Vault International Bitcoin Fund Review

We review the Vault International Bitcoin Fund (VIBF) in detail, looking at its fees, what it invests in, pros, cons, alternatives, public reaction and must-know facts.

Updated 7 December 2021

Warning:

By publishing this guide, we are not recommending or suggesting in any way or form that Bitcoin is a suitable investment.
We published and routinely update this guide to help people decide what's best for them - MoneyHub is conservative and our publisher, Christopher Walsh, has zero Bitcoin investments. Bitcoin has proven to be highly volatile in 2021 and we strongly suggest reading this guidance from the FMA before making any investment. Like the FMA, MoneyHub is also cautious.
We present this information in good faith and remain objective at all times. By including this guide under our Investing and Saving section, we are not advocating that cryptocurrency is an investment. We may earn a referral bonus for anyone that clicks on some of the below links - see our Advertising Policy for more details.

Summary of the Vault International Bitcoin Fund Review

The Vault International Bitcoin Fund (VIBF) launched in October 2021 and offers New Zealanders the ability to invest in Bitcoin via a fund (rather than holding coins directly through an exchange or platform).
The fund is the first of its kind in New Zealand, and is currently offered on investing platform InvestNow.
The annual fund fee of 2.50% may seem high, but investing in Bitcoin generally incurs higher fees than investing in shares - we explain the costs below in detail.
The fund is new and is relatively unproven, and it's important to keep in mind that the past performance of Bitcoin does not indicate future returns.

To help you understand the fund in detail, our guide covers:

MoneyHub Founder Christopher Walsh shares his views on investing in Bitcoin, Bitcoin ETFs and Bitcoin Funds:

"Bitcoin is a hot topic, but I am very cautious and have never invested personally. An interview I did with the New Zealand Herald explains my thoughts best, which I copy below as they continue to stand true and reflect the current market.

Bitcoin is highly volatile, meaning the price goes up and down all the time. It's not unusual to see it drop 10% in one week, fall further, then go up and down again. Years ago it was 1c, 10c, $300 and then it was up to $75,000.

Investing in Bitcoin using a crypto platform is one option, but there are also ETFs and funds you can buy directly. The Vault International Bitcoin Fund is the first (and only) New Zealand-registered fund investing in Bitcoin assets. If you want exposure to Bitcoin but don't want to hold any in a wallet or buy into a Bitcoin ETF (which means a USD or CAD investment), Vault gives you an NZD-denominated fund.

Whatever you decide to do, the FMA and I want to make it clear that you should never invest more than you can afford to lose. And based on its history, the daily price will be highly volatile.

Christopher Walsh
MoneyHub Founder

Vault International Bitcoin Fund - Fees, Investment and Must-Know Facts

Vault clearly sets out the fees and terms of investing on its website. Specifically:

Fees: 2.50% p.a. management fee, plus a 0.25% buy/sell fee (known as the "spread").
Minimum investment: In the PDF, the proposed minimum initial investment for the Fund is $1,000. After that, the minimum additional investment is $500. However, using InvestNow, the amounts are lower - $250 and $50 respectively.
Withdrawing your money: Vault's policy is that you can withdraw all or some of your money from the Fund at any time. Payment will normally be made within five business days of receiving your redemption request.
Top Holdings: The Vault International Bitcoin Fund (VIBF) invests in four underlying funds and ETFs - the Grayscale Bitcoin Trust, CI Galaxy Bitcoin ETF, 3IQ Coinshares Bitcoin ETF and the Purpose Bitcoin ETF.
Investment Company and Fund Management: Vault Digital Funds Limited was founded in 2021 in conjunction with Easy Crypto. It is a privately owned company - Vault Digital Funds Limited (8163039) - and is owned by interests associated with Janine Grainger (the founder of Easy Crypto) and Vinnie Gardiner (the founder of Vault). The fund is managed by Implemented Investment Solutions, which currently oversees $5 billion worth of assets for local and international investment firms, and is related to InvestNow.
Tax: The Vault International Bitcoin Fund is structured as a PIE fund, meaning there are tax advantages. The PIE tax rates, known as the Prescribed Investment Rates (10.50%, 17.50% and 28%) depend on what the investor's annual income is. No tax is charged on capital gains the fund makes under the Fair Dividend Rate (FDR) tax rules. Our tax on investments guide has more details. In summary, Under the FDR method, dividends and capital gains are not taxed separately. So if you owned NZD $10,000 of VIBF, you must pay a tax of $140 (5% of $10,000 X 28% maximum PIR) even if the price of Bitcoin doubled. However, you're also charged if it falls.
Investment Platforms: The fund is only available on InvestNow. It is not available directly with Vault. Vault claims it plans to make the fund available on Easy Crypto.

