How to put Bitcoin in your ISA or your SIPP

With the recent run-up in Bitcoin price, a number a people in the UK have been wondering how to get some Bitcoin exposure inside their pension or their ISA. While in many jurisdictions such as the US or Canada, it's possible to get exposure to Bitcoin in tax wrappers such as pension funds, the UK financial conduct authority, in its great wisdom, decided that it was way too risky for the average Joe.

Using BTC trackers and funds

The way most people get Bitcoin exposure in tax wrappers is by buying exchange listed trackers such as the Grayscale Bitcoin Trust (GBTC) in the US, the Bitcoin Fund (QBTC.U) in Canada or XBT Provider and BTCetc in Europe. While it was possible to buy such trackers into SIPPs in the past, the FCA made it illegal in early 2020. And the situation will actually get even worse next year since sale of such trackers will be altogether forbidden to all private investors in the UK.

While it's still possible to get Bitcoin exposure directly by buying the cryptocurrency on exchanges such as Coinbase, Kraken or Gemini (and soon Paypal), some people would rather do that into a tax friendly container such as an ISA or a SIPP. And in such containers, you cannot buy cryptocurrencies nor any of the available listed trackers.

But a recent development that we talked about in our previous post is providing an alternative way to achieve that goal in a stealth way. Indeed, as more listed companies put Bitcoin on their balance sheet, and as the price of Bitcoin increases, those companies in effect are becoming virtual Bitcoin ETFs, allowing shareholders to get indirect exposure to Bitcoin if they buy the stock.

Using BTC proxies

If you buy today shares of MicroStrategy, you get a 28% Bitcoin exposure as well. And if you buy shares of Galaxy Digital Holdings you get a whopping 69% exposure. You can find the growing list of such companies there. As their number increases in the next few months, so will your options. We can also imagine that some companies will eventually get an exposure above 100% if they start leveraging their balance sheet by borrowing fiat against their Bitcoins holdings (this is what Hut 8 Mining has started to do already).

Until the regulator changes the rules again, those shares are available today in most ISAs and SIPPs (such as the ones from Saxo Bank and Interactive Investor). One needs to be careful however because some providers such as AJ Bell only provide access to a subset of the foreign equity markets for cost savings reasons (typically only those shares that settle through Crest).

Spread betting as an alternative

Another option often ignored is the use of spread betting platforms to invest tax free in the UK. As spread betting is considered gambling, the gains are exempt of tax in the UK. And it's indeed possible to bet on Bitcoin or its proxies such as MSTR. Two such platforms that allow that in the UK are CMC Markets or City Index. A few words of caution however:

• Because you trade on margin, you position can be closed if the market moves. You should therefore always ensure that you have enough cash to avoid being liquidated by the market provider in case of a big move (which is quite usual for Bitcoin)
• While CFDs (contracts for difference) and spread bets are similar products that allow you to bet on a given outcome, only spread bets are tax free. Most providers who offer spread bets also offer CFDs so be careful when you pick up a product.
• Because those products are leveraged (you can get exposure to a Bitcoin without have to shell out the full value of the Bitcoin upfront), a sudden move could have the provider liquidate your position. If you don't have the full cash value in your account, you need to monitor market changes and as such, BTC proxies such as MicroStrategy are easier to manage since they only need to be monitored during market hours rather than 24/7 like Bitcoin.

So if you believe, like more and more investors, that a portion of your savings should be in a hard asset such as Bitcoin, you now have plenty of options, even in those places where the regulator would want you to avoid doing it. And if you're still on the fence, the best place to start is by following the short journey of MicroStrategy CEO Michael Saylor at hope.com!