Cryptocurrencies and super: is it time to mix them together?
Booming interest in cryptocurrencies has seen their numbers grow from 60 to 10,400 in a decade, and their combined value eclipse $2.3 trillion. Superannuation may be their next frontier.
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Whether you think it’s the future of finance or a giant global scam, you can’t deny that cryptocurrency has the ability to help people get rich quick.
Bitcoin, the biggest crypto with a market value of $1 trillion, has doubled in price – then halved again – twice in the past 12 months. Despite this volatility, the price of one bitcoin has climbed from $5000 to $50,000 in three years.
Almost all cryptocurrencies are just as volatile, seemingly at odds with the long-term investment approach of superannuation.
But Australians are adding crypto to their nest eggs, just as super funds and investment giants begin to make it more mainstream.
Crypto.com’s general manager Asia Pacific, Karl Mohan, says about one billion people could own cryptocurrencies by the end of 2022.
But investing through super is tricky, and currently only possible for people with self-managed super funds. Industry fund Rest Super has signalled interest in holding, but other Aussie funds are less enthusiastic.
Mohan says there are three important rules for anyone thinking of mixing crypto with super.
“One. Always get financial advice specific to the circumstances of the super fund and the individual,” Mohan says.
“Two, understand risk appetite and investment horizons.” If you’ll need the money within a year or two, a higher-risk asset such as crypto is not recommended.
“Three, Learn about crypto and understand what you are investing in.”
ASK WHY
More opportunities to own crypto in super will emerge. Global finance giants such as JP Morgan and Goldman Sachs have started offering crypto to wealth clients, and crypto-related exchange traded funds are appearing in Australia.
Creation Wealth senior financial planner Andrew Zbik says he expects to see more crypto held by super funds “as it becomes more mainstream”, but says people need to understand their own tolerance to risk.
“It’s an asset, but it’s a speculative asset,” he says.
“If you are new, you need to ask yourself, ‘Why am I doing it?’.”
Retired investment manager Sue McMillan uses crypto in her retirement wealth strategy and wants to see more super funds offer it.
She started investing in Bitcoin and Ethereum in 2019 and thinks more older Australians should embrace crypto, saying: “Please don’t be scared of it.”
“There’s always going to be ups and downs along the way – I don’t mind it because I’m in it for the long haul,” she says.
“I’m in my sixties and will reflect back when I’m 70 and am very confident that we will have a greater nest egg.”
SMSF Association deputy CEO Peter Burgess says Australian Taxation Office data released this month shows SMSFs held $218 million in cryptocurrency in mid-2020, less than 0.1 per cent of total SMSF assets.
While these figures would have increased during 2021, the total remains small and the median amount invested of $33,000 suggests SMSFs are “adopting a very conservative and measured approach”, Burgess says.
UNDERSTAND TAX
“Holding crypto must be allowed under the terms of the fund’s trust deed and it must be consistent with the fund’s investment strategy, which, among other things, requires an SMSF trustee to consider the risk profile of members, investment diversification and the cashflow and liquidity needs of members,” he said.
You cannot transfer your own personal crypto holdings into super, and can’t pay yourself a tax-free retirement pension with it.
“Many licensed financial advisers are not permitted to provide advice on such investments, which adds another layer of risk,” Burgess says.
H & R Block director of tax communications Mark Chapman says SMSFs must ensure their crypto investments are valued in accordance with ATO guidelines, and should continually monitor the value to ensure superannuation caps are not breached.
“It can be difficult to calculate income and gains from cryptocurrency in your fund’s tax return,” he says.
“A reputable tax agent will be able to do this for you.”
WHEN BUYING CRYPTO IN A SMSF:
• Use the SMSF’s bank account for purchases – not your own personal account.
• Maintain a separate cryptocurrency wallet for the SMSF.
• Create SMSF-specific email addresses so documentation exists to satisfy fund auditors and the ATO.
• Have sufficient security to protect the fund’s crypto assets, such as private keys.
Source: H & R Block
Originally published as Cryptocurrencies and super: is it time to mix them together?
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