Why I’m moving my Bitcoin investments into the Vault International Bitcoin Fund

Janine Grainger – October 2021

In the last couple of years, the crypto space has gained so much more attention than ever before. This caused cryptocurrencies like Bitcoin to become highly valued assets and, despite high volatility, the returns over time have been significant.

For a long time, some people believed that the crypto phenomenon had been a passing fad.  However, by looking at the history of Bitcoin’s network size and value appreciation, it becomes much harder now to dismiss Bitcoin as a “funny internet money bubble”.

Now, corporations, professional investors, and new tech start-ups are doing more than dipping their toes into the crypto space. They genuinely believe that Bitcoin is “digital gold”, and rightfully so for its verifiable limited supply, secure decentralised ledger, and massive liquidity around the globe. 

It is worth noting, however, that for every convert to Bitcoin, there is another who calls into question the future of digital assets and warns against investing in this sector.  Undoubtedly this will remain a speculative and risky area for investors for some time, so investing in Bitcoin won’t be for everyone.  As such, the standard disclaimers about reading the disclosure material and seeking professional independent advice apply more than ever when it comes to investing in cryptocurrencies like Bitcoin, or funds like the Vault International Bitcoin Fund (VIBF).

I am not a Bitcoin trader

I also believe Bitcoin has potential as digital gold and a global currency of the future. However, I have a specific way of investing in Bitcoin. 

Many people are familiar with Bitcoin trading. Traders are professionals who monitor the market for opportunities to earn a few percentages of profit around the clock. Once this opportunity presents itself, they would put a large capital at stake to buy low and sell high. 

There’s potentially a lot of money to be made, but there can also be huge losses. Being a trader takes a huge amount of time and skill, not to mention emotional energy to weather the ups and downs. A bit of luck doesn’t hurt either!

I am not a Bitcoin trader, in a strict sense. I’m a “hodler” and I also run Easy Crypto, New Zealand’s most popular platform for buying and selling cryptocurrencies. Just like many of my customers, I believe that chasing the market isn’t worth the trouble, and instead I am better to just hold (or “hodl”) assets rather than actively trade them. 

Additional Work for Crypto Traders

Even if a trader claims to be able to outperform common investing approaches, like dollar-cost averaging, there are still many challenges to consider. These challenges don’t even have anything to do with the job of trading:

1. Tax filing. For traders, trading profits are subject to tax, and must be reported as accurately as possible to avoid conflict with Inland Revenue. Professional traders need to have a reliable accounting system set up to automatically store, process, and report tax deductibles from trading activities.
   
2. Security. Most retail trading makes place on centralised crypto trading platforms. Rapid movement of assets means tha tit make sense to rely on custodial wallet system. Those who prefer to rely on self-custody will have to trade on unregulated decentralised platforms. Crypto wallet security and recovery also requires time to fully understand.

Investing in Bitcoin Could Get A Lot Simpler with A Bitcoin Fund

There are two ways to invest in Bitcoin. The first is to buy Bitcoin from a crypto exchange or retailer, and to have them transferred to your own crypto wallet. With this method, you are free to control every divisible unit of Bitcoin, and enjoy the freedom of a completely peer-to-peer transaction.

With this freedom comes certain responsibilities, of course. You must do everything yourself — setting up a new crypto wallet, keeping them safe, calculating your profit relative to the present market value, and more! You would be completely responsible for storage, security, and complying with tax laws.

Another way, my new favourite way, is to invest through a Bitcoin Fund via a Portfolio Investment Entity (PIE), which invests in carefully selected Bitcoin Funds and Exchange Traded Funds (ETF). These underlying Funds and ETFs in turn, hold Bitcoin in institutional-grade cold storage. 

The Vault International Bitcoin Fund (VIBF) is the first Bitcoin PIE fund made available to Kiwi investors. Below are some of the most notable benefits of investing via VIBF:

1. You delegate managing your investments to a licensed fund manager
   Investing in Bitcoin has risks, but you don’t need to expose yourself to these risks all on your own. VIBF is managed by a New Zealand-based manager who is licensed by the Financial Markets Authority. 
   
2. You delegate the responsibility for asset security and storage
   When you invest in VIBF, you are indirectly getting exposure to Bitcoin. As no actual Bitcoin will be delivered to you,  you don’t need to prepare a crypto wallet. Instead, the safekeeping of Bitcoin is undertaken by the underlying funds that are chosen by VIBF, who use institutional-grade cold storage as a means to secure the digital assets. 
   
3. There is no tax on your realised capital gains
   As the VIBF is taxed under the Fair Dividend Rate (FDR) rules, you will pay no tax on any realised capital gains. This is very different from having to sell Bitcoin on your own at an exchange, and subsequently having to pay capital gains tax, at your marginal tax rate.
   The VIBF invests in offshore listed funds and ETFs, with these investment types being treated as global equities for tax purposes. The annual “deemed rate of return” to calculate taxable income is set at 5% per annum and attributed to investors who pay a maximum 28% tax on that 5% deemed income. In effect, this makes the maximum tax rate on the VIBF PIE Fund as 1.4% per annum.
   Note that this tax is due regardless of the movement in the underlying value of the asset. If Bitcoin goes up in value significantly, this would be a huge benefit, however if it decreases in value there is still tax to pay, on top of the loss made. 
   
4. Tax filing is easy
   As part and parcel of a professional Bitcoin fund management service, the process is simplified for investors in the VIBF — including tax calculations. VIBF’s administrator, Adminis, deducts the appropriate level of PIE tax for you, and pays it to the Inland Revenue on your behalf. This PIE tax is a final tax.

Investing in Bitcoin The Smart Way 

For me, personally, it makes complete sense to access Bitcoin via the Vault International Bitcoin Fund as a way of  reducing the storage, security, and regulatory risks of investing in such an asset.

Disclaimer

Janine Grainger is a director and shareholder of Vault Digital Funds Limited who are the investment manager and promoter of the Vault International Bitcoin Fund.

Past performance is not indicative of future performance.    

An investment in the Vault International Bitcoin Fund (VIBF) is a highly speculative investment.  Bitcoin is a highly volatile asset.  This means the VIBF will not be appropriate for all investors.  You should read the disclosure material before investing.  You should also seek advice from an independent financial adviser to help you make investment decisions.

Implemented Investment Solutions Limited is the issuer and manager of Vault Digital Funds (Scheme). For a Product Disclosure Statement please visit: www.iisolutions.co.nz  or https://disclose-register.companiesoffice.govt.nz/