Crypto-facto: Investing in the digital asset age
Article written by InvestNow – 4th October 2021
In a little over 10 years the concept of ‘cryptocurrency’ has emerged from an obscure technical paper outlining a new software protocol for geeks to become a global phenomenon valued by some measures at over US$2 trillion.
However, Satoshi Nakamoto, the pseudonymous author of the 2008 paper that introduced ‘bitcoin’ to the world, never used the term cryptocurrency, describing his (or her or their) digital creation as a “purely peer-to-peer version of electronic cash”.
From a slow start in 2009 when the first bitcoin was ‘mined’, the cryptocurrency universe has rapidly expanded over the last couple of years in particular, driven by spectacular price movements and technical developments.
Bitcoin remains the cornerstone ‘crypto’, hitting an all-time high of almost US$64,000 in April 2021 before almost halving in value and climbing to its current level of about US$43,000: in 2009 the price was about US$0.09 per ‘coin’.
As well as creating over 100,000 millionaires by some estimates, the crypto-craze has spread from the fringes to the centre of finance with retail investors, fund managers, service providers, institutions, central banks and governments now taking the movement seriously.
For example, the NZ parliament held a special inquiry into cryptocurrency this September, attracting over 260 submissions.
The Reserve Bank of NZ (RBNZ) notes in its submission that cryptocurrency – or ‘crypto-assets’ as the central bank prefers to describe the sector – “has experienced significant volatility over the last few years”.
“Between January and May 2021, the sector’s total market capitalisation value tripled to $2.517 trillion before crashing to $1.435 trillion within two weeks,” the RBNZ submission says. “The current figure stands at USD$1.576 trillion. Of this sum, Bitcoin alone is valued at USD$724 billion, while the second-largest scheme, Ethereum, is at $596 Billion. The remainder of the market is composed of more than 11,000 different schemes.”
Blockchain goes mainstream
Despite the price volatility and explosion in cryptocurrency options, the underlying technology established by bitcoin has proved its worth during the 12-year history to date.
The ‘blockchain’ system (also known as digital ledger technology – or DLT) introduced by bitcoin has functioned effectively in creating verifiable digital units of value that can be securely exchanged over the internet.
In its ‘Digital assets going mainstream’ paper published this year, global consultancy firm, Oliver Wyman, says cryptocurrency “… instruments have properties that allow value to be stored, transferred, tokenized, and rules or processes embedded and autonomously enforced among semi-trusted or untrusted parties.”
“The latter property is a significant innovation that has enabled the creation of digital units with financial or economic elements that can traverse organizational boundaries,” the Oliver Wyman study says. “Digital assets cover a wide spectrum of digital instruments built on a variety of technologies, security, and governance models.”
Essentially, the cryptocurrency experiment has shown that a value exchange system can be securely replicated in digital networks without the need for central banks to play a part.
By contrast, the traditional monetary system relies on central banks ensuring that every dollar – or whatever national currency is in use – retains its value within reasonable limits.
“… maintaining the purchasing power of the New Zealand dollar (NZD) is a key part of the Reserve Bank’s mandate and makes the NZD a safe store of value, a stable medium of exchange and a reliable unit of account,” the RBNZ told the cryptocurrency parliamentary committee.
Risk exchange
Central banks have taken note of some of the technical benefits of cryptocurrency – including fast global payments – and, indeed, most are working on their own versions.
But the rush of retail investors into the sector has largely been motivated by the promise of quick capital gains rather than any interest in financial system efficiencies.
Nasdaq figures cited by the RBNZ submission put the global population of cryptocurrency users at 221 million in June 21 – up about 100 million in the year-to-date.
Given the global online nature of cryptocurrency, users can easily buy bitcoin, or whichever, via any of the multitude of digital exchanges situated around the world.
The ease of purchase creates one of the major risks to cryptocurrency investors in NZ, according to the Financial Markets Authority (FMA).
“As a general observation, most offers of cryptocurrencies and most cryptocurrency exchanges deliberately structure themselves to operate outside of the reach of mainstream markets or securities regulation,” the FMA submission says.
“There has not been a regulated offer of cryptocurrencies yet in New Zealand nor is there a regulated financial product market here. We have however seen a number of offers made in other jurisdictions that may have been taken up by people in New Zealand. The regulatory protections available in such circumstances are very minimal.”
