It took a while for Bitcoin and cryptocurrencies to be accepted by the general public, but they’re officially mainstream now. The institutional money Bitcoin enthusiasts were waiting for is finally flooding in, and we can partly thank recent global events for it.
Australian SMSF regulators and investors now recognise cryptocurrencies as legitimate alternative assets, and they may have piqued your curiosity. However, you must know what these are in the first place, the risks involved, and how to start investing. Let’s take a look at some of the things you should know before investing in cryptocurrencies with SMSFs.
What’s a Cryptocurrency, Exactly?
First, you need a good understanding of what cryptocurrencies are, how they work, and why they could be valuable in the future. A cryptocurrency is a piece of virtual currency that is usually decentralised. Transactions are performed on the blockchain, which is a distributed ledger system.
The blockchain is made up of a group of independent computers that are responsible for verifying transactions. These are given incentives for every transaction that they verify. Since transactions are distributed to all computers in the network, it’s nearly impossible for one entity to falsify transactions. This allows for safe transactions and storage of cryptocurrencies, which renders banking and legacy payment systems largely obsolete.
The Good and Bad About Cryptocurrency
Cryptocurrencies are an interesting class of asset, but one that is still largely unknown. One of the biggest issues with those is volatility. Cryptocurrency markets are known for their wild swings, and these are often difficult to decipher. One recent example was dogecoin taking a massive dip after Elon Musk’s appearance on a popular American comedy show just before it went up with the expectation that the appearance would benefit the coin.
Not all cases are that extreme, but Bitcoin has seen some wild swings as well. While investors are benefiting from it right now, there is no telling what could be happening in the future, so the idea of Bitcoin as a store of value has not been proven yet.
With that being said, there is a very high chance that it will keep growing in the future due to the finite supply and the increase in interest the public, especially younger generations, are and will probably keep showing for the coin.
How To Invest in Cryptocurrencies with an SMSF
The first thing you will need to start investing in crypto with an SMSF is a cryptocurrency wallet. These are virtual wallets that are pretty much the equivalent of a bank account. You will also need to find a good exchange, which is like a broker account. Also, note that you will most likely need to use a hardware wallet like a Trezor or Ledger as these are the only types that are compliant with super regulations because of their safety.
Next, we would suggest that you work with an SMSFs provider that is specialized in crypto like the NGSCrypto super fund. Funds like NGSCrypto super fund use a hybrid model that allows you to profit not only from cryptocurrency but from mining as well, which allows you to reduce the risk and volatility associated with cryptocurrencies.
This is all you need to know to start investing in cryptocurrencies with an SMSF. But, before you do, make sure that you know as much as you can about cryptocurrencies as assets and get advice from an expert that isn’t personally invested first.