Risks You Need To Consider Before Your SMSF Invests In Crypto

Cryptocurrency’s popularity as an investment has led to rising concern and an increased need for awareness around the risks of investing your SMSF’s funds into the digital asset. It might be tempting, but having as much information and understanding around cryptocurrency might save you a lot of grief before you commit. In this post, we have a closer look at Crypto Investing within your SMSF and the risks.

Superannuation funds have yet to fully embrace cryptocurrency as an investment option for their members’ funds. Still, the flexibility of SMSFs and how trustees manage their investments mean that cryptocurrency remains a possibility for them.

Your first step should be to check that your trust deed allows this kind of investment. Even though most modern deeds give the trustee freedom to invest in what they like, they are all different. Currently, there is no explicit legislative prohibition or restriction on SMSFs investing in crypto. Investing will not trip up on anything so long as you follow the investment rules for trustees.

Benefits

Some advantages to adding this asset to your SMSF could include:

• Further diversification of your SMSF by adding a new type of asset to your portfolio
• Security of the investment as transactions using cryptocurrency are trackable through blockchain technology
•  Potential for high windfalls for those wanting a high risk, high return investment strategy
• Reduced tax on the returns for SMSFs compared to investing as an individual. However, cryptocurrency has specific tax implications that the ATO monitors closely.

Crypto Investing SMSF Risks

Some of the risks associated with cryptocurrencies in your SMSFs could extend to:

• The unpredictability of the asset is due to its relatively short history. Within the last five years, there has been no apparent patterns or trends to map out its trajectory.
• Instability of the investment due to the potential for future government regulation
• High volatility of the investment due to dramatic rises and falls in recent times
• High risk due to no physical asset backing up the investment; if it fails, you lose everything.

Cryptocurrency Scams Targeting SMSFs

Superannuation is an attractive target for scammers, and the rise of emerging cryptocurrencies make them attractive and easy to impersonate for that purpose. Be wary of investment opportunities in cryptocurrency that might seem too good to be true. Offenders are difficult to catch, and money lost on bitcoin scams can be difficult to recover. It is even more problematic when offenders operate outside of Australia and all contact has been online.

Common examples of scams involving cryptocurrency that SMSFs should be aware of include:

• Being called or emailed by scammers with an investment opportunity or approached by their friend, family member, or online romantic partner who tells them how they have made money online and suggests that they try it too.
• Signing up for ‘crypto-asset trading’ online and being told to deposit funds into a trading account via a crypto wallet or bank account.
• Scammers encourage consumers to deposit more funds into the account.
• When an investor logs into their account, it may look like they are making profits initially (due to fake data) but eventually shows ‘trading losses’ even though no actual trading occurs.
• When the consumer asks to withdraw their funds, bitcoin scammers either cease all contact or demand further payment before they can release funds.
• Often, scammers seek to mine personal information from victims to engage in identity fraud.