The lack of regulation and offshore domicile of most exchanges has left many NZ cryptocurrency investors vulnerable, the FMA told the parliamentary committee.
For instance, the FMA has recorded approx 60 examples of crypto-related “misconduct” during the first six months of 2021.
“In addition to our work for investors and participants in relation to cryptocurrency as a legitimate, high risk, investment, the FMA receives regular complaints about cryptocurrency-related scams, which are often likely to be scams posing as cryptocurrency opportunities,” the regulator says.
Aside from the risks of fraud and the general high volatility of cryptocurrency prices, investors in the sector face a number of other dangers including:
- theft of assets held in third-party exchanges;
- loss of the digital ‘key’ – or password – that provides access to cryptoassets (an estimated 20% of bitcoin is thought frozen because owners have lost their pass-keys);
- tax compliance issues.
Recently, the Inland Revenue Department (IRD) has issued several rulings on how to treat cryptocurrency for tax purposes – with most transactions liable to a tax on capital gains – but the subject remains murky, according to the Chartered Accountants Australia and NZ (CAANZ) professional organisation.
“Interest in cryptoassets and cryptocurrencies is increasing among businesses and hobbyists alike,” CAANZ told the parliamentary committee. “The taxation of cryptoassets in New Zealand remains problematic. In many instances cryptoassets are developing faster than revenue agencies can issue guidance.”
Stay close to home with local platforms, funds
But NZ investors can manage some of the risks of cryptocurrency investing.
For example, the FMA submission says: “If you want to purchase cryptocurrencies, then use a New Zealand based trading platform as this offers a minimum level of protection.”
In fact, some NZ-based cryptocurrency exchanges such as Easy Crypto are pushing for greater regulation of the sector to provide some certainty for local investors.
Easy Crypto told parliament that it supported an industry “recommendation of the cryptocurrency retailers and the Committee working together to shape industry standards for educating users of the risks of buying or investing in cryptocurrencies, including perhaps, by requiring New Zealand [exchanges] to disclose ‘risk warnings’ to their users”.
And Easy Crypto, the largest retail cryptocurrency service in NZ, notes the market is fast-evolving from just direct trading by individuals to more sophisticated products built to institutional-grade security.
“Large institutions and fund managers are allocating at least a small portion of their portfolios to Bitcoin for various reasons, including a hedge against inflation caused by Covid-19 related fiscal and monetary stimulus and as an investment,” Easy Crypto says. “More conventional financial products like derivatives and exchange-traded funds are being built around the world to provide institutional and everyday investors with indirect economic exposure to Bitcoin, and to a lesser degree, other crypto-currencies.”
The FMA also highlights the global trend to crypto-based managed funds.
“We have recently seen this interest reflected in the New Zealand market. Where managed funds invest themselves in digital assets this provides exposure to those assets for investors in the managed funds,” the regulator says. “Retail offers of interests in managed funds in New Zealand must be made by licensed fund managers, and are subject to specific disclosure requirements, so this activity is regulated. The FMA has engaged with some fund managers to ensure that their disclosure to investors adequately reflects the nature of the risks involved in investment by such funds.”
Regulation cannot – and should not – protect investors from the volatility of cryptocurrencies, or any other asset. But for risk-conscious NZ investors, regulated funds offer the safest vehicle to explore the strange new world of crypto – and they don’t need Satoshi Nakamoto at the wheel.
InvestNow makes bitcoin fund available for NZ clients
And in line with the move noted by the FMA, InvestNow, now offers an innovative new NZ-domiciled digital asset investment fund.
The Vault International Bitcoin Fund is the first licensed portfolio investment entity (PIE) vehicle explicitly offering access to cryptoassets for NZ retail clients.
Vault Digital Funds, founded in 2021 and partnered with Easy Crypto, will invest into a number of underlying offshore-based funds specialising in bitcoin including the Grayscale Bitcoin Trust and the Galaxy Bitcoin ETF through the new vehicle.
“We saw a growing demand for a simple, smart and regulated fund product. One that has all the potential of Bitcoin exposure, but without the risks of managing your own Bitcoin custody,” says Vinnie Gardiner, CEO of Vault Digital Funds.
“Whilst Bitcoin is still very volatile, there are many exciting developments happening globally in this space – we want kiwis to be cognisant of this, and to be ahead of the curve in relation to Bitcoin knowledge and adoption,” says Gardiner.
