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Highlights
- While Australian super funds don’t yet invest in cryptocurrency, individuals with self-managed funds can include digital assets if they so choose.
- Despite its short-term volatility, crypto’s long-term potential is, no doubt, a feature that attracts many investors.
- Cryptocurrency is largely a speculative asset and the ebbs and flows of the market are mysterious to say the least.
It’s amazing how quickly things change in the financial space. Five years ago, the idea of including cryptocurrency in your superannuation would’ve seemed absurd. Today, the idea of putting crypto into a retirement fund no longer seems that farfetched, thanks to the emergence of digital assets and their move further into the mainstream.
While Australian super funds don’t yet invest in cryptocurrency, individuals with self-managed funds can include digital assets if they so choose.
If you’re looking to include crypto in your self-managed super fund (SMSF), there are some things you might want to consider.
Volatility of cryptocurrency
It’s no secret that the prices of cryptocurrencies fluctuate wildly when compared to the share market. Take Bitcoin, for example, which is the largest crypto by market cap. Over the past 12 months, Bitcoin has crashed twice, losing around half its value each time. At the time of writing, Bitcoin sits at around US$44,000. Just last week, however, that price was around US$35,000.
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Despite its short-term volatility, crypto’s historical performance along with its long-term potential is no doubt a feature that attracts many investors. In August 2013, Bitcoin was priced at a measly US$100. By 2017, it had surpassed US$1,000. By 2019, US$10,000. Then in 2021, the price skyrocketed to an all-time high of US$68,500.
It’s a similar story with many of the top ranked tokens, like Ethereum and Solana, which share similar long-term trajectories.
The timing of your fund’s maturity
Short-term volatility is still something to consider for holders of SMSFs because although historically crypto goes up over time, we’ve seen instances in the past where a particular cryptocurrency has lost half its value in the blink of an eye. Therefore, the timing of when to withdraw your super comes into play because the last thing you want is for the market to crash the day before your super fund matures.
Predicting a market crash, of course, is no easy task. Cryptocurrency is largely a speculative asset and the ebbs and flows of the market are mysterious to say the least.
For example, many have speculated that the most recent downturn, which started after November 2021, was caused by increased regulation, increased inflation and the anticipation of rising interest rates. But because the crypto market doesn’t tend to follow the trajectory of any other asset class, it’s difficult to pinpoint exactly when the market is going to pique or dip.
To add to this, many financial advisors are not permitted to to offer advice on digital assets, so it’s left largely up to the owner of the fund to predict any wild downturns in the short term.
Tax Requirements
Investments in crypto for super funds are subject to personal tax. Any gains made through cryptocurrency are therefore subject to capital gains tax (CGT) and calculated in Australian Dollars after the crypto has been converted to fiat currency.
It can be difficult to calculate the tax on cryptocurrency, so it’s advised that you visit a reputable tax agent.
Bottom Line
The soundest advice, when it comes to including crypto in your SMSF, is the same advice for anyone wanting to invest in crypto: keep your portfolio diversified. Even the most pro-crypto experts advise that crypto should not account for more than 5% of your total assets.
