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BTCS Inc. (NASDAQ: BTCS) shares rose more than 40% after announcing the first-ever dividend payable in Bitcoin by a NASDAQ-listed firm. The so-called ‘Bividend,’ short for Bitcoin dividend, will be equivalent to $0.05 per share to shareholders on record as of March 16, 2022. Investors that don’t elect to receive a Bividend can opt for a cash dividend.
Let’s look at BTCS and whether taking the Bividend is a good idea, and what the move could mean for other crypto companies.
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BTCS Inc. is the first publicly-traded cryptocurrency and blockchain pure-play, it’s the company’s sole focus. In addition, the company is the first U.S. public company to mine Bitcoin, implement a digital asset treasury strategy, and secure next-generation proof-of-stake blockchains, putting it at the forefront of the industry.
The company’s primary business is powering and securing next-generation blockchains. In particular, its digital asset analytics platform helps users to evaluate their digital asset portfolio across multiple exchanges. A beta-stage proprietary staking-as-a-service component will also enable users to stake and delegate supported cryptocurrencies.
In addition to its analytics dashboard, the company secures proof-of-stake blockchains by actively processing and validating transactions in exchange for native digital tokens. These blockchains include Ethereum 2.0, Tezos, Cosmos, and other up-and-coming platforms, resulting in $1.2 million in 2021 revenue with expansion plans underway.
BTCS’s dividends are technically a return of capital distribution. Unlike a dividend or capital gains distribution, a return of capital distribution is non-taxable to shareholders unless the distribution exceeds each shareholder’s basis in the stock before the distribution. Instead, the shareholder’s cost basis is reduced by the distribution amount.
Despite the non-taxable nature of Bividends, receiving Bitcoin could complicate things. The IRS considers cryptocurrencies property, meaning they’re subject to capital gains taxes. The initial cost basis for Bitcoin depends on your tax situation, but any further gains from the acquisition point are taxable at the short- or long-term capital gains tax rate.
Shareholders that receive a Bividend will also need to answer ‘Yes’ on Form 1040 when asked if they received cryptocurrencies. While the question doesn’t necessarily mean anything, the IRS has been cracking down on crypto tax evasion in recent years, and the agency could take a closer look at individuals who report owning cryptocurrencies.
BTCS’s Bividend is available to all shareholders who hold their stock with Equity Stock Transfer—the company’s transfer agent—regardless of the number of shares they own. Notably, shareholders who hold their shares at a brokerage firm are considered ‘beneficial owners’ and aren’t eligible to receive the Bitcoin dividend unless they move their shares.
The mechanics of receiving a Bividend might be challenging for those who aren’t already into cryptocurrencies. Investors that opt to receive a Bitcoin dividend need a Bitcoin wallet to receive their payment.
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BTCS’s Bividend might be more trouble than it’s worth. While crypto experts might not have any problems, most retail investors aren’t familiar with setting up a Bitcoin wallet.
Many investors will find it easier to take the cash dividend and purchase Bitcoin in a separate transaction. Or, they might choose to avoid holding direct cryptocurrency altogether and opt for one of the Bitcoin focused ETFs, such as the ProShares Bitcoin ETF (BITO), Valkyrie Bitcoin Strategy Fund (BTF) or Van Eck Bitcoin Strategy Fund (XBTF).
BTCS’s move to declare a Bividend certainly sparked a market movement, but receiving a Bitcoin dividend is impractical for most retail investors. That said, those who want to obtain it can set up a Bitcoin wallet and opt for the Bividend if they hold shares at Equity Stock Transfer before March 16, 2022.
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