InvestNow parent Implemented Investment Solutions (IIS) stands as the official legal entity offering the Vault fund that, according to the product disclosure statement, brings “digital asset investment products to Kiwis so they don’t have to send money overseas to buy or store digital assets”.
Anthony Edmonds, IIS founder, said the Vault product solves many of the safe-keeping, tax and other digital asset concerns of NZ investors.
“Obviously, bitcoin remains an extremely volatile asset but a rapidly growing number of New Zealanders want to invest in cryptocurrencies,” Edmonds said. “And we think they deserve to invest in digital assets in the most robust way possible – through a professionally managed NZ-based fund subject to local laws and best-practice administration.”
For Vault Digital Funds, InvestNow was a logical choice for bringing this fund to retail Kiwi investors.
Gardiner said, “InvestNow has a fantastic image in the marketplace, and is innovative in their approach to bringing products to market. Anthony, Mike and the team saw that the Vault fulfilled a need in the marketplace, and swiftly embraced the opportunity to bring NZ’s first Bitcoin PIE Fund to Kiwi investors – it has been a pleasure working with such a professional and committed team.”
The Vault International Bitcoin Fund is available today on InvestNow.
To learn more about Vault Digital Funds and/or to view a PDS for their fund, click here. For additional information on Bitcoin, we recommend you read the “Introductory Guide to Bitcoin” co-authored by Implemented Investment Solutions, Vault Digital Funds and Easy Crypto.
Crypto-facto: Investing in the digital asset age
Article written by InvestNow – 4th October 2021
In a little over 10 years the concept of ‘cryptocurrency’ has emerged from an obscure technical paper outlining a new software protocol for geeks to become a global phenomenon valued by some measures at over US$2 trillion.
However, Satoshi Nakamoto, the pseudonymous author of the 2008 paper that introduced ‘bitcoin’ to the world, never used the term cryptocurrency, describing his (or her or their) digital creation as a “purely peer-to-peer version of electronic cash”.
From a slow start in 2009 when the first bitcoin was ‘mined’, the cryptocurrency universe has rapidly expanded over the last couple of years in particular, driven by spectacular price movements and technical developments.
Bitcoin remains the cornerstone ‘crypto’, hitting an all-time high of almost US$64,000 in April 2021 before almost halving in value and climbing to its current level of about US$43,000: in 2009 the price was about US$0.09 per ‘coin’.
As well as creating over 100,000 millionaires by some estimates, the crypto-craze has spread from the fringes to the centre of finance with retail investors, fund managers, service providers, institutions, central banks and governments now taking the movement seriously.
For example, the NZ parliament held a special inquiry into cryptocurrency this September, attracting over 260 submissions.
The Reserve Bank of NZ (RBNZ) notes in its submission that cryptocurrency – or ‘crypto-assets’ as the central bank prefers to describe the sector – “has experienced significant volatility over the last few years”.
“Between January and May 2021, the sector’s total market capitalisation value tripled to $2.517 trillion before crashing to $1.435 trillion within two weeks,” the RBNZ submission says. “The current figure stands at USD$1.576 trillion. Of this sum, Bitcoin alone is valued at USD$724 billion, while the second-largest scheme, Ethereum, is at $596 Billion. The remainder of the market is composed of more than 11,000 different schemes.”
Blockchain goes mainstream
Despite the price volatility and explosion in cryptocurrency options, the underlying technology established by bitcoin has proved its worth during the 12-year history to date.
The ‘blockchain’ system (also known as digital ledger technology – or DLT) introduced by bitcoin has functioned effectively in creating verifiable digital units of value that can be securely exchanged over the internet.
In its ‘Digital assets going mainstream’ paper published this year, global consultancy firm, Oliver Wyman, says cryptocurrency “… instruments have properties that allow value to be stored, transferred, tokenized, and rules or processes embedded and autonomously enforced among semi-trusted or untrusted parties.”
“The latter property is a significant innovation that has enabled the creation of digital units with financial or economic elements that can traverse organizational boundaries,” the Oliver Wyman study says. “Digital assets cover a wide spectrum of digital instruments built on a variety of technologies, security, and governance models.”
Essentially, the cryptocurrency experiment has shown that a value exchange system can be securely replicated in digital networks without the need for central banks to play a part.
