Bitcoin (and How It Can Fit in a Tax-Efficient Portfolio)

You've likely seen the headlines. Since the creation of Bitcoin in 2009, it has moved from the fringes of the internet to a recognised asset class held by major global institutions.

But for New Zealand investors, accessing Bitcoin has historically come with two major hurdles: the technical complexity of digital custody and a challenging tax environment.

Before we look at how the Bitcoin ETF PIE Fund addresses these hurdles, it is worth stepping back to understand what this asset class actually is and how it earned its place in modern portfolios.

What are cryptocurrencies?

At its simplest, a cryptocurrency is a digital form of value that exists on a decentralised network. Unlike traditional currencies (fiat) like the NZ Dollar, which are issued and controlled by a central bank, cryptocurrencies typically operate on a technology called blockchain.

A blockchain is a digital ledger distributed across thousands of computers worldwide. It records every transaction permanently and transparently, making it incredibly difficult to alter or forge.

While there are thousands of cryptocurrencies in existence, Bitcoin was the first and remains the largest by market capitalisation.

Is Bitcoin a legitimate asset class?

For years, sceptics dismissed Bitcoin as "magic internet money." However, the narrative has shifted dramatically over the last decade. Bitcoin is now widely regarded by the financial industry as "digital gold", a store of value that is verifiable, scarce, and independent of any government's monetary policy.

The argument for its legitimacy rests on three pillars:

1. Scarcity: There will only ever be 21 million Bitcoins. This fixed supply contrasts with fiat currencies, which can be printed endlessly by central banks.
2. Security: The Bitcoin network has operated 24/7 for over 15 years with 99.99% uptime, securing trillions of dollars in value without a central administrator.
3. Adoption: It is no longer just for retail enthusiasts. Publicly listed companies, massive asset managers, and even nation-states now hold Bitcoin on their balance sheets.

Notable challenges

Despite its growth, Bitcoin remains a developing asset class with distinct risks that investors must understand:

• Volatility: Bitcoin's price is highly volatile. Drawdowns of 50% or more have occurred multiple times in its history.
• Technical Risk: Holding Bitcoin directly requires managing "private keys" (complex passwords). If you lose these keys, your assets are gone forever.
• Regulatory Uncertainty: Governments are still refining how they tax and regulate crypto, which can create uncertainty for investors.

Coming of age: A timeline of acceptance

The journey from experiment to asset class has been marked by several key milestones:

• 2009 (Genesis): The first Bitcoin block is mined by the pseudonymous creator Satoshi Nakamoto.
• 2010 (First Value): A programmer pays 10,000 BTC for two pizzas, the first time Bitcoin is exchanged for real-world goods.
• 2017 (Futures Market): Major US exchanges launch Bitcoin futures, allowing professional traders to hedge and bet on price movements.
• 2020 (Corporate Treasury): Publicly listed companies like MicroStrategy and Tesla begin buying billions of dollars of Bitcoin to hold as a reserve asset, validating it as a corporate treasury tool.
• 2024 (The ETF Era): The US SEC approves Spot Bitcoin ETFs, allowing the world's largest asset managers (like BlackRock and Fidelity) to offer Bitcoin to their clients on the stock market.
• 2025 (Sovereign Adoption): Discussions around "Strategic Bitcoin Reserves" gain traction at the government level, moving Bitcoin into the realm of geopolitical finance.

The Local Solution: Bitcoin ETF PIE Fund

For New Zealanders, the global rise of Bitcoin has been interesting to watch, but difficult to participate in efficiently.

Snowball has chosen the Bitcoin ETF PIE Fund to offer our investors the ability to allocate to Bitcoin through a regulated vehicle designed to solve the specific challenges of tax and complexity for NZ investors. It tracks the S&P Bitcoin Index, giving you pure exposure to Bitcoin's price without having to buy or store coins yourself.

Here is why this Bitcoin structure is positively changing the way Kiwis invest in digital assets.

1. Tax Efficiency

For local investors, the tax structure is often the deciding factor. Holding Bitcoin directly usually means gains are treated as income and taxed at your marginal rate, which can be as high as 39%.

Because the Bitcoin ETF PIE Fund is structured as a Portfolio Investment Entity (PIE) and utilises the Fair Dividend Rate (FDR) method, the tax treatment is significantly different.

• Tax is generally calculated on 5% of the fund's opening market value in each tax year.
• The tax rate is capped at the Prescribed Investor Rate (PIR) of 28%.

Example: For an investor with a 28% PIR rate, this means their maximum tax on the fund is effectively 1.4% of the investment value annually (being 5% multiplied by 28%), regardless of how much the capital value grows. (Note: Tax rules are complex, and individual circumstances vary. We recommend seeking professional tax advice.)

2. Operational Simplicity

Direct Bitcoin ownership requires managing digital wallets, private keys, and navigating unregulated foreign exchanges. One lost password can mean lost capital.

The Bitcoin ETF PIE Fund removes that administrative burden. By investing through a regulated managed fund structure, you benefit from institutional-grade custodial security, meaning you do not have to manage the technical security of the assets yourself.

3. Strategic Diversification

Bitcoin has historically shown low correlation to traditional asset classes like stocks and bonds. Adding an uncorrelated asset can help diversify a portfolio, potentially smoothing out overall performance. However, it is important to note that low correlation does not eliminate volatility or the risk of loss, particularly during broad market downturns.

Is it right for your portfolio?

It is important to understand the risk profile. Bitcoin is a highly volatile asset. Price swings of 30% or more are not uncommon, and for this reason, Bitcoin typically makes up a smaller "satellite" portion (e.g., 1-5%) of a diversified portfolio.

The Bitcoin ETF PIE Fund offers a way to access this growth potential (returning 62.31% in the 12 months to Oct 2025) within a regulated, tax-efficient structure.

Considering adding digital assets to your mix? Take a look at the Bitcoin ETF PIE Fund on Snowball.