Understanding the Underlying Investments - Grayscale Bitcoin Trust (US) and CI Galaxy Bitcoin ETF, 3IQ Coinshares Bitcoin ETFs (Canada)

The Vault fund invests in four publically traded funds, all of which focus on Bitcoin assets. We have included the links of each fund below to help you understand the investment profile, and where, ultimately, Vault investment money ends up:

Grayscale Bitcoin Trust - listed in the US.
CI Galaxy Bitcoin ETF, 3IQ Coinshares Bitcoin ETF and Purpose Bitcoin ETF - listed in Canada.

Pros, Cons and Risks of the Vault International Bitcoin Fund

Pros:

The investment is held in NZD - you invest in NZD, which means you know the value of your investment.
The fund has a diverse investment mix - The Fund invests in popular ETFs that have a track record of following the Bitcoin price.
It's easy to invest in using InvestNow. Conversely, it is difficult to purchase the underlying fund and ETFs. The three Bitcoin ETFs Vault invests in are listed in Canada, and few New Zealand-available investing platforms offer Canadian investments. This leaves only Interactive Brokers as the only way to purchase the ETFs directly from New Zealand.
Tax effectiveness - As a PIE taxed under FDR rules, there is no capital gains tax, and for higher earners, there is a tax saving on returns.
Buying Bitcoin is cost-effective with the fund - Vault's buy/sell fee takes care of the foreign exchange fees, brokerage fees and network fees, all of which add up and will exceed 1% using most crypto exchanges and platforms.

Cons:

The fees are high for a fund (but they're not unusual for a Bitcoin-related fund) - The fees are 2.50% p.a. on your investment plus a 0.25% buy/sell fee. It may be cheaper to invest in a Bitcoin ETF directly, but you will also pay foreign exchange fees, and many platforms like Hatch, Stake and Sharesies don't offer Bitcoin ETFs. Instead, you'll need to open up an account with Interactive Brokers to purchase a Bitcoin-based ETF.
Bitcoin is high risk - the price volatility applies to any Bitcoin investment, not just the Vault fund. We include this point to put emphasis on the risk.

Risks
Bitcoin is very risky; we highlight significant risks to be aware of:

Bitcoin prices - Bitcoin is highly volatile, and while the long-term returns have been strong, you may lose some (or even all) of the value of your investment if the price collapses.
Currency risk - The fund underlying assets are not hedged to NZ dollars. The value of fund assets will fluctuate as FX rates change (NZD/USD/BTC
and NZD/CAD/BTC), in the same manner as if an investor bought Bitcoin directly with NZ dollars (NZD/BTC).
Security risk - Unlike investments in shares or property, Bitcoin is untraceable and digital. This means that it is prone to hacking and theft. For this reason, and despite the utmost security protection provided by the underlying funds and custodians of the Bitcoin, there is always a risk of theft.

How risky is the Vault International Bitcoin Fund?

Vault makes this clear in their PDS - "(the Vault International Bitcoin Fund) is a highly speculative investment", adding that "Bitcoin is a highly volatile asset" and that "this means the Fund will not be appropriate for all investors". Its risk indicator, presented on a scale from 1 (lower risk) to 7 (higher risk), is 7, which indicates the risk.

In summary, this fund is one of the riskiest available in New Zealand given its underlying investment into Bitcoin. There's no diversification - it's all Bitcoin-related. For this reason alone, we suggest considering carefully how much you want to invest, given that past returns of Bitcoin (up over 7,000% in the five years to November 2021) are no guarantee of future performance.

How long should I invest in the fund?

Vault makes it clear that this is a long-term investment. It suggests a minimum investment timeframe of 10 years in its PDS.

