Advanced Series

Investing in Cryptocurrency with your Self Managed Super Fund (SMSF)

Cryptocurrency has been the best performing asset class of the past decade. Now that the asset class is maturing, Self Managed Super Funds (SMSFs) have started to invest. As of December 2020, an ATO survey revealed that SMSFs invested $168 million in the cryptocurrency asset class.

At Cointree, we’ve been helping Australians invest in cryptocurrency since 2013, that includes individuals, SMSFs, and even institutions. And over the years we’ve helped guide thousands of investors through the process of setting up their accounts, helping them make their first purchase and answering all their questions along the way.

In this guide to investing in cryptocurrency with your SMSF, we’ll be covering the most common questions we’ve heard, giving you everything you need to get started.

Contents

  1. Can SMSFs invest in cryptocurrency?
  2. Why are 3.3 million Australians investing in cryptocurrencies?
  3. How can I set up an SMSF that invests in cryptocurrency?
  4. Why is Cointree such a popular choice for SMSFs?
  5. Growing your retirement funds with cryptocurrency

1. Can SMSFs invest in cryptocurrency?

Absolutely. Self Managed Super Funds in Australia can invest in cryptocurrencies like bitcoin and Ethereum. More than 3.3 million Australians have invested in cryptocurrencies, 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:

  1. Is allowed under the fund’s trust deed
  2. Is in accordance with the fund’s investment strategy
  3. Complies with SISA and SISR regulatory requirements concerning investment restrictions (crypto 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. 

As the ATO has stated, “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 3.3 million Australians investing in cryptocurrencies?

Cryptocurrency 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. Even a small investment in cryptocurrency could have led to outsized returns for an entire portfolio. Now, as serious investors increasingly view cryptocurrency as a long-term investment, they are allocating a portion of their SMSF funds to it. 

Beyond historic returns, why are investors flocking to this new asset class? 

  1. Declining bond yields: The decreasing yields for bonds and term deposits due to lower interest rates have forced investors to search for returns in other asset classes. With high yields across the crypto DeFi sector, networks like Ethereum have seen significant growth. 
  2. Uncorrelated store-of-value: Bitcoin has been replacing gold as a store-of-value uncorrelated to equities and bonds. With inflation fears rising that have historically seen demand for gold grow, much of that demand has moved to bitcoin instead. With a fixed supply of only 21 million bitcoins, this trend is set to continue.  
  3. Outsized returns: For investors in the accumulation phase, where the risk factor is likely to be higher and the focus is more about growing and adding your contributions, the potential future outsized returns of the sector are particularly enticing. 

While the growth in crypto investing through SMSFs has been high, there are still many trustees who haven’t invested in cryptocurrencies simply because they didn’t know how. Luckily, the process is easy as any other asset class. 

3. How can I set up an SMSF that invests in cryptocurrency?

Self Managed Super Funds play an outsized role in Australia. While the 1.19 million SMSF members represent less than 5% of the population, they represent around 25% of the AU$2.7 trillion in superannuation. Clearly, they represent some of Australia’s most sophisticated investors. 

If you’re planning on investing in cryptocurrencies through a 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 typical process for setting up an SMSF to invest in cryptocurrency - some of which may already be done, depending on whether you’ve already established your SMSF:

  1. Determine whether you’re setting up an individual or corporate SMSF
  2. Appoint the trustees
  3. Set up the trust and trust deed, allowing cryptocurrency as an investment
  4. Ensure your fund companies with SISA and SISR regulator requirements 
  5. Register your fund and get an ABN 
  6. Set up a bank account for your SMSF
  7. Rollover your funds to the SMSF
  8. Set up your Cointree account
  9. Start investing
  10. Securely store your cryptocurrency
  11. Report annually on investments 

You can set up your SMSF account yourself or work with a trusted expert like ExpertSuper. At Cointree, we can also help you set up a dedicated SMSF trading account on our exchange. 

We believe that our SMSF offering is one of the best in Australia. Having worked with SMSFs for a number of years, we’ve built Australia’s most secure and established crypto exchange built for high growth SMSFs.

Here’s why SMSFs are choosing to set up an account with Cointree:

  1. Top-level security, both of their information and their assets;
  2. Account Managers who help guide them through everything, from setting up their SMSF trading account, to using the platform, to answering questions throughout the process;
  3. Premium service levels with a 24/7 support hub and local support seven days a week;
  4. Detailed reporting and taxation tools, including having all transaction information available in Australian dollars; and
  5. Integrations with BGL Simple Fund 360, allowing Accountants to easily identify all their customers’ cryptocurrency transactions on Cointree.

Whether you’re starting your first SMSF or are an experienced trustee, we’ve got everything you need to get started investing in cryptocurrencies through your SMSF. 

5. Growing your retirement funds with cryptocurrency

As we’ve seen, cryptocurrency is a fast-growing asset class that is attracting millions of Australian investors. With more sophisticated investors looking to grow their retirement funds with cryptocurrencies, we’re here to help make it easy. 

Along with expert advice from ExpertSuper and integrations with BGL Simple Fund 360, we have our own team ready to help you every step of the way. Whether you’re ready to start or have further questions, our team is more than happy to help. 

Disclaimer

Information provided is for educational purposes and does not constitute a financial product or SMSF advice. You should obtain independent advice from an Australian financial services licensee before making any financial decisions.