SMSFs embrace crypto: a new era in retirement portfolios

As the digital asset industry continues to evolve, Australian Self-Managed Super Funds (SMSFs) are increasingly turning towards cryptocurrency to diversify and bolster their retirement portfolios.

With significant growth in crypto holdings among SMSFs, it's essential to understand the motivations behind this shift and the potential benefits and risks involved.

So, why are SMSFs turning to crypto?

SMSFs have seen a remarkable shift towards investing in cryptocurrency, a significant evolution in retirement portfolio management.

According to the Australian Taxation Office (ATO), SMSFs held approximately $1 billion in crypto assets in 2024, up from $198 million in 2019[1]. A 400% increase in just five short years.

This growth not only highlights the escalating interest in digital assets among Australian investors but also positions crypto among the fastest-growing asset classes in SMSF portfolios.

Rising popularity

On the BTC Markets platform, this trend is evident. Our exchange has observed a 100% increase in SMSF users in FY23-24 (year-to-date) compared to the same period in the last financial year.

SMSF investors’ average portfolio sizes on our platform have increased substantially, rising by 106%. Average trade size has also grown by 89% from last year.

Furthermore, SMSFs traded more frequently on our platform. Average daily trades have risen by 52% from the previous financial year, while the average initial deposit grew by 44%.

Long-term investment strategy

Careful consideration of various factors, such as asset allocation, should be considered when discussing a long-term strategy with your investment advisor.

A decade ago, cryptocurrency was relatively unknown, poorly understood, and not considered a suitable asset class for retirement portfolios. Today, the landscape has dramatically shifted.

Over the past 14 years, gold has seen a return on investment (ROI) of 94% in USD, and the S&P 500 has achieved 382% (May 29, 2024) [2].

However, these figures are dwarfed by Bitcoin's staggering growth of 1.5 billion percent since 2010. This remarkable performance has brought the digital asset industry into focus for SMSFs and fund managers.

Tax benefits

According to the ATO, during the accumulation phase, tax on investment income is capped at 15%, while in the retirement phase, there's no tax payable (provided you're a ‘complying fund’ and under the $1.6 million cap) [3].

Navigating Australia's complex tax laws for SMSFs requires thorough understanding and compliance. Seek advice from a registered tax agent to ensure informed financial decisions.

Inflation hedge

Cryptocurrencies, particularly Bitcoin, are widely perceived as a hedge against inflation.

This perception is largely due to Bitcoin's unique supply structure, which caps the total number of coins that can ever be created.

Unlike traditional fiat currencies, which can be subject to unlimited printing by central banks, Bitcoin's fixed supply makes it inherently deflationary.

Mainstream acceptance

The growing acceptance of digital assets in mainstream finance is booting confidence in the sector.

The recent approval and listing of multiple spot Bitcoin ETFs by the U.S. SEC, involving major players like BlackRock and Fidelity, illustrate this trend.

The spot Bitcoin ETFs have amassed nearly US$12 billion in net inflows, with Australia potentially approving its first batch of ETFs by the end of 2024.

Navigating the risks

SMSFs in Australia are increasingly embracing cryptocurrency for diversification, potential high returns, tax benefits, and as a hedge against inflation.

However, crypto markets are highly volatile, with prices swinging dramatically and affecting investment values.

Bitcoin, often seen as an inflation hedge, has shown a positive correlation with share markets, experiencing declines during market turmoil.

The regulatory landscape for cryptocurrencies in Australia is still evolving, posing challenges for local investors.

At BTC Markets, we proactively collaborate with government representatives and industry stakeholders to advocate for regulatory clarity, ensuring a secure and transparent environment for our users.

Key considerations for trustees

Trustees considering adding crypto to their SMSF portfolios should seek advice from licensed financial advisers.

It is important to develop a clear exit strategy and conduct thorough research to ensure informed and well-thought-out investment decisions.

In summary, investing in cryptocurrencies through an SMSF in Australia requires a cautiously optimistic and open mindset.

Understanding the risks, seeking professional advice, and choosing your investments carefully are key steps to success.