Exclusive: $1.5m-plus flows to US Bitcoin funds, NZ version cuts fees

Thousands of local investors have put about $1.6 million into new funds tied to the price of Bitcoin in the past week, soon to be followed by a $7m local fund.

Share trading
app Sharesies told the Herald about 1000 investors have bought about $1m worth of shares in Bitcoin exchange traded funds (ETFs), and sold $20,000 worth, since they hit United States markets last Friday.

Add to that, another $600,000 worth purchased through rival Hatch by Monday evening this week.

Sharesies and Hatch’s data both showed BlackRock and Ark Invest’s Bitcoin funds were proving most popular among investors.

Vault Digital Funds, which operated the local option Vault International Bitcoin Fund, revealed to the Herald it was in the process of moving almost all its $7.2m of client holdings into the new Bitcoin funds run by BlackRock and others.

Doing so would cause it to reduce its fixed annual fee to 0.95 per cent, from 1.75 per cent.

The US funds charged fees between 0.25 per cent and 1.5 per cent.

“We have been in contact with existing ETFs and there’s no indication they will be reducing fees on Canadian-based ETFs, and we will be transitioning to the appropriate US ETF as soon as possible, with the view of passing those cost savings onto our customers,” Vault founder and chief executive Vinnie Gardiner said.

BlackRock and Fidelity’s funds would be in its mix, among others depending on their liquidity and arrangements for holding Bitcoin, he said.

Customers were yet to be told. The fee change would occur after it lodged an updated product disclosure statement.

Surprisingly, Gardiner said Vault’s newfound competition created by the US funds was fantastic, because he thought it would ultimately increase investor interest in, and understanding of, Bitcoin.

“The volumes [into US funds] are pretty compelling,” he said.

“We welcome it because a lot of the heavy lifting has been done. Bitcoin is now growing into adolescence.”

Bitcoin was prevalent across international, financial news headlines this month, as the US Securities and Exchange Commission approved the listing of 11 funds tracking the market price of Bitcoin in real time.

The approval was not an endorsement of the funds, nor Bitcoin as an investable asset.

However, it was the first time the regulator opened the door for investors to access cryptocurrency in the US, after filing charges against major crypto-exchanges Coinbase and Binance.

It ended a decade-long battle that saw funds of this kind intially denied.

The new US Bitcoin funds, and Vault’s local option, offered investors a means to get exposure to the price of Bitcoin without having to buy it directly on an exchange to hold in their custody, or in the custody of an online exchange, which have been known to fail or be hacked (such was the FTX saga).

Vault’s fund had experienced a steady amount of fund inflows this year, amid the US fund application and pending approval process, Gardiner said.

However, he suspected some investors and financial advisors would remain sceptical of its place in the investment world – what he called “legacy attitudes.

“But, if they do have time, do a deep dive in terms of Bitcoin’s potential use case, its decentralised nature, its limited supply, it’s a scarce asset, [and consider] what does that mean against a backdrop of what we’ve seen recently of currency money printing.”

But, he warned: “It is risky and it is volatile and people have got to expect drawbacks.”

Most of Vault’s Bitcoin fund clients had stayed in throughout significant declines in Bitcoin’s price, he said, suggesting investors who wanted it were thinking long-term – a style of investing that ‘Bitcoiners’ dubbed ‘diamond hands’ or hodling’.

Gardiner said he saw merit in investors simultaneously holding Bitcoin in custody and having ETF exposure.

However, he said some investors may be paying more in brokerage fees and tax if they used those means, instead of using Vault’s fund.

Vault’s fund operated as a registered New Zealand portfolio investment entity, also known as a PIE fund.

Gardiner claimed this meant its investor’s tax rate was capped at 28 per cent, the highest prescribed investor rate, compared with some high-earning investors who may be required to pay the top tax rate of 39 per cent on their income made from selling Bitcoin.

The Herald asked the Inland Revenue Department one week ago how it would treat the US Bitcoin exchange-traded funds and therefore what tax rate investors in them may attract, but it had not yet responded with an answer.

Information on the IRD’s website suggested money earned from selling, trading or exchanging cryptoassets would be taxed as income.

Madison Reidy is the host of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.