“I want to make [establish] a self managed superannuation fund and invest it in bitcoins. Will this be possible?”
Type in “bitcoin” and “superannuation” into Google and questions such as this, asked on popular internet forums such as Whirlpool, creep up on computer screens.
As the world’s fascination with bitcoin burgeons, some Australians are turning to cryptocurrencies as investments to boost and diversify their retirement savings.
But the questions and stories of Australian investors tapping the bitcoin market for returns have rung alarm bells among the professional investment community.
One financial adviser who declined to be named said: “You have to be a lunatic to do it.”
“What exactly are you buying? It’s hardly a story of wealth – it’s something that’s just manufactured,” he said.
Bitcoin, the world’s most famous digital currency, has soared in value from $1 in 2011 to more than $1200 at the end of last year before crashing after the high profile collapse of bitcoin exchange, Mt.Gox.
The currency, which is currently trading at around $628, skyrocketed in value in countries like Argentina due to capital control laws and in China before authorities clamped down on bitcoin trading.
British press quoted venture capitalist Founders Fund’s partner, Geoff Lewis, predicting the value of bitcoin to reach $2000 by the end of 2014.
But digital currency tax expert Reuben Bramanathan, a senior associate at law firm McCullough Robertson, said investors needed to be ultra cautious about dipping their toes into the bitcoin market to glean better returns as part of their super.
“People have done it – we’re hearing from accountants who have clients that have invested in bitcoins through their self-managed super funds,” Mr Bramanathan said.
“The real question is are the funds that do it compliant with the SIS [Superannuation Industry Supervision] Act and regulation.”
In June, the Australian Taxation Office delayed its ruling on how it would approach taxing bitcoins although it is expected to hand down its highly anticipated guidance on the currency in time for Australians to complete their 2013-14 tax returns. Market sources say the ATO could release its guidance by the end of August.
Mr Bramanathan argued that one of the biggest risks governing bitcoin as a superannuation investment was zero clarity under Australian law.
“We wouldn’t recommend it until proper advice is sought – or at the least check their trust deed and investment strategy to make sure that they allow them to invest in bitcoin,” he said.
Mark Draper, financial adviser at GEM Capital, said his biggest worry would be pegging the underlying value of bitcoin as an investment.
“There’s a lot of question marks around the trading of this – and it doesn’t pay an income. And from an SMSF perspective, it’s highly questionable,” Mr Draper said, pointing to DIY fund trustees’ love affair with income-producing investments.
Fellow financial adviser Matthew Walker from WLM Financial is cautious but a little more optimistic about the possibilities of legitimising bitcoin as an investment class.
Mr Walker said his company had yet to receive any enquiries from clients about investing in bitcoin, but he is not ruling it out in the future.
“There’s too much uncertainty around it in terms of security. Until there’s more information, regulation, more substance to it, I think I’ll be weary about advising around it,” Mr Walker said.
“If a client asked me to make an investment into bitcoin, I would certainly take a look into it, but it’s not something I’d confidently make a recommendation on – not yet, anyway.”