Exposure to Bitcoin
At Vault Digital Funds we want you to make an informed choice as to whether investing in Bitcoin, or the VIBF, is right for you. This 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. Bitcoin has great potential but also carries significant risks. We detail both below.
An Introduction to Bitcoin
The following paper provides an introduction and overview of Bitcoin. All investors should read the disclosure material before investing. You should also seek advice from an independent Financial adviser to help you make investment decisions.
Naturally, there are others who are less positive (or not positive at all) about the future of Bitcoin. The key change we have noticed, however, is that the number of Bitcoin supporters is increasing rapidly.
Crypto.com records global digital asset users increasing from 66 million in May 2020 to 221 million in June 2021.
Is Bitcoin Digital Gold 2.0?
Because gold has a scarcity of supply that is not easily manipulated, its price is largely driven by demand. This is a key characteristic causing gold to traditionally be seen as a store of value and a popular hedge against inflation.
Gold has long been seen as a safe haven asset during crises and has increased considerably in value, particularly in times of high inflation or credit creation. Like every asset, the price of gold goes up, and goes down. Gold also has its limitations as a store of value.
Like gold, Bitcoin is a scarce asset. Only 21 million Bitcoin will ever be created, with over 80% of that total already circulating in the market. The remainder of the available Bitcoin will be mined via decentralised computing power in steadily decreasing amounts until 2140. Unlike gold, in an increasingly digitised world Bitcoin is easily transferable, and so far has proven irreplicable.
Bitcoin’s demand and consequently its price have been steadily increasing since its inception in 2008 (though it has to be said certainly not in a straight line!). The current macro and political backdrop have seen unprecedented central bank currency printing and issuance of government bonds to fund large government deficits.
This global increase in monetary supply is increasing inflationary pressure on assets around the world, and on consumer goods in many third world nations. The finite quality of Bitcoin, which is verifiably scarce, makes it a strong candidate as a hedge against future inflation and currency devaluation.
Maturing Market Confidence
Until recently Bitcoin has been the domain of techies and early adopter retail investors, but this is rapidly changing. As the market matures with mainstream adoption, Hedge Funds, Investment Banks and listed Corporates have entered the Bitcoin market, along with some of the largest and smartest investors in the world.
Rather than investors having to send funds to an overseas exchange and understand the intricacies of hardware wallet storage to safely invest in Bitcoin, well-functioning and regulated platforms such as Vault Digital Funds make Bitcoin accessible to a wider range of investors. Vault Digital Funds provides a simple, smart and trusted way to invest in Bitcoin through a PIE Fund, which is managed and regulated in New Zealand.
Bitcoin As A Payment Mechanism
Bitcoin was designed to act like “A Peer-to-Peer Electronic Cash System,” as it is labelled by anonymous Satoshi Nakamoto in his famous Bitcoin whitepaper in 2008. Recent news from Visa, PayPal and Mastercard entering the broader market have many looking towards Bitcoin (and wider to cryptocurrencies, blockchain and the entire token ecosystem) for its potential in payments.
In early June 2021, 62 of the 84 members of El Salvador’s Legislative Assembly – a whopping 74% – voted to make Bitcoin the country’s official legal tender.
Strike app, from Jack Mallers, is working with El Salvador’s businesses and communities to make it fast and cheap and easy to send and receive tiny amounts of Bitcoin.
Changing investor demographics and the rise of smartphone payment systems like Alipay may be the forerunner to more widespread adoption of Bitcoin and other digital assets as efficient media to exchange information and value.
What Does “Smart Money” Think About Bitcoin
During a recent survey of 1,100 global institutional investors, Fidelity Digital Asset (September 2021) concluded that:
Over 50% of institutions surveyed globally are currently invested in digital assets.
71% of institutional investors surveyed plan to buy or invest in digital assets in the future.
More than 90% of surveyed institutions interested in digital assets expect to have allocations by 2026.
Institutional investors cite high potential upside and low correlation to other assets as two of digital assets’ most appealing features.
