Ready to include Bitcoin in your KiwiSaver Plan?

Bitcoin is a highly volatile asset and historically has experienced significant value swings (+100% or – 50%) over short periods of time. There is no guarantee that assets will recover after a significant fall or 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. Investors will be significantly disadvantaged if they need to withdraw funds during a Bitcoin downturn.  

The majority of cryptocurrencies exist outside of the traditional regulatory environment. 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 cryptocurrency space due to Money Laundering concerns.

There is a risk that cryptocurrencies become subject to increased regulation or financial institutions refuse to process transactions that originate from crypto currencies. This will result in the value of cryptocurrencies falling due to investors being unable to convert their currencies into traditional currencies. 

The blockchains upon which cryptocurrencies 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 sufficiently incentivised / rewarded 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 crypto currencies to fall.

Cryptocurrencies are currently in their infancy with the two largest crypto currencies Bitcoin and Ethereum being launched in 2009 and 2015 respectively. Both of these crypto currencies are leaders and early innovators in their space and have issues that can only be resolved through consensus agreement by holders of the respective coins (For example: Agreements to change underlying code or how transactions are processed). 

There is a risk that new products are developed that are more efficient and deliver better utility than the current cryptocurrency offerings. If this happens the value of assets invested in by the fund are likely to fall because they would effectively be unable to keep up with the competition, eventually becoming obsolete e.g, like your landline or home phone - no need for it now that you have something that can do the same thing, only it can do a whole lot more than just making some calls. 

Cryptocurrencies exist entirely on a distributed ledger (think records that are hosted and maintained by individual users rather than by a central body), there are no traditional records. There is a chance that cyber criminals disrupt the ledger (a place where users store private keys for crypto currencies), 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. 

Cryptocurrencies are registered on distributed ledgers and each coin or token is represented by an individual key.  That key is used to identify the asset and transfer ownership between users.  If a criminal manages to steal the individual key or that key is lost the crypto currency assets will be lost and there may be no way of recovering those 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.

Cryptocurrencies are stored on a blockchain (a ledger that is maintained and validated by users rather than a central traditional spot). There is a chance 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 cryptocurrency is stored upon will end up impacting the value of the underlying cryptocurrencies. 

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 Fidelity (the issuer of the underlying fund) to transact in and store Bitcoin safely. Cryptocurrency exchanges have suffered significant cyber attacks and assets have been lost in the past. The ETFs that we purchase have taken steps to ensure that this does not happen but it is still possible. If a cyber attack occurs on the exchange or custody platform where the coins are stored then the value of the fund is likely to fall.