The latest ATO statistics (June 2022 quarter) show over $1.3 billion of Self-Managed Superannuation Fund (SMSF) investment allocation is held in cryptocurrency assets. Whilst newly established SMSFs investing in crypto are being led by the 35-44 age group, so is it time to consider this alternative asset class to grow your retirement savings?
With 1 in 4 Australians currently owning at least one form of cryptocurrency and a reported $2.1 billion of estimated crypto gains (in 2021), Australia is now ranked amongst the top 20 countries of digital savvy investors.
So let’s explore the common questions asked by investors looking to invest in bitcoin and cryptocurrency:
- Can SMSFs invest in cryptocurrency?
Why are millions of Australians investing in digital assets?
How can I set up an SMSF that invests in bitcoin and cryptocurrency?
1. Can SMSFs invest in cryptocurrency?
Absolutely. SMSFs in Australia can invest in cryptocurrencies like bitcoin and Ethereum. More than 3.3 million Australians have invested in cryptocurrencies, and an increasing portion of these investors are choosing to also invest through their SMSF.
According to the ATO, SMSFs can invest in cryptocurrencies as long as the investment:
- Is allowed under the fund’s trust deed
- Is in accordance with the fund’s investment strategy
- Complies with SISA and SISR regulatory requirements concerning investment restrictions (e.g cryptocurrency can’t account for 90% or more of the portfolio)
What’s a fund’s investment strategy? Every SMSF must have an investment strategy for their fund that outlines the types of investments it can make. For example, as cryptocurrencies are considered a riskier investment than treasury notes, a fund has to be willing to accept that level of risk.
The ATO has also stated that “SMSFs are prohibited from intentionally acquiring assets from related parties.” That includes your spouse, business partner and relatives. Furthermore, the ATO stipulates that you must ensure that your SMSF “fund’s assets are held separately from personal assets.”
2. Why are millions of Australians investing in digital assets?
Bitcoin has been the best performing asset class of the past decade. It even outperformed the second-best performing asset class (the NASDAQ 100) by a factor of 10. A small investment made 10 years ago in cryptocurrency could have led to outsized returns for an entire portfolio. Now, as serious investors increasingly view cryptocurrency as a long-term investment, SMSFs asset distribution towards cryptocurrency is also incrementally growing.
Beyond historic returns, why are investors flocking to this new asset class?
- Declining bond yields
The decreasing yields for bonds and term deposits due to increasing inflation forecasts have forced investors to seek returns in other asset classes. With potentially high yields across the crypto DeFi sector, networks like Ethereum have seen significant growth.
- Uncorrelated to other markets and assets
Historically, bitcoin’s price has moved independently from equities and bonds and has intrinsically emerged as a store of value to hedge against inflation and market uncertainty. With a fixed supply of only 21 million bitcoins, the scarcity, portability, and individual control of bitcoin is seeing this digital asset’s desirably set to continue.
- Outsized returns
For investors in the accumulation phase, where the risk factor is likely to be higher and the focus is more about continued growth and increasing your contributions, the potential future returns of the sector are particularly enticing.
3. How can I set up an SMSF that invests in bitcoin and cryptocurrency?
Self-managed superannuation funds play an outsized role in Australia. While the 1.12 million SMSF members represent less than 5% of the population, they represent around 25% of the AU$3.3 trillion in superannuation. Clearly, they represent some of Australia’s most sophisticated investors.
If you’re planning on investing in cryptocurrencies through an SMSF, it’s important to pay particular attention when creating the trust and fund strategy (step 4), as this must allow investment in cryptocurrencies.
Here’s a typical process for setting up an SMSF to invest in cryptocurrency – some of which may already be done, depending on whether you have an established SMSF:
- Determine whether you’re setting up an individual or corporate SMSF
- Appoint the trustees
- Set up the trust and trust deed, allowing cryptocurrency as an investment
- Ensure your fund companies with SISA and SISR regulator requirements
- Register your fund and get an ABN
- Set up a bank account for your SMSF
- Rollover your funds to the SMSF
- Set up your SMSF crypto trading account with an exchange like Cointree
- Start investing and securely store your cryptocurrency
- Report annually on investments
If you haven’t set up your SMSF yet, or need assistance with the process of updating your trust deed, Cointree’s network of experienced partners can help. Additionally Cointree offers SMSFs:
- SMSF industry taxation and transaction reports and tools, including having all transaction information available in Australian dollars;
- Integrations with BGL Simple Fund 360, allowing Accountants to easily identify all their customers’ cryptocurrency transactions on Cointree;
- Top-level security, both of their information and their assets;
- Account Managers who help guide you through everything, from setting up their SMSF trading account, to using the platform, to answering questions throughout the process; and
- Premium service levels with a 24/7 support hub or speak to our local crypto experts seven days a week.
Learn more: SMSF cryptocurrency
Whether this is your first SMSF or you’re an experienced manager, we’ve curated a short course of resources to learn more about how to invest in crypto.
Cointree is a digital currency exchange, founded in Melbourne in 2013, helping Australian investors access the world of crypto. And over the years we’ve guided thousands of investors through the process of setting up their accounts, helping them make their first crypto purchase and answering all their questions along the way. Cointree provides all the advanced tools to buy, sell, trade, and grow investment portfolios with Bitcoin, Ethereum and 280 other cryptocurrencies.
Cointree is Finder’s 2022 Winner of the Best Crypto Exchange in Australia for SMSFs.
Cointree is a registered digital currency exchange with AUSTRAC (the Australian Government regulatory and monitoring body for AML/CTF) and a partner of Blockchain Australia.
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Disclaimer: Information provided is for educational purposes and does not constitute financial product advice. You should obtain independent advice from an Australian financial services licensee before making any financial decisions.