SMSF Crypto Exchanges. Selecting and Setting up
The recent surge in the price of Bitcoin has resulted in a lot more SMSF investors turning to crypto. According to the Finder Crypto Adoption Index, Australia ranks third ( 3rd/22) out of twenty two countries in terms of cryptocurrency ownership and the global average of crypto ownership is 11.4%. While it is a welcome surprise to see SMSFs showing interest in cryptocurrency, the challenge for SMSF Crypto investors, is in selecting the most suitable SMSF Crypto Exchange for their investing or trading needs, which is not as easy as the task sounds. Where SMSF’s are concerned, some providers have purpose built tools and support for SMSF Crypto investors and traders, which this article will focus on.
Selecting a suitable exchange. Things to consider
There are over ten exchanges that support SMSF Crypto Investing with, support, tools, fees and the choice of crypto coins, being some of the considerations for SMSF crypto exchange accounts.
- Choice of coins – 15 – 400 coins
- Fees – 0.40% – 1.5%
- Support – chat, email or phone client manager
- Wallets, custody and security
Depending on the type of SMSF Crypto activity, such as investing (Hodling) or trading, the number of coins on offer and the cost per trade can really make a difference, in deciding which exchange will be most suited to an SMSF crypto exchange account setup. Crypto investors are best to select an Australian exchange and open an SMSF fund account which is separate to their personal crypto asset accounts. It is a serious breach of the super laws, where there is no separation of SMSF assets from personal assets as per section 4.09a
Depending on whether you are a trader or Investor, fees can be an important consideration when selecting a SMSF Crypto exchange account. Some providers offer low fees, and low carry spreads, whilst others, offer fees that include currency costs, and membership fees that add up to represent the total fee for service. It is important that fees are considered when selecting a SMSF Crypto exchange account, as a trader will benefit from a low fee platform, where as an investor, who is buying and holding may not find a provider charging a higher fee an issue, specially if they offer better support and tools.
Choice of coins
Some exchanges offer a maximum of 15 coin choices, which again many SMSF Crypto investors will find suitable, as figures from Australian Tax Office ( A.T.O) and exchange figures, show that most investment in crypto is concentrated in the top five crypto coins.
Digital Surge exchange, Head of Relationships Mark Reid, said, “those trading cryptocurrency in an SMSF, were surprisingly active, in five top coins, Bitcoin,Ethereum, BNB, XRP and Litecoin, which is akin to digital silver, with bitcoin often referred to as Digital Gold”.
Support, Reporting and Other Services
Like, the choice of coins and fees, not all exchanges are the same with respect to, support and reporting. Digital Surge offers a client service manager for clients who trade higher volumes, where as the exchange Zebpay, offers chat and phone support for its SMSF customers with one of the lowest trade fees in the market. SMSF Crypto exchange account holders should investigate these service options to determine the most suitable option before selecting a suitable crypto exchange provider. For many younger SMSF Crypto investors and traders, chat and email support are more than sufficient as they mostly know what they are doing. For older investors, phone support can be great to re-assure and assist them on their SMSF crypto investing journey. Finally the all-important reporting requirements.
At My SMSF we have provided SMSF Crypto Accounting since 2016 and we have the knowledge and experience on, over 12 exchanges and the data they provide SMSFs for tax time. We find that all exchanges provide transaction and trade information reports, but most neglect valuation reports. Further, the detail of some providers reports compared to others can make our job easy or hard, so not all providers excel in respect to reporting data. Reporting data is important as it can mean less stress and work on the part of the SMSF member or significantly more work.
Wallets, Security & Insurance
once you have purchased your crypto assets, most often SMSF members will hold their bitcoin and other crypto assets in a SMSF Crypto exchange hot wallet ( exchange wallet). now this has many advantages, namely for SMSF accounting where it is very easy to ascertain the holdings and transactions. Where it is problematic, however, is when we consider that; like a retail or industry super fund, where you are a ‘beneficial owner’ of the asset, with the trustee of the fund the real owner; holding coins in an exchange wallet is problematic as this saying states, ” not your keys, not your coins”. Put simply, if you do not have or control the wallets private key ; seed phrases; then you are not the direct owner of the coins. Where security and wallets is concerned, Easy Crypto has an SMSF service with over 150 coins covered with the only no custody SMSF crypto service in the country. Andrew Butler – Managing Director of Easy Crypto Australia explains “third party custody can bring an element of risk to SMSF Trustees as the assets are technically held by another party. This can be negated by allowing SMSF members to store their crypto directly in a self-custodial manner, using a cold wallet of choice”. This also, removes the risk of hacking, by not storing crypto in an exchange wallet. It is important to point out that cold wallet storage, adds additional requirements to verify ownership and coin values, despite the fact that Cold wallets are the safest option for storage.
Risks Associated with SMSF Crypto Exchanges
– There has been many instances of counterparty risk. recently Quadriga and Cryptopia exchanges, closed down under the suspicion that the owners of the exchange may have embezzled all the funds.
-last year in Australia ACX.IO and MyCrypto Wallet exchanges were hacked and subsequently ceased to trade with SMSF investors affected.
-Lose your password or phone and you may be locked out of your SMSF crypto account or worse yet, get exploited by a phishing scam
Loss of assets
– an SMSF investor, invests in a speculative crypto coin which collapses, resulting in the SMSF member losing all of their money. Sadly in this situation there is no government compensation as with lost super in a retail or industry fund or cash savings insured up to $250,000 per deposit by a bank.
Asic has listed some recent scams and issues with aggressive SMSF Crypto promotions
- SMSF trustees are being targeted to invest in crypto-assets (or cryptocurrencies)
- Superannuation is an attractive target for scammers
SMSF crypto exchange account setups are therefore, not as straight forward as they may seem. There are a lot of important considerations before selecting a suitable SMSF Crypto exchange account. Fees may not be as important as reporting services and support for investors, where as, traders will value low fees, fast execution, on an order stacking exchange. Importantly for SMSF Administration providers, quality, detailed reporting will help make the onerous task of SMSF Crypto taxation work easier and less stressful for the end SMSF members. Finally, crypto investing is NOT for everyone and great care and advice must be sort before SMSF members, invest in crypto assets. Ripple( XRP) being the best example of a top 30 coin, which has fallen dramatically in value, and sadly an SMSF favourite. My SMSF has always taken the view, that sound education and advice must be sort before setting up an SMSF for crypto investing. Further, My SMSF has developed specific SMSF Crypto user tools, such as our SMSF Crypto portfolio Tracker and an accounting standard valuation report to help members make tax time easier.
- Bip39 – https://www.bitcoinsafety.com/blogs/bitcoin/seed-phrase-list
- Collapsed Crypto Exchanges – https://www.afr.com/companies/financial-services/collapse-of-crypto-platform-a-cautionary-tale-20210228-p576hn
- Quadriga – https://www.newsweek.com/what-happened-quadrigacx-bitcoin-operating-gerald-cotten-crypto-king-1694074
- ASIC Crypto – https://asic.gov.au/about-asic/news-centre/articles/warning-self-managed-super-funds-and-crypto-investments/