For the first time in New Zealand, retail investors will be able to invest in bitcoin without owning the digital tokens themselves.
While some investment funds have previously had portions of bitcoin, the Vault International Bitcoin Fund is the first to have its entire allocation invested in the asset class.
Bitcoins are a line of code that function as a digital asset. Each bitcoin is unique, and relies on peer-to-peer software to maintain its integrity.
The integrity of the coin is maintained by the ‘blockchain’, an interlinked series of networks which constantly verify the validity of the bitcoins.
The appeal of these cryptocurrencies for many is they offer a store of value that is not linked to any centralised bank, or government.
But because of this, bitcoin can be controversial. Last week the Chinese government announced a ban on the trading of all cryptocurrencies.
Janine Grainger, co-founder of Vault Digital Funds said the move from China had little impact on bitcoin, and actually pointed to its stability as an asset class.
“To have a large component of the operations of the bitcoin network to shut down overnight and for that to not have any impact on the reliability, or the speed of the blockchain, was a real testament to the robustness of these decentralised economies,” Grainger said.
Grainger said the fund was created to be used as part of a diversified portfolio.
“We see this as a great way for people to get that exposure without having to do all the more complicated and technical parts of it themselves,” Grainger said.
Vinnie Gardiner, chief executive and co-founder of Vault Digital Funds said investors should be under no illusions as to the risks associated with cryptocurrencies.
“Bitcoin isn’t appropriate for everyone. This is something that people should not be taking lightly,” Gardiner said.
The element of caution is echoed by Anthony Edmonds, managing director of Invest Now, which will be hosting the fund on its platform.
“This is one of those funds where we are going to be on the front foot and tell people, look, ‘this is risky’. Bitcoin is a really volatile asset class, there is really a need for caution when people are investing into it,” Edmonds said.
Grainger said the fund was designed differently to the way many retail investors currently think about bitcoin.
It was not designed for people to attempt to time the market, but was instead recommended for those who had an investment plan of more than a decade, Grainger said.
Financial adviser Darcy Ungaro said that the fund was a way to bridge a gap between the complex nature of bitcoin and investors who wanted exposure to the asset.
“Over the past three years I have been having conversations where people say bitcoin is a scam, or a fad, something to be avoided. But recently I have been helping more and more people allocate a portion of their portfolio towards it,” Ungaro said.
The dangerous thing about bitcoin was the mistakes investors made with their own two hands, Ungaro said.
“The biggest risk is how investors hold it and store it, what if you lose access to your wallet-keys? In a lot of ways accessing bitcoin through a fund like this is actually safer because it takes care of all the custody issues,” Ungaro said.
Alex Sims, associate professor in commercial law at the University of Auckland, and member of Blockchain NZ said the fund was a sign that cryptocurrencies were growing more and more mainstream.
“The genie is out of the bottle. If you have a New Zealand bank account you can buy cryptocurrency. So it is too late to say ‘no you can’t do this’,” Sims said.
Sims, like Ungaro said bitcoin was here to stay, and the biggest risk to investors was losing their wallet.
She likened holding on to bitcoin in a physical wallet to ‘hiding money under your mattress’.
“Bitcoin is high risk, but if you do want exposure then you may as well do it safely. If you are going through a heavily regulated fund that may be a better option for some people,” Sims said.