Should residents in NZ consider cryptocurrency as a reasonable choice for investment? The global crypto market continues to grow and is worth ridiculous amounts of money, with NZ having its fair share of crypto engagement. But is crypto a good choice for investment for NZ residents?

The global cryptocurrency market is worth more than $2 trillion USD, and cryptocurrency is a popular choice for investment among New Zealanders. As of mid 2024, the NZ tax collection agency, the Inland Revenue Department (IRD), claimed to have identified 227,000 unique NZ residents who owned cryptocurrency or other digital assets. While the future of the crypto market is uncertain, it does appear that cryptocurrency is here to stay and is becoming easier to access every year. But does that make it a good option for investment?

Cryptocurrency does provide some of the highest potential for gain as an investment, but they come with a slew of risks as well. Anyone who tracks the Bitcoin price NZD for any length of time will be able to tell you that the market experiences price volatility. The regulations for crypto in many jurisdictions, including NZ, are not wholly settled. And the way that cryptocurrencies are taxed in NZ should not be overlooked by residents interested in investing.

Let's take a closer look at why cryptocurrencies are such an attractive investment choice, the risks, and how cryptocurrencies are being taxed in NZ.

Why Cryptocurrency Is An Attractive Investment Choice

There are a couple of salient reasons that cryptocurrencies prove to be an attractive choice for investors. As we mentioned earlier, the potential for long-term growth when investing in cryptocurrencies is hard to match with other asset classes. Everyone is well aware that they are volatile and can experience short-term swings in their value, but there are a handful of cryptocurrencies that have increased significantly in value, and everyone wants to be in on the ground floor of the next digital asset to see such growth.

Cryptocurrency markets have also become much more accessible over time. It used to be that you needed an extensive knowledge of the blockchain and how crypto wallets function in order to engage in the crypto market, but modern exchanges have simplified the process greatly. The global cryptocurrency market, unlike the traditional financial market, never sleeps and is open for trades 24 hours a day, 7 days a week.

Crypto also offers what some investors consider the final frontier of portfolio diversification. If an investor already has stocks, bonds, property and other types of investment assets, cryptocurrency is an excellent way to further diversify that portfolio.

There is also a continued belief that blockchain technology will play an increasingly important role in a number of important global sectors. Some investors believe that as long as blockchain remains relevant, or grows in relevancy, cryptocurrency has the potential to grow with it.

Crypto Investing Is A Risky Proposition

The reason that cryptocurrency pairs well with other asset classes as part of a diversified portfolio is also part of the reason that it is sometimes not considered a good investment choice. It is a high-risk, high-reward asset. There is a good deal of potential for growth, at the risk of seeing fast negative price swings.

For much of their existence, many cryptocurrencies have seen their prices ruled almost entirely by market sentiment, and have been used as speculative assets. While this is less true for some crypto than it was ten years ago, it is still true. Events that occur on the other side of the world, changes to the global economy or the sentiment of investors can all have a strong influence on the price of cryptocurrency.

It should be said, no investment is wholly without risk, but cryptocurrency remains an asset class with some of the highest risk values, and should be treated accordingly by investors.

New Zealand Cryptocurrency Tax Is A Factor

For residents of NZ who are interested in investing in cryptocurrency, it is imperative that they properly understand how to manage their digital assets when it is tax time. The NZ Inland Revenue Department treats cryptocurrency and other digital assets as property for the purpose of reporting tax, rather than as financial assets like some other jurisdictions. This means that any profit made from the sale, trade or exchange of these assets is a taxable event. This means that every cryptocurrency interaction beyond the initial purchase should be reported, not just when cryptocurrency is converted back into currency.

This means that if you swap one cryptocurrency for another, something that is a relatively common practice, the IRD considers that the first asset is disposed of. If that first asset has appreciated in value, then there is a taxable gain to be reported and paid in that situation. These gains should be added to any other income a person has, and will receive the same marginal income tax rate.

This, unfortunately, could lead to a situation in which an investor in NZ completes a number of transactions as different cryptocurrencies go up in value, then finds that they owe more tax than their current portfolio is worth, if the market declines.

Should NZ Residents Consider Cryptocurrency As A Viable Investment?

There isn't really a clear answer to this question that applies to everyone.

Experienced investors in NZ who understand their tax obligations and are aware of how to manage a high-risk, high-reward asset, or who have a balanced portfolio and want exposure to such an asset class, could consider cryptocurrency as a perfectly viable choice, yes.

Others should be more cautious. There are plenty of different asset classes and ways to invest, many of them with far less risk associated with them.