Hi Guys, tax question. Surprise :-) I just called my accountant he wasn't helpful.
I'd like to attempt the Grayscale Bitcoin arbitrage trade. I would like to do this buy funding my position with in-kind bitcoin. I bought a few bitcoin early on (wish it was a lot more) and I have just enough for the minimum investment. After the 6 month lockup, GBTC shares can be transferred to a brokerage account and sold at a modest premium to NAV.
I know that I will pay capital gains when I sell GBTC shares, however, I'm unclear if the initial in-kind funding will be a taxable event. And if it is not, will the capital gains on the sale of GBTC shares OTC use the price when funding the trust as cost basis, or will I have to figure out a cost basis for when I bought a couple bitcoin for fun years ago on a long-extinct exchange?
This is from the SEC page on the Grayscale Bitcoin Trust:
The treatment of Bitcoin for U.S. federal income tax purposes is uncertain. "...assuming that the Trust is properly treated as a grantor trust for U.S. federal income tax purposes, each beneficial owner of Shares will be treated for U.S. federal income tax purposes as the owner of an undivided interest in the Bitcoin (and, if applicable, any Incidental Rights and/or IR Virtual Currency) held in the Trust.
That makes me think that an in-kind asset would not be recharacterized by the trust.
Has anyone done this trade using in-kind and filed taxes successfully?
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