Bitcoin ETF Basics for Canadian Traders: Spot vs Futures, Fees, and How to Trade Wisely

Bitcoin exchange‑traded funds (ETFs) have become the most popular way for investors to gain exposure to the digital asset without holding it directly. For Canadians, the mix of spot and futures‑based ETFs, Quebec‑regulated exchanges, and evolving tax rules creates a landscape that can be both exciting and confusing. This post breaks down the essentials: what spot and futures ETFs are, how they differ, where to trade them in Canada, and the practical considerations every trader should keep in mind.

The Rise of Bitcoin ETFs: A Quick Overview

Over the past year, Canada has seen a surge in Bitcoin ETF products. While the U.S. and Europe are still debating each release, Canadian regulators have approved both spot and futures‑based options on the Toronto Stock Exchange (TSX) and TSX Venture Exchange. The result is a diversified product suite that can cater to short‑term traders, long‑term investors, and those who simply want a regulated vehicle for exposure.

Key points to know:

• Spot ETFs hold actual Bitcoin, providing a direct price correlation.
• Futures ETFs invest in Bitcoin futures contracts, often tracking a slightly different economic reality due to roll‑over and contango/ backwardation.
• Canadian ETFs are listed on regulated exchanges and are subject to FINTRAC and CRA oversight.

Spot Bitcoin ETFs – What They Are and Why They Matter

Key Features

• Hold physical Bitcoin through secure custody arrangements.
• Provide daily price drift that closely follows Bitcoin spot.
• Typically have lower expense ratios compared to futures‑based ETF as there’s no contract roll‑over.
• Cash‑settled; no need for traders to juggle margin accounts.

Major Spot ETFs in Canada

• ELO Bitcoin ETF (ELO) – the first spot Bitcoin ETF approved in Canada, launched in 2021.
• Perimeter Bitcoin ETF (BTCC) – launched in 2022, with a robust custody solution.
• Several additional spot ETFs are scheduled for Q3 2024, including the upcoming Fidelity Bitcoin ETF.

Futures‑Based Bitcoin ETFs – Pros and Cons

Understanding Futures

A futures‑based ETF holds contracts that obligate the holder to buy or sell Bitcoin at a future date. Investors gain indirect exposure without holding the underlying digital asset. The contract specifications (e.g., BTC‑USD futures on the CME) influence the ETF’s performance.

Popular Futures ETFs on TSX

• BTC YTD Future ETF (BXET) – designed for year‑to‑date exposure.
• BTC Futures ETF (XBIT) – offers a more nuanced strategy with multiple maturities.

Futures ETFs can suffer from roll‑over costs when low‑quality contracts expire, potentially creating a persistent downside known as contango. Conversely, in a backwardation market, futures ETFs might outperform spot due to the wheel‑effect of earning negative roll‑over costs.

Trading Spot vs Futures ETFs: Practical Considerations

Liquidity & Pricing

• Spot ETFs typically trade at very tight bid‑ask spreads because they reflect the underlying asset’s market.
• Futures ETFs may have slightly wider spreads, especially during periods of contract volatility.

Fees & Expense Ratios

• Spot ETFs: 0.5%–0.8% annual expense ratio.
• Futures ETFs: 1%–1.5% due to contract roll‑over and custody of futures positions.

Regulatory Environment

Canada’s FINTRAC requires ETFs to maintain Anti‑Money Laundering (AML) records. Meanwhile, the Canada Revenue Agency (CRA) treats ETF proceeds as capital gains or business income depending on the investor’s strategy.

Risk Management & Tax Implications

Managing Volatility

• Use stop‑orders for downside protection, especially in futures ETFs that can accelerate price drops during roll‑overs.
• Consider dollar‑cost averaging to mitigate short‑term price swings.
• Keep a close eye on macro‑economic headlines — regulatory announcements can trigger rapid market shifts.

Tax Reporting for Canadian ETF Trades

For Canadian residents:

• Capital gains: realised when you sell the ETF, taxed at your marginal rate.
• Business income: if you trade frequently (within 30 days of buying and selling), CRA may treat profits as business income.
• Record all trades, dividends, and expense ratios for 7 years.

See the CRA official guidance on capital gains for more detail.

Choosing the Right Platform: Canadian Exchanges and Brokerage Options

Bitbuy, Newton, Questrade

These platforms provide direct access to ETF trading on the TSX:

• Bitbuy – removes the need for a brokerage account, targeting retail traders.
• Newton – emphasizes low fees and seamless ETF settlement.
• Questrade – offers robust research tools and competitive order fees.

Cross‑border Considerations

Canadian ETFs can be purchased via U.S. boards (e.g., NYSE) for U.S. traders seeking exposure with Canadian regulatory backing. However, cross‑border trading may incur foreign‑exchange and withholding‑tax implications; consult a tax professional.

Tools & Resources for ETF Trading

Technical Analysis Charts