Bitcoin & other cryptos - buying & trading via SMSF

Seen some crypto discussions before but I've got some questions about a SMSF buying/trading it.

If you have a SMSF and a member who is in pension phase (therefore all profits are tax free) wishes to buy & trade Bitcoin & other crypto, how would you deal with it when it comes to the yearly auditing by an auditor? How will they really be able to audit it?

Say you want to take $10k out as cash and buy it from a Bitcoin ATM and them store it on your own hardware wallet, how can you prove that the hardware wallet is for the SMSF only? Or if they send the BTC over to one of the exchanges to trade it to other crypto, make a profit then convert back to BTC.

Are there any specific rules & regulations about buying/trading crypto with an SMSF?

 

Just ask your SMSF auditor. They have guidelines and procedures to prove ownership and existence and value at 30 June can be shown. You might have to change SMSF auditor.

There are "Bitcoin ATM'S" in Australia so just get a statement printout 30 June plus showing the balance.

It is similar to owning gold coins. You just need to prove you bought them and you still held that 30 June.

Bitcoin ATM Australia – find bitcoin machine locations

 

I know an auditor (one of many ?) who will issue a qualified audit opinion despite no prohibition on bitcoin. He feels that an investment strategy cant address its lack of income producing but its mere speculative qualities and its issues with currency risk exposure not being supported by a sound policy on management of risks in a risk management statement..

That said SISA doesnt describe a bitcoin holding as a derivative product as such. The view is not that Reg 13.15 applies but that is doesnt apply and hence a investment risk management risk that is unmanaged occurs.

The other key concern is the custodian nature of bitcoin. Two problems exists.

1. Most exchanges wont registers the SMSF interest or additionally that of the trustee company. Some exchanges will refuse to have an account in a name other than a single individual they can identify. The absence of the SMSF interest and limits on being traded by the trustee/s (plural) may pose a risk to asset existence and custody.

2. Proof of ownership at a point in time. Unlike exchange traded funds bitcoin is impossible to independently verify existence for.

The other issue of concern to a auditor may be asset valuation for post-reporting data. The value at 30 June can be reliably determined but that value may be prone to increased or reduced value at the date of the report. Where the variance is material (10% different) this may pose some audit concerns despite no clear statutory SMSF requirements for such reports.

The other issue may that of investment strategy. Specifically Reg 4.09(2)(a) and (c)...The high speculaitive risk may be incapable of a strategy outcome in a fluid and rapid market if stop loss etc cant be managed.
(c) Liquidity......

The issue is that most auditors wont accept a risk based on personal professional qualifications (ASIC and ATO concerns) and will disclose the matter allowing the ATO to determine the final position. A qualified opinion need not be a breach if the ATO consider it is not. They ask auditors to refer questionable issues to them for final determination.

And we know the ATO havent issued and definitive guidance to SMSFs.

 

Bitcoin addresses can be proved to contain value - Bitcoin is not as anonymous as people think. What is difficult is proof of ownership. An Auditor/ATO has to see the client logging into their wallet with the quoted public address and that the specified funds should be available.

I am not sure if Bitcoins can be considered equivalent to gold coins. Gold can be safely stored. It can be argued that Bitcoin can be as well(hardware wallets) but the chances of being stolen(hacked) (either via exchanges themselves or general lack of security awareness) are much higher compared to say gold coins. How does one go about getting insurance for Bitcoin?

I personally looked into Crypto investing in SMSFs and decided against it, even though my Auditor said he is willing to Audit Cyrptos.

 

Its correct to say that Bitcoin has the "FOMO" and everyone is going for it, personally I will not advise on bitcoin, I have an ol'skol view that says if I cannot feel it or touch it, then stuff it. Thats my view on bitcoin. by all means let people go all out, thats the brave new world. its not mine.

I am an SMSF auditor and have written about our views on the redwood site and many others have also. Generally the majority of smsf auditors will accept bitcoin and if you invest you want to check your deed, your investment strategy and also check with your smsf auditor. If ticks all round, then thats good, if not make the changes required.

Good luck to all diggin in, and hope you make money, like anything, just diversify and ensure you do your due diligence as there are so many bloody coins out there that I am struggling to keep up when clients inquire about crypto.....personally I take the danny glover defence - i'm too old for this s#$t

Cheers Ivan

 

These are just some of the concerns. Insurance - LOL
Some crypto's dont seem right. The person who created it is a multi multi millionaire. I argue some cryptos will be found to be fake and not unlike the staff at reserve bank just printing loads of new cash and selling it from their car for old legit cash.

I'm with Ivan. We wont give advice on it now due to risks. There will be many tears I suspect and after the dust storm settles many will look to blame other people. I would think Red / Black at the casino has more predictable outcomes.

 

Ivan bangs his head against the wall!
Cheers Ivan

 

my friend in the Philippines turned a 200k USD investment into 4m USD over the past 6 months. all in cash now. he's a happy camper.

 

Edit.....This was meant to be a gif. It's a dud