Alternatives to the Vault International Bitcoin Fund

Beyond buying into the fund directly, there are three alternatives that offer exposure to Bitcoin, security and value for money (by way of fees):

1. Buy Bitcoin directly

It has never been easier or faster to purchase Bitcoin (or any other cryptocurrency).
Our guide to buying Bitcoin outlines all the options, including popular New Zealand platforms Easy Crypto and BitPrime. The benefit of buying Bitcoin directly is that you can buy or sell coins whenever you like, unlike the Vault fund or an ETF, which needs to happen during business hours. As the Bitcoin price is volatile, this can be a significant advantage.

2. Buying a Bitcoin Futures ETF

If you don't want to hold Bitcoin but still want exposure to its price, many ETFs listed in the US offer such opportunities.
One example is the ProShares Bitcoin Strategy ETF, which doesn't buy actual Bitcoin. Instead, it buys futures contracts on Bitcoin. You can see the price of this ETF here (which launched in October 2021). However, such ETFs are not without their risks - this guide from Fool.com has further details.
In its simplest form, the value of a futures contract rises when the price of the commodity it represents increases. ProShares then sells the futures contract as it nears expiry.
Due to the nature of the futures proshares trades, there will likely be a return drag that will mean investors returns are lower than if they held bitcoin or an ETF that owned actual bitcoin (such as those purchased by VIBF).

3. Buying into a Bitcoin fund or ETF directly

The Vault fund invests in the Grayscale Bitcoin Trust, the world's largest crypto fund (per this Financial Times article in November 2021).
The fund holds around 3.5% of the world's Bitcoin and is priced around 15% below the value of the Bitcoin that it holds. You can see its price history here.
The annual management fee (2%) is higher than low-fee Bitcoin ETFs that have recently launched in the US markets but lower than the Vault fund.
Grayscale Bitcoin Trust’s assets are stored in offline or “cold” storage with Coinbase Custody Trust Company, LLC, as Custodian, meaning there is a lower risk of fraud or hacking.

Vault in the Media

Vault launched in October 2021 - recent media quotes include:

"The Vault International Bitcoin Fund is the first of its type to be established in New Zealand".
"The Bitcoin Fund has a market capitalisation of about $1 million and would invest in international exchange-traded funds (ETFs) that hold positions in bitcoin".
"The fund would remove the tax requirements that come with direct bitcoin ownership (via) exposure through a PIE".
"The Bitcoin Fund had already partnered with retail trading platforms InvestNow and Easy Crypto, where units can be purchased by retail investors."

Source: Bitcoin fund aims to attract New Zealand investors, RNZ, 4 October 2021

"The Vault International Bitcoin Fund is the first to have its entire allocation invested in the asset class (Bitcoin)".
"(the fund) 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".
“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".

Source: NZ's first bitcoin-only investment fund launched, Stuff.co.nz, 4 October 2021

Frequently Asked Questions

If I buy into the fund, am I buying currency or an investment?

Bitcoin is designed to be a digital currency, but investing in a Bitcoin fund is, arguably, a speculation on the future price of Bitcoin. Therefore while your investment holds coins, you're investing with the belief that the price will go up and your investment will become more valuable.

Will movements in the NZD affect the value of my investment?

Yes - the fund is not hedged, meaning that if the NZD gets stronger against the price of Bitcoin staying the same, the investment will likely decrease in NZD value. However, Bitcoin is highly volatile and day-to-day foreign exchange movements will, arguably, be immaterial.

If the price crashes, can I sell instantly?

No - you can only sell your investment (or a portion of it) during market trading hours. This is different to holding Bitcoin directly online or offline, where you can sell it at a live price. Because of this, investing in the VIBF or a Bitcoin-related fund is arguably more suitable for the long term.

Conclusion and Summary

The fund may seem expensive, but investing in Bitcoin is expensive compared to the traditional index and actively-managed funds. 2.50% p.a. and one-off 0.25% when you buy or sell is in line with the fees charged by international Bitcoin funds and trading fees charged by Bitcoin platforms and exchanges. Please note that the 0.25% buy or sell fee is to the benefit of the Fund, not to Vault directly.
The advantage of the fund is that you don't need to hold Bitcoin in wallets - custody and security is taken care of for you.
Tax treatment is simpler given the fund is a PIE, which means there are no capital gains and lower tax rates for higher-income earners.
The fund, however, by nature is a long-term investment. This means that you won't be able to sell your investment instantly on the markets like you would be able to if you held Bitcoin directly.
Bitcoin is not an essential investment, and Vault's offering is one of many ways to get exposure should you make the decision to invest.

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