Why Kiwis are embracing Bitcoin ETFs

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Despite investing in bitcoin “still being a bit of a mystery” for some Kiwis, the number of single-day trades in the cryptocurrency exploded in the wake of the US election last month.

Anna Scott, chief executive of New Zealand investment fund manager Smart, says the volume traded through the company’s new bitcoin ETF (exchange-traded fund) surged in the week following Donald Trump’s victory.

“Prior to the US election, the five-day average daily trading volume was 92,000 units. Following Trump's win in November, the five-day daily average increased to 267,000 units” she says.

“Although bitcoin is a bit of a mystery to some Kiwis, these numbers represent a significant degree of interest and show the investment option is becoming more mainstream.”

Smart’s bitcoin ETF is one of four launched by the company in October 2024 and along with others in gold and US technology companies, is being offered in collaboration with iShares, the ETF arm of global investment manager BlackRock. The fourth ETF focuses on the top 20 NZX-listed companies.

Scott says the Smart Bitcoin ETF gives Kiwi investors another investment choice by offering a way of gaining exposure to bitcoin through a New Zealand-listed fund. It eliminates the need for investors to find a way to own bitcoin themselves or invest in an offshore fund.

The Smart Bitcoin ETF is a listed Portfolio Investment Entity (PIE) and is taxed using the Fair Dividend Rate method at a rate of 28%. The PIE tax rules can simplify tax compliance for investors by allowing PIE-compliant funds to manage tax obligations at the fund level.

Scott believes the wave of interest is in part because of the President-elect embracing digital assets during his campaign and promising to make the US the “crypto capital of the planet”.

“It has become a global story, is featuring in mainstream media and people are talking about it with their friends and colleagues. I suspect that on top of the increase in trades, there will be many more New Zealanders exploring the [investment] option bitcoin offers,” Scott says.

“A lot of people thought bitcoin would be a flash-in-the-pan, that it wouldn’t last. But since its launch in 2009 its pace of adoption has been faster than that of other breakthrough technologies like the internet and mobile phones. Today, it’s recognised as a legitimate alternative for diversifying investments.”

Scott says bitcoin does carry risks as it is prone to significant price swings. “This risk is determined by these ups and downs, so it is best seen as a way to diversify an investment portfolio over the long term, so you don’t have all your eggs in one basket.

“It provides no income stream or ongoing cash flow; any return will only come from an increase in the bitcoin price.”

She says it may not be suitable for all investors. Younger investors who are well-versed in financial matters and up-to-date with the latest investment trends are likely to be attracted by bitcoin, although many investors aged mid-50s and over who are looking for a balanced approach may find a place for it in their portfolios.

Smart is a wholly owned subsidiary of NZX and has more than $12 billion in funds under management (at time of writing). It enables Kiwis to diversify their portfolios across 44 ETFs.

The Smart Bitcoin ETF invests in BlackRock’s iShares Bitcoin Trust ETF (IBIT) and Scott says this collaboration is of huge benefit to Kiwi investors.

“Smart and iShares share a common goal of helping more New Zealand investors have easier access, better value, and more choice to meet their individual needs and support them along their investment journey. The breadth of iShares global product line-up, combined with our knowledge of the local New Zealand market, means Kiwis get access to the experience and insights of both.”

Thomas Taw, head of the Asia Pacific Investment Strategy team at BlackRock, says IBIT only launched in January 2024 and is already the biggest bitcoin ETF globally with a year-to-date inflow (to November 24) of US$31 billion.

He says bitcoin has been a massive theme throughout 2024 – US bitcoin ETF assets alone broke over US$100 billion – as investors look to it as an option uncorrelated to factors like US equities, or as a hedge against geopolitical upheavals such as war in Ukraine and the Middle East.

“There is a lot of volatility in the market, and I think this will continue,” Taw says. “Donald Trump’s election in the US has led to a more risk-on tone for US equities heading into 2025, but also increased demand for alternative type investments and portfolio diversifiers, as evidenced by a 40-45% jump in the value of bitcoin since the start of November.”

“iShares unlocks opportunities across many markets to meet the evolving needs of investors. We are looking to bring our product knowledge and investor education to New Zealand in the collaboration with Smart.”

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This article was published in December 2024

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