Implemented Investment Solutions (IIS) has hooked up with NZ’s biggest cryptocurrency exchange to release the first dedicated bitcoin portfolio investment entity (PIE) fund.
Officially live on Monday October 4, the Vault International Bitcoin Fund invests in the digital asset class via four underlying managers based in the US and Canada.
Vault was co-founded by Janine and Alan Grainger, owners of NZ-based digital asset exchange, Easy Crypto, which reported about 156,000 users at the latest count.
Under the arrangement, IIS acts as fund-host for the new bitcoin PIE with Vault selecting the underlying managers – currently including the Grayscale Bitcoin Trust and three exchange-traded funds (ETFs) listed on the Toronto Stock Exchange managed by CI Galaxy, 3IQ Coinshares and Purpose.
While some local managers have invested in digital assets – most notably NZ Funds – the new product marks the first bitcoin-only PIE available to retail clients, according to Vinnie Gardiner, Vault chief and co-founder.
Gardiner said the fund structure solves some of the concerns for local bitcoin investors including tax, asset custody and regulatory oversight.
“As a PIE fund, an investor’s [fair dividend rate] FDR tax is capped at 28%, which is an immediate benefit for those people on 33% and 39% tax rates,” he said in a release. “In addition, because PIE is a final tax, it takes all the hassle out of needing to file annual tax returns.”
Of course, the FDR rules apply on an assumed 5 per cent annual gain for any one tax year, regardless of actual performance.
But Gardiner said the Vault fund also makes it far “simpler than investing directly in bitcoin” for local clients.
“The Fund operates in a regulated environment that many Kiwi investors trust and are familiar with,” he said. “Vault only invests in global shares that in turn hold the underlying bitcoin in institutional-grade custody.”
However, the structure does not dilute the extraordinary volatility of bitcoin with the Vault product set at 7 on the regulatory risk dial – the highest possible.
Anthony Edmonds, IIS head, said the “PIE fund doesn’t change the risks around investing in bitcoin, which are considerable”.
“While investors are still exposed to all the risks that come with investing in bitcoin, where the smarts are is in getting the fund taxed under the FDR regime,” Edmonds said in the release.
The IIS-owned direct-to-consumer platform, InvestNow, is first to offer the Vault fund but Gardiner said the product would soon be available via Easy Crypto while the group is aiming for broader advice-based distribution.
“We would be excited to see the fund on platforms like Hatch and Sharesies, as well as the investment platforms like FNZ and Aegis that many investment advisers use,” he said.
Gardiner said Vault recommended investors seek professional advice before buying into the bitcoin fund.
“Bitcoin is not for everyone,” he said. “And we strongly advise people seek financial advice before investing in Vault.”
Nonetheless, Gardiner said Vault had already received a lot of interest from potential investors who were crypto-curious but worried about holding digital assets directly.
Vault carries a total annual fund fee of 2.5 per cent with Public Trust as supervisor and Adminis providing custody and administration. The fund does not hedge against currency risk.
Interest in bitcoin and other digital assets has tipped higher this year in NZ, sparking a recent parliamentary cryptocurrency inquiry and a Reserve Bank of NZ consulation on the ‘future of money’ that might include a local central bank-run digital currency.
Offshore, the Bank of International Settlements also released a new report on the prospect for central bank digital currencies last week while at the same time the International Monetary Fund called out the financial stability risks posed by private cryptocurrenicies.
As usual, the bitcoin price fluctuated considerably last week ranging between US$41,000 or so US$48,000 plus during a torrid seven-day period.