As I watch bitcoin rise and break through to all time highs in value, I began to research the risks of investing my Self Managed Super Fund into this new “investment asset”. At first skeptical when I first heard about bitcoin’s potential to be an investment option in 2016 and watching it boom then bust in late 2018, its become apparent to me that Bitcoin is here to stay. And the more I think about it, the greater viability Bitcoin has in our society as a storage of value rather than gold. At the very least, Bitcoin can be used widely and easily to transact with, whilst gold – besides being a form of jewelry – what else can it be used it for?
So, I’ve taken the great leap forward and have now decided to investment some of my SMSF assets into Bitcoin. I am completely aware that investing in Bitcoin does not come without risk, and hence, I only intend to invest a small percentage of my SMSF assets.
But unlike share trading, in which I could ask a bank to help me set up an account by walking into a branch, I couldn’t do the same with buying Bitcoin. So how the heck do I get started?!
With much support from family and friends, I managed to get an account open with Independent Reserve, a Bitcoin exchange that is Australian and facilitates SMSF Bitcoin transactions.
In this article, I lead you through the steps of opening a Bitcoin account for your SMSF, and how to start buying Bitcoin as the trustee.
Please note, I use Independent Reserve in my guide, however you can choose any exchange to facilitate Bitcoin transactions. Just make sure they can process SMSF transactions and accept AUD.
Why invest your SMSF in Bitcoin?
I’ve been asked this many times from family and friends, and the reasons very much come down to the following: fiat currencies are devaluing overtime through excessive quantitative easing whilst bitcoin has a limited supply and more cannot be created, I need to diversify further in my SMSF asset allocation to reduce volatility and bitcoin is becoming more liquid each day.
Quantitative easing (QE) is the new whizz bang approach to managing economies that have over leveraged. The US has been QE like crazy since the Global Financial Crisis (GFC), and many other countries followed suit. The world has turned upside down with borrowing rates ranging from near zero to even the negative! That’s right, some are being paid interest to borrow money! With an influx of fiat currencies created out of thin air, to falsely pay of debt, fiat currencies are becoming more and more worthless by the day. Keeping cash at the bank is no longer a viable option – in the long run you will lose out. The little interest that you get will not cover the inflationary impact of QE. Even if you were to put your Aussie dollar in a a term deposit at any of the big four bank – CBA, NBA, Westpac or ANZ – you may get 1% at tops for a 6 month TD. It’s not worth it. So why not put some cash into bitcoin. It may devalue over the short term, but in the long term bitcoin can be created, and therefore it’s value should hold.
Diversifying asset allocation is one of my strategies for keeping value in my SMSF. I have invested in a broad range of asset classes. Property continues to appear to be overpriced and it’s not liquid, stock prices are soaring at 20 x PE with value difficult to find, gold – as mentioned earlier – is a nice contrarian, defensive asset but even that now looks to not hold true and investors move out of gold, and holding cash is no longer an option. Investing in bitcoin simply adds another string to the bow of investments, and can help reduce volatility in my portfolio.
Bitcoin is becoming more and more liquid each day. PayPal has announced that it is venturing into bitcoin, there are now bitcoin ATMs located at various capital cities in Australia, and I know many have open a personal account to trade in bitcoin.
How to get started with buying bitcoin for your SMSF
Before getting started, and this goes without saying, but I’ll say it anyways, is that you need a SMSF. Unfortunately if you are with an Industry Super Fund, a Master Trust or Corporate Super Fund you are held against their investment mandate, i.e. as a member you cannot decide specifically to invest in cryptocurrencies. You can select investment strategies such as “Conversative”, “Balanced”, “Growth” strategies, but these only dictate certain percentage allocation into asset classse (which at the time of writing) none include bitcoin and various cryptocurrencies.
So, if you don’t have a SMSF, you can’t invest your super into bitcoin. If you would like to move your super out of an Industry Super Fund, a Master Trust or Corporate Super Fund and into a SMSF then reach out to a financial advisor.
Step 1. Go to the Independent Reserve Bitcoin Exchange website
Click here: https://www.independentreserve.com/ to get to the site
Step 2. Click on Create Account
Step 3. Enter Account Details
Choose a Username (doesn’t have to be your real name) and enter a Password.
The Referral Code can be left blank or enter ZWAHUC for the CoinMaximus Referral Program.
Lastly tick on the box for “I’m not a robot”
Step 4. Provide SMSF Documentation
Enter your SMSF name, ABN and trustee information.
Load up via the portal a scanned copy of the trust deed
Load up your perssonal documents which includes: Driver license/Passport, a selfie with you displaying the Driver license/Passport and a Utility bill or Bank Statement.
Step 5. Receive Confirmation of Account Created and Activated
When your SMSF account has been verified, you will receive an email stating that you can make a deposit.
Step 6. Make a deposit
To make a deposit enter your bank account details, then click Deposit.
Buy your Bitcoin
You can now buy bitcoin from your Independent Reserve SMSF account. Place the order and a statement will be created to keep record which you can use for SMSF year end audit purposes.
Why would anyone want to run a Self Managed Super Fund?
There are three reasons why people set up self managed super funds:
So, starting with control, it’s an easy one. You’re the one in control, you’ll be the only one in control of the bank accounts, the only one in control the trading accounts, you’re the only one in control of making the investment decisions to enter and exit the market.
