Yield ETF (TSX:BTCY) is a perfect example of this.
The ETF holds Bitcoin as an underlying asset.
However, the fund also writes covered call options on roughly 1% of these assets to collect a premium from crypto traders.
This premium is passed along to ETF investors in the form of a dividend.
Purpose Bitcoin Yield’s dividend is volatile and unpredictable.
However, the yields could be substantial.
At the time of writing, the dividend yield is 12.5% – which is far higher than the stock market average.
3. Crypto Mining Stocks
Bitcoin mining firms offer another alternative for investors seeking exposure to this sector.
These corporations own and operate vast server farms that validate transactions on the Bitcoin network.
In return, the network rewards them with newly-minted BTC.
If the market value of BTC exceeds the cost of production (energy and equipment costs), the mining firm can generate substantial profits.
Hut 8 Mining (TSX:HUT) is a good example.
The Toronto-based company currently produces roughly 10.5 BTC every day on average.
The rising value of Bitcoin has been a major tailwind for mining companies like Hut 8.
Adding these stocks to your TFSA could be an ideal strategy for investors seeking crypto exposure.
4. Crypto Payment Processors
Service providers in the digital assets sector could be another alternative for investors.
Companies like Banxa Holdings (TSXV:BNXA) and Voyager Digital (TSE:VOYG) offer fiat-to-crypto conversions and payment solutions.
These companies benefit from the rising value of cryptocurrencies and the growing transaction volumes in this sector.
Adding these stocks to your TFSA could be an unconventional way to bet on crypto’s rising popularity.
Frequently Asked Questions
- Can you buy crypto in an RRSP?
Yes, but not directly. Digital assets cannot be held in such accounts. However, an exchange-traded fund that tracks the market value of a specific cryptocurrency, such as Bitcoin, could qualify for your TFSA and RRSP.
- What are some popular Bitcoin ETFs?
The Purpose Bitcoin ETF (TSX:BTCC) was the world’s first crypto ETF. It currently has $2 billion in assets under management. Other popular Bitcoin ETFs include Evolve Bitcoin ETF (EBIT), CI Galaxy Bitcoin ETF (BTCX) and 3iQ CoinShares Bitcoin ETF (BTCQ). These funds have assets ranging from $144 million to $1 billion.