By contrast, the traditional monetary system relies on central banks ensuring that every dollar – or whatever national currency is in use – retains its value within reasonable limits.
“… maintaining the purchasing power of the New Zealand dollar (NZD) is a key part of the Reserve Bank’s mandate and makes the NZD a safe store of value, a stable medium of exchange and a reliable unit of account,” the RBNZ told the cryptocurrency parliamentary committee.
Risk exchange
Central banks have taken note of some of the technical benefits of cryptocurrency – including fast global payments – and, indeed, most are working on their own versions.
But the rush of retail investors into the sector has largely been motivated by the promise of quick capital gains rather than any interest in financial system efficiencies.
Nasdaq figures cited by the RBNZ submission put the global population of cryptocurrency users at 221 million in June 21 – up about 100 million in the year-to-date.
Given the global online nature of cryptocurrency, users can easily buy bitcoin, or whichever, via any of the multitude of digital exchanges situated around the world.
The ease of purchase creates one of the major risks to cryptocurrency investors in NZ, according to the Financial Markets Authority (FMA).
“As a general observation, most offers of cryptocurrencies and most cryptocurrency exchanges deliberately structure themselves to operate outside of the reach of mainstream markets or securities regulation,” the FMA submission says.
“There has not been a regulated offer of cryptocurrencies yet in New Zealand nor is there a regulated financial product market here. We have however seen a number of offers made in other jurisdictions that may have been taken up by people in New Zealand. The regulatory protections available in such circumstances are very minimal.”
The lack of regulation and offshore domicile of most exchanges has left many NZ cryptocurrency investors vulnerable, the FMA told the parliamentary committee.
For instance, the FMA has recorded approx 60 examples of crypto-related “misconduct” during the first six months of 2021.
“In addition to our work for investors and participants in relation to cryptocurrency as a legitimate, high risk, investment, the FMA receives regular complaints about cryptocurrency-related scams, which are often likely to be scams posing as cryptocurrency opportunities,” the regulator says.
Aside from the risks of fraud and the general high volatility of cryptocurrency prices, investors in the sector face a number of other dangers including:
- theft of assets held in third-party exchanges;
- loss of the digital ‘key’ – or password – that provides access to cryptoassets (an estimated 20% of bitcoin is thought frozen because owners have lost their pass-keys);
- tax compliance issues.
Recently, the Inland Revenue Department (IRD) has issued several rulings on how to treat cryptocurrency for tax purposes – with most transactions liable to a tax on capital gains – but the subject remains murky, according to the Chartered Accountants Australia and NZ (CAANZ) professional organisation.
“Interest in cryptoassets and cryptocurrencies is increasing among businesses and hobbyists alike,” CAANZ told the parliamentary committee. “The taxation of cryptoassets in New Zealand remains problematic. In many instances cryptoassets are developing faster than revenue agencies can issue guidance.”
Stay close to home with local platforms, funds
But NZ investors can manage some of the risks of cryptocurrency investing.
For example, the FMA submission says: “If you want to purchase cryptocurrencies, then use a New Zealand based trading platform as this offers a minimum level of protection.”
In fact, some NZ-based cryptocurrency exchanges such as Easy Crypto are pushing for greater regulation of the sector to provide some certainty for local investors.
Easy Crypto told parliament that it supported an industry “recommendation of the cryptocurrency retailers and the Committee working together to shape industry standards for educating users of the risks of buying or investing in cryptocurrencies, including perhaps, by requiring New Zealand [exchanges] to disclose ‘risk warnings’ to their users”.
And Easy Crypto, the largest retail cryptocurrency service in NZ, notes the market is fast-evolving from just direct trading by individuals to more sophisticated products built to institutional-grade security.
“Large institutions and fund managers are allocating at least a small portion of their portfolios to Bitcoin for various reasons, including a hedge against inflation caused by Covid-19 related fiscal and monetary stimulus and as an investment,” Easy Crypto says. “More conventional financial products like derivatives and exchange-traded funds are being built around the world to provide institutional and everyday investors with indirect economic exposure to Bitcoin, and to a lesser degree, other crypto-currencies.”
The FMA also highlights the global trend to crypto-based managed funds.