Basically the buck stops with you. And as long as you’re comfortable with that. Well then, a SMSF will be great for you.
Now the second reason is choice – you have so many more options in what you can invest in. When you have a Self Managed Super Fund with a retail fund you’re pretty much stuck to mainly Australian stocks maybe some international shares as well, maybe some debt instruments like bonds – overall it’s very limited.
But with a Self Managed Super Fund, the world is your oyster. You can basically buy anything that’s listed on any stock exchange around the world, you obviously can also buy Bitcoin and other cryptoassets
These cryptoassets you would not otherwise be able to get exposure to, but you can buy with yourself through a SMSF.
Now the third reason people set up, SMSF’s has to do with the cost. The way the cost is structured is a little bit different compared to retail funds.
When you’ve got a retail superannuation fund, the more you have in there, the more you pay in fees, generally pay around 1% to 1.5% of whatever balance of funds you have in there.
That’s what you’re going to be paying in full. So the more you have, the more you pay in fees. The less you have, the less you pay in fees. But with a Self Managed Super Fund, it doesn’t matter how much you have in there.
The cost to run it is the same, so whether you’ve got 10k, 100k or 10 million, it basically costs the same amount to do the accounting and that’s what you’re paying for when you have a Self Managed Super Fund.
The cost is basically the same, regardless of how much you have in there. There’s literally a crossover point where you’re crazy not to have a Self Managed Super Fund. But sometimes, even though it might be a little more expensive running your own SMSF, you will be willing to run your own SMSF. This is because you get more exposure to asset classes that a Retail fund would not otherwise be able to get exposure to.
So you might be happy to pay an extra couple hundred bucks a year for the opportunity to be exposed to something like Bitcoin, Litecoin or any other cryptoasset in your superannuation.
Three Rules of owning Bitcoin in your SMSF
Okay, so you’re probably very well aware that there are lots of rules and regulations that you need to abide by when you have a Self Managed Super Fund.
The three rules that you need to understand before you get started are the following:
Rule 1 – Understand that you can’t use the money for personal use
Even if you should use it for a couple of days until payday, it is not allowed. You can’t dip in to the SMSF funds at all. Ever, until you reach the conditions of release, basically until you reach retirement.
Rule 2 – Keeping everything separate
You can’t mix and match any of your personal holdings within any of the SMSF funds.
Even if you’ve already got a personal bank account or a personal trading account, bitcoin account, other crypto accounts, whatever it is, you need to have separate accounts for all the SMSF investment activities. As long as all your trading activity and moving around to the asset stays underneath the umbrella of the SMSF accounts, then you’ll fine to transfer from fiat cash to bitcoin and back again. As long as everything stays underneath the separation of SMSF activity and your personal investment activity.
Rule 3 – The SMSF itself is not allowed to have any debt
This means you can’t do any leverage trading on margin trading with bitcoin or any other cryptoassets.
There are some instances where you can actually buy an investment property and get a mortgage. But for crypto trading under the SMSF, borrowing money to purchase bitcoin is not allowed.
In summary, you cannot use the money for personal use, keep everything separate and no debt within the SMSF.
Partial transfer to SMSF to invest in Bitcoin
When setting up a Self Managed Super Fund, many people do not realise that they don’t have to move everything over from their existing retail fund over into the SMSF.
You can do what’s called a partial transfer.
So say you’ve got $100k, you could decide to just move over $30k and leave $70k in the retail fund.
Many people would like to do this, because maybe they prefer the existing retail superfund to look after the share trading, while the other portion is dedicated to investing in cryptoasset such as bitcoin.
Keep the cryptoasset within the SMSF and leave the retail super fund looking after the shares.
Multiple Members must all invest in Bitcoin
Okay, so what about having multiple members within your Self Managed Super Fund. Well you can you can have actually have up to a maximum of four people within your fund.
You can bring in your spouse or your kids, you can have them in at the very start, we can bring them in later on down the track. But there are a couple of things you need to be aware of when you do have multiple members within your self managed Superfund.
The main one is understanding that you can’t separate your assets.
For example: you can’t have, one member to have more Bitcoin and another member to have more Litecoin. The Bitcoin and Litecoin must be shared in proportion to the funds contributed to the SMSF.
Everything is owned in one pool of assets, and there’s still only one tax return done at the end of the year.
But every individual or every member will get their own individual statement at the end of the year. The statement will be determined by how much they have contributed in funds over time. For example, one member has $40k whilst another has $60k. One member will have 40% of everything and the other will have 60%.
Of course, the percentage split will be dynamic because one member might work a bit more and therefore contribute more over time. And so, dynamic percentage that will fluctuate up and down and that will get calculated by accountants. The most important aspect to understand is that you can’t separate your assets and the self managed Superfund itself is run as one entity. Every member will receive their own individual statement. At the end of the financial year.
If you want to invest in bitcoin with your superannuation funds, then the only way is to establish a SMSF. It is really quick and easy to perform, but there are some rules to abide by. Keep your personal and super funds separate, you cannot leverage i.e. margin lend or margin trade for bitcoin, and you cannot use the funds for personal use.