Understanding SMSF Investment in Cryptocurrency

by Sudarsan

Cryptocurrency is a decentralised type of digital currency that uses encryption, or cryptography, to control the creation of monetary units and verify the transfer of funds. When you’re looking to learn more about SMSF crypto Australia, there are some key aspects to be aware of. 

A cryptocurrency is essentially a dedicated ‘peer-to-peer’ network or decentralised form of software that stores and shares data relating to an ongoing monetary transaction ledger.

SMSF Investment in Cryptocurrencies

SMSF investors consider cryptocurrency as an alternative investment because of the returns that it may offer, which can be significant. However, given the relatively recent emergence and evolving nature of cryptocurrency (and absence of regulatory guidelines), there are potential risks associated with funds investing in cryptocurrency.

As a result, SMSF trustees will need to assess whether they have the knowledge and experience to understand these risks and form an opinion on the extent to which any investment in cryptocurrency complements their SMSF’s investment strategy and portfolio.

Here is what you can do when you’re looking to invest in SMSF crypto in Australia successfully.

Do Your Research

Understand the benefits that cryptocurrency offers and look into how it can be used to diversify your SMSF’s portfolio. Once you have established whether it makes sense for your fund, perform a risk assessment on any new investment strategy. 

Do your due diligence and get professional advice from a financial adviser that understands cryptocurrency.

Manage Your Cryptocurrency Portfolio Wisely

As with all types of markets, investors of SMSF crypto need to monitor and manage any cryptocurrency investments closely. As prices can be highly volatile and vulnerable to dramatic drops within a short period, you should consider management activities such as:

  • Regularly review your cryptocurrency holdings to ensure that they are performing as expected.
  • Keep track of the market using publications, websites, social media, and SMSF-dedicated apps.

Secure Your Cryptocurrency Wallet 

Ensure that you have secure storage, whether it is paper wallets, hard drives or flash drives. Some of these are not repairable if damaged/broken, so ensure your wallet is online if you need to recover it with a backup.

Be Aware of Capital Gains Tax

Take note of the income tax implications of investing in cryptocurrency in Australia, as you need to consider any capital gains that may result from the disposal of your fund’s investments. In Australia, the income tax rate is 15%, and it is considered a separate activity to cryptocurrency investing.

Understand the Crypto-Economy and Legal Status

As a quick point of clarification, cryptocurrencies are not ‘currencies’ in a traditional sense. Rather, they have their own unique features and are determined by market demand. You can use cryptocurrency to pay for goods or services; however, it is not legal tender.

Various regulatory bodies oversee the safety of transactions involving cryptocurrency but, due to their decentralised nature, these are still in their early stages and could pose significant risks. So, if you’re thinking of using it as a transaction method, do your research!

Seek Professional Advice

You can speak to an expert in SMSF investment and cryptocurrency in Australia to get a more informed opinion. It will help you understand the risks associated with investing in cryptocurrency and how it may or may not complement your fund’s existing assets.

A comprehensive understanding of the complexities surrounding any new type of investment, including what makes them good investments and how they fit into your portfolio, will enable you to make an informed decision about whether or not cryptocurrency is right for your fund.

Do this long before you are required to set up a purchase order to have enough time to explore the options available to you when executing that decision. Invest in SMSF crypto confidently when you have all the required knowledge.

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