Ready to include Bitcoin in your KiwiSaver Plan?

Bitcoin is a highly volatile asset and historically has experienced significant value swings (+100% or – 70%) over short periods of time. There is no guarantee that assets will recover after a significant fall and that historical returns will continue. The volatile nature of the asset may result in the value of the Fund falling significantly in value or even going to zero.

Bitcoin and other crypto currencies exist outside of the traditional financial regulatory environment, and the regulatory landscape continues to evolve. The lack of regulation and ability to hide transactions has meant that crypto currencies have and are being used by criminals to launder and transfer the proceeds of crime around the world. Some countries have banned their citizens from investing in or using crypto currencies as a result of these concerns. Some financial institutions refuse to interact with companies or individuals who operate in the crypto currency space due to Anti Money Laundering concerns. There is a risk that crypto currencies become subject to increased regulation or financial institutions refuse to process transactions that originate from crypto currencies. This could reduce the value of the Fund.

The blockchains upon which Bitcoin and other crypto currencies sit are operated and maintained by individuals who are compensated through transaction fees and / or the issuance of new coins / tokens. There is a risk that individuals are no longer incentivised to maintain their respective blockchains which will make it impossible to validate and verify transactions causing the network to disintegrate and subsequently causing the value of the Fund to fall.

Bitcoin was launched in 2009 and remains an early innovator in the cryptocurrency space, however, the broader landscape continues to evolve rapidly. There is a risk that new products are developed which are more efficient and deliver better utility than Bitcoin or that competing assets attract greater market adoption. If this happens the value of the Bitcoin invested in by the Fund is likely to fall.

Bitcoin exists entirely on a distributed ledger; there are no traditional records. There is a chance that cyber criminals disrupt the ledger, gain access to individual keys or expose other flaws.  The exploitation of any flaws in the underlying blockchain technology may reduce confidence in the broader crypto currency market or may result in the assets held by the Fund being stolen.

Crypto currencies are registered on distributed ledgers, and ownership depends on maintaining control of the relevant cryptographic keys. If a key is lost or stolen, there may be no practical way to recover the associated crypto assets. each holder holds an individual key to secure ownership of their assets.

The value of cryptocurrencies is predicated on them becoming increasingly accepted and recognised as a store of value and / or currency that can be used for transactions. We are still very early into the life span and journey of crypto assets and therefore there is a chance that the current investment hypothesis does not prove correct and market adoption wanes rather than grows, reducing the demand for cryptocurrencies and the assets that the fund invests in.

Bitcoin is stored on a blockchain. There is a risk that the blockchain or the source code that it relies upon may become corrupted or subject to cyber attacks. Any issues with the blockchain that the crypto currency is stored upon will end up impacting the value of the underlying crypto currencies and may affect the value of the Bitcoin held by the underlying ETFs and therefore the value of the Fund.

The Kōura fund invests in a fund that is intended to mirror the performance of Bitcoin. There is a risk that the funds that we invest in do not accurately track the underlying performance of Bitcoin.

Kōura relies on issuers of ETFs to transact in and store their underlying assets safely. The Fund’s custody structure operates across two levels. At the Scheme level, the Fund’s ETF units are held by the Scheme custodian and any sub-custodian appointed for that purpose. The underlying Bitcoin is held separately by a specialist digital assets custodian appointed by the relevant ETF provider. Although the ETF providers have implemented measures designed to reduce the risk of loss, cryptocurrency exchanges and custody platforms have experienced significant cyber attacks and operational failures in the past. If an exchange, ETF provider or custody platform suffers a material failure or cyber attack, the value of the Fund is likely to fall.

The Bitcoin underlying the ETFs is held by custodians appointed by the relevant ETF providers. Those custodians are intended to keep the Bitcoin separate from their own assets.

However, the Bitcoin may be held together with the assets of other customers in omnibus wallets and treated as fungible with those assets. This means that, notwithstanding the protections described above, there remains a risk of loss of or delayed access to Bitcoin if there is a shortfall in the omnibus wallet, a failure of the custodian or the custodian becomes insolvent.

Limited insurance or indemnity arrangements may apply to the underlying custodians or ETFs. However, any such arrangements may be subject to exclusions, monetary limits and other restrictions and may not fully compensate investors for any loss arising from theft, cyber attack, operational failure or custodian insolvency. 

While Bitcoin is one of the more liquid crypto currency assets, liquidity can deteriorate rapidly during periods of market stress. There is a risk that the Fund is unable to transact at a reasonable price or within a reasonable timeframe, which may affect the ability of members to switch funds or make withdrawals in a timely manner.