“We have recently seen this interest reflected in the New Zealand market. Where managed funds invest themselves in digital assets this provides exposure to those assets for investors in the managed funds,” the regulator says. “Retail offers of interests in managed funds in New Zealand must be made by licensed fund managers, and are subject to specific disclosure requirements, so this activity is regulated. The FMA has engaged with some fund managers to ensure that their disclosure to investors adequately reflects the nature of the risks involved in investment by such funds.”
Regulation cannot – and should not – protect investors from the volatility of cryptocurrencies, or any other asset. But for risk-conscious NZ investors, regulated funds offer the safest vehicle to explore the strange new world of crypto – and they don’t need Satoshi Nakamoto at the wheel.
InvestNow makes bitcoin fund available for NZ clients
And in line with the move noted by the FMA, InvestNow, now offers an innovative new NZ-domiciled digital asset investment fund.
The Vault International Bitcoin Fund is the first licensed portfolio investment entity (PIE) vehicle explicitly offering access to cryptoassets for NZ retail clients.
Vault Digital Funds, founded in 2021 and partnered with Easy Crypto, will invest into a number of underlying offshore-based funds specialising in bitcoin including the Grayscale Bitcoin Trust and the Galaxy Bitcoin ETF through the new vehicle.
“We saw a growing demand for a simple, smart and regulated fund product. One that has all the potential of Bitcoin exposure, but without the risks of managing your own Bitcoin custody,” says Vinnie Gardiner, CEO of Vault Digital Funds.
“Whilst Bitcoin is still very volatile, there are many exciting developments happening globally in this space – we want kiwis to be cognisant of this, and to be ahead of the curve in relation to Bitcoin knowledge and adoption,” says Gardiner.
InvestNow parent Implemented Investment Solutions (IIS) stands as the official legal entity offering the Vault fund that, according to the product disclosure statement, brings “digital asset investment products to Kiwis so they don’t have to send money overseas to buy or store digital assets”.
Anthony Edmonds, IIS founder, said the Vault product solves many of the safe-keeping, tax and other digital asset concerns of NZ investors.
“Obviously, bitcoin remains an extremely volatile asset but a rapidly growing number of New Zealanders want to invest in cryptocurrencies,” Edmonds said. “And we think they deserve to invest in digital assets in the most robust way possible – through a professionally managed NZ-based fund subject to local laws and best-practice administration.”
For Vault Digital Funds, InvestNow was a logical choice for bringing this fund to retail Kiwi investors.
Gardiner said, “InvestNow has a fantastic image in the marketplace, and is innovative in their approach to bringing products to market. Anthony, Mike and the team saw that the Vault fulfilled a need in the marketplace, and swiftly embraced the opportunity to bring NZ’s first Bitcoin PIE Fund to Kiwi investors – it has been a pleasure working with such a professional and committed team.”
The Vault International Bitcoin Fund is available today on InvestNow.
To learn more about Vault Digital Funds and/or to view a PDS for their fund, click here. For additional information on Bitcoin, we recommend you read the “Introductory Guide to Bitcoin” co-authored by Implemented Investment Solutions, Vault Digital Funds and Easy Crypto.
This is great news! I’m certainly going to make use of this opportunity. Thx for providing this product. I just want to mention that for the same reason I do not prefer buying single stock, but rather invest in ETFs like FNZ aka NZ top 50, the same should be considered for crypto investments. Is crypto part of our future, I strongly believe most certainly yes. Will it be Bitcoin? Now that is questionable especially due to its high electricity usage and slow transactions per second. I want to invest in the top 10 crypto like I invest in ETFs. I want to know I have the top 10 crypto and if bitcoin stays or fall out of that equation I should not care, because I have the top X cryptos. Products like https://revix.com/products/RVX10 and https://www.easyequities.co.za/crypto/ec10 have better longevity than BTC alone. Hope to see a crypto top 10 soon, but for now I’m buying some of this BTC investment you offer. Thx
Hi Willem, thanks for your comment. I will raise your suggestion with the team from Vault as I know they have other funds/investment options in the pipeline.
Regards Mike Heath
GENERAL MANAGER – INVESTNOW
This is good news. Will this become an available fund type for kiwisaver? i would love to bet my future on crypto.
Hi Nathan
Probably our most frequently asked question about this fund. There are no immediate plans to offer this fund in the InvestNow KiwiSaver Scheme, but we will let everyone know should that change in the future.
Regards, Mike Heath GM InvestNow