Many clients are now asking their advisors whether the Superannuation (Industry) Supervision Act 1993 (SIS Act) and other laws allow their SMSF to invest in bitcoin or one of the many other types of cryptocurrency.
The short answer is: It depends on your superannuation deed.
The CCASA superannuation deed contains a residual investment power in clause 5.2 which would allow, subject to the due diligence issues noted below, the fund to invest in cryptocurrencies.
There are several key due diligence issues that all trustees need to consider in order to meet their trustee covenants contained in section 52 of the SIS Act.
What are the liquidity needs of the fund? This relates to the age profile of members and whether they are in accumulation or approaching pension mode. Many cryptocurrencies can’t quickly and easily be converted back to cash when disposed of.
What is the investment strategy of the fund? For example, if a fund invested, say, 50% of its available funds in bitcoin, this may raise serious concerns as to whether the trustees are acting prudently for long-term investment or recklessly for short-term speculative gains.
There is not much transparency in the market as to how and why some cryptocurrencies are rising and falling. There is no public register of who owns these assets and who has traded assets.
There is a risk that bitcoin and other cryptocurrencies are in the middle of a speculative bubble, which has been manufactured by certain key players who have created their own systems and currencies.
Fans of cryptocurrency believe it’s the money of the future while others are not convinced by the lack of regulation and store of value. Either way, it’s a fascinating concept.
Cryptocurrency started with the launch of a peer-to-peer, decentralised electronic cash system we now know as Bitcoin. It was never meant to be a currency in itself but it paved the way for future currencies and the cryptocurrency movement we see today.
Cryptocurrency is essentially a medium of exchange, or digital cash, that is created and stored electronically in what’s known as a blockchain – the technology behind the currency. The blockchain works by monitoring transactions in limited entries in a database, which no one can change without fulfilling specific conditions.
It sounds technical – and it is – but there’s a huge amount of information out there for anyone who’s keen to learn more about cryptocurrencies. The ATO also has some great information on SMSF investing in cryptocurrencies.
As with any investment, if in doubt you should consult a licensed financial services advisor to have them assess your fund and the profile of its members. CCASA can also help to advise you on SMSF compliance.
This information is general in nature and we recommend that you seek legal and/or accounting advice to make the best decisions for your business.
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