Buying Cryptocurrency Through a SMSF
Can you buy cryptocurrency through an SMSF? The simple answer is yes, but the question of whether it’s an advisable move is another matter.
Starting in Cryptocurrencies Through SMSF
The explosive gains that cryptocurrency traders have booked made some Australians curious about the possibility of investing a portion of their super account into the said asset. This shows in the increasing number of SMSF trustees investing in cryptocurrencies despite their volatility and high-risk nature.
SMSF trustees need to be informed about investing in bitcoins and the like. Usually, investing in cryptocurrencies is implicitly defined in the trust deed, but some deeds have broader terms that allow the funds to be invested in almost anything.
To start investing, the SMSF must open an account in a crypto exchange first. There are Australian cryptocurrency exchanges that allow SMSF registrations aside from the usual individual account setups.
Here are other things to consider before you start using an SMSF for cryptocurrency investing:
- Available cryptocurrencies
Most crypto exchanges offer the most popular cryptocurrencies like Bitcoin and Ethereum. But if you want to invest in lesser-known and more speculative cryptos, you may need to access overseas-based exchanges. This means you must buy the crypto available in the local exchange and then use it to buy speculative crypto in international exchanges.
- Over-the-counter services
If you plan to buy cryptocurrencies amounting to hundreds of thousands of dollars, it’s better to approach businesses offering over-the-counter (OTC) services. These companies let you buy major cryptocurrencies in bulk in exchange for a 3% to 5% service fee. The good thing about this is that the company will handle the documentation you’ll need for auditing asset holdings at the end of the year.
It’s the responsibility of the SMSF trustee to handle the security of the crypto asset. Cryptos are vulnerable to hacks, cyber-attacks, and scams, so it’s generally unsafe to keep the assets on an exchange platform. It’s up to the SMSF trustee to decide whether a hardware wallet or paper wallet is more suitable to use.
Cryptocurrencies can also be insured for added security. With how volatile and unregulated cryptocurrencies are, it’s best to insure the asset to maintain the profitability of the fund.
It’s the responsibility of the SMSF trustee to determine the value of the crypto asset at year-end for reporting financial statements. A screenshot of the wallet interface with details of the holdings and the blockchain address must be visible for easier auditing.
Should You Invest in Cryptocurrency Through an SMSF?
The tax advantages associated with investing in cryptocurrency through an SMSF are the main reasons for choosing this route over direct, individual crypto investments. An SMSF also has a bigger fund that can be put into cryptocurrencies, which means the reward can also be higher.
However, managing an SMSF is a huge responsibility. Regulations and rules must be strictly followed to avoid grave monetary penalties for mishandling funds. Additionally, the cost to set up and maintain an SMSF is also high.
Before you put your money in an SMSF to invest in cryptocurrencies, make sure the profits will outweigh the cost of maintaining the fund. You should also have a complete grasp of the risks and rewards associated with investing in cryptocurrencies just like how you would in stocks. SMSF members who are in their retirement phase are also not recommended to invest in an asset as volatile as cryptocurrency.