Should your superannuation be buying Bitcoin? As big super funds stand well back from the action, self managed super funds are leading the charge into digital currencies.
But unlike their younger counterparts, SMSF operators are not trading the digital currency, typically they are making significant deposits with a view to keeping their holdings long term.
“We are seeing more and more SMSF operators come into the market. Typically, they will put in anything from $30,000 up to $100,000 and leave it there,” says Lasanka Perera, COO at independent Reserve, a local digital currency exchange that has signed up more than 8000 Australian SMSFs.
SMSF administration specialist Robert Joseph at MySMSF adds: “We are seeing a similar group that would have traditionally invested in gold moving into cryptocurrency, but compared to the last rush back in 2017, this time round older Australians are much more considered in how they deal in this area.”
During the 2017 boom when participation across all age groups soared, investors rushed into a variety of digital currencies. In contrast, in 2020 Bitcoin is very much dominant in our market with local exchange numbers showing around five Bitcoin trades for every trade by its nearest rival, Ethereum.
Industry figures compiled by the independent Reserve group show that almost one in three younger investors in big funds want their funds to participate in the second crypto boom. However enthusiasm drops sharply among older members of retail and industry funds where only 13 per cent want their fund to buy digital currency.
In recent weeks, Bitcoin has been testing its all time high of almost $US20,000 - it is currently trading near $US18,406 up from around $US7000 at the beginning of the year.
Most investors now realise the Australian Taxation Office (ATO) recognises digital currencies as legitimate, classifying them as “collectables” and taxing them under the Capital Gains Tax system.
They also realise digital currencies are highly speculative and Bitcoin is just as likely to plunge in value or fly higher at any time regardless of how many pundits are promoting its benefits.
Larger super funds are effectively restricted from buying digital currency due to the lack of comprehensive regulation and few vehicles that can offer an entry point.
Though some new funds have emerged, big super funds most likely need a developed Exchange Traded Fund market in digital currencies which has yet to emerge.
Nonetheless, some financial institutions have recently accommodated digital currency, most notably PayPal, which has announced it will allow Bitcoin among its 340 million users.
According to MySMSF’s Joseph: “Independent investors see major hedge fund players such as Stanley Druckenmiller or Paul Tudor Jones take positions in digital currency and they want to be part of that opportunity. In our experience, SMSF operators are categorising it as a speculative investment where perhaps 5 per cent of a portfolio might be held.”
Holding of cryptocurrency among SMSFs first appeared in ATO data back in 2018.
The value of the total crypto assets had remained little changed since that time.
In June this year, the total stood at $137m, though this number would have risen strongly since that time.
To put SMSF digital currency investments in perspective, they are a little less than half the value of collectables.
More broadly, in global terms Bitcoin is close to a tenth of the value of gold.
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