Additionally, public listed enterprises are following suit. Between 2020 and 2021 MicroStrategy, a US publicly listed business intelligence firm, bought US$2 billion in Bitcoin, declaring it preferable to cash as a reserve asset.
Digital payment company Square has bought US$50 million in October 2020, declaring that the time was right to diversify its US dollar-denominated balance sheet. In 2020 well established US pension Fund MassMutual purchased US$100 million
in Bitcoin to place on its US$253 billion balance sheet, adding that the decision was representative of the firm’s wider policy of capitalising on new markets while diversifying its asset portfolio.
Wealth managers for individual investors are also waking up to the potential benefits of Bitcoin. In New Zealand, NZ Funds Management’s KiwiSaver growth fund integrated Bitcoin as part of their portfolio.
Digital Assets And Blockchain - Are They The Future?
Much like the internet in the 1990’s, blockchain technologies are emerging that will have the potential to disrupt many existing industries. By providing a digital ledger of transactions that are distributed across the entire network of computer systems, blockchain technology enhances security, transparency and decentralisation for digital assets like Bitcoin.
It is estimated that over 10,000 different Digital Assets or “cryptos” have been created to date, and it may be daunting to navigate through this nascent asset class.
Vault Digital Funds offers a simple, smart and trusted way to invest in the Vault International Bitcoin Fund (VIBF), so you can easily participate in the Bitcoin market.
Digital Assets like Bitcoin are not for everyone, and “tweets” and opinions can have a huge short term impact on market prices. Always do your own research, always seek independent financial advice and if you do decide, after taking advice to invest, only invest a sensible amount of your portfolio - and always remember this is a volatile market that is in the early stages of adoption.
Bitcoin As Part Of A Balanced Portfolio
Although many investors still perceive Bitcoin as a risk asset that is correlated to equities, Galaxy Fund Management, in their research, observed Bitcoin trades similarly to non-fiat stores of value like gold.
Historically, Bitcoin’s correlation among established macro assets typically hovers within +/-0.25 around a zero correlation.¹ Over the last decade, Bitcoin has demonstrated low or even slightly negative correlation to most major global asset classes including the S&P 500, Euro Stoxx 600, Nikkei 225, MSCI Index, US Agg Bond Index, Crude WTI, Gold, the DXY, EUR, and other emerging market currencies.
In a May 2020 letter to investors, renowned hedge fund manager Paul Tudor Jones predicted that Bitcoin would be the best-performing hedge against what he called “the Great Monetary Inflation,” and disclosed a 1%–2% allocation to Bitcoin in his portfolio to protect against the potential decline of the U.S. dollar.
Talk to your financial advisor about what is right for you and your portfolio.
Not Without Risk
While any investment carries risk, due to its relative immaturity Bitcoin carries more risk than some other investments, so investors must bear this risk in mind when considering whether to invest in Bitcoin.
Bitcoin is considerably more volatile than many other investment assets, and investors must expect to see large price moves as the market continues to mature.
When investing in Bitcoin, there are several risk factors that you should consider. The following is a summary of risks related to investing in Bitcoin that are disclosed in Vault International Bitcoin Fund’s Product Disclosure and Other Material Information. To learn more about what the Vault International Bitcoin Fund offers, please read the VIBF Product Disclosure Statement (“PDS”) and VIBF Other Material Information (“OMI”) where the documents set out some of the risks that investors should be aware of.
Some of the things that may cause the Fund’s value to move up and down, which affect the risk indicator, are:
The Underlying Funds invest in Bitcoin, an asset which has extreme price volatility. Factors which may cause the price of Bitcoin to change significantly over short periods include:
Vault Digital Funds Limited is not an authorised Financial Advisor
This 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. FundRock NZ Limited is the issuer and manager of Vault Digital Funds (Scheme).
For a Product Disclosure Statement please visit www.fundrock.com/fundrock-new-zealand, www.investnow.co.nz, or https://discloseregister.companiesoffice.govt.nz/.
- Past performance is not indicative of future performance.
- Investors are encouraged to seek independent financial advice.
¹Correlation, in the finance and investment industries, is a statistic that measures the degree to which two assets or securities move in relation to each other.