When looking at adding cryptocurrency to your SMSF, and ensuring you maintain your superannuation solely for retirement purposes, you would need to demonstrate that you are not, for example, speculating.
Some would argue that by its nature, cryptocurrency investments are a form of speculating, given the limited or nil underlying value and no continuing income stream.
Trading a tough argument
However, if you are for example day-trading in cryptocurrency in your SMSF, and regularly turning over the portfolio, it might be difficult to argue that you are maintaining your superannuation assets solely for retirement purposes and not simply speculating.
Just like any other asset class investment, the overall diversification of your SMSF will also need to be considered when adding cryptocurrency. If your plan is to invest solely across a range of cryptocurrency holdings to demonstrate that your SMSF is well-diversified, you might need to review that plan.
Once again, it is imperative that your investment strategy is tailored to your specific personal circumstances, and if your preference is to be “overweight” cryptocurrency assets in your SMSF relative to other asset classes, you will need to demonstrate how this perceived lack of diversification will meet the fund members’ retirement objectives.
Another important issue to deal with before adding cryptocurrency to your SMSF will be the trust deed. In a lot of cases, your SMSF trust deed will be quite specific with respect to the assets or investments your fund can hold.
You will need to ensure that your trust deed allows investments in cryptocurrency and, if not, ensure your trust deed is amended to allow such investments before adding cryptocurrency to your SMSF.
One of the major benefits in using an SMSF is the element of control, and this generally manifests itself in controlling the choice of investments for your superannuation.
As cryptocurrency continues to gain momentum and popularity as an alternative asset class investment, using your superannuation to hold cryptocurrency will no doubt follow a similar path and drive growing interest in using an SMSF for this purpose.
However, while the upside might seem attractive, the downside in failing to meet the required superannuation laws is definitely not something easily dismissed.
Join us for The Australian Financial Review Cryptocurrency Summit on Tuesday August 24, 2021 to hear expert arguments for and against investing in digital assets.