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SMSFs cautioned on bitcoin hype

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SMSFs urged to exercise caution over cryptocurrency investments.

SMSFs and other retail investors that have been disappointed with the low returns on their cash investments are looking to cryptocurrencies, but the area is riddled with risks, according to HLB Mann Judd.

The financial services firm’s corporate advisory partner, Nicholas Guest, told a media briefing in Sydney today that bitcoin had experienced 1000 per cent growth in value through the 2017 calendar year and despite a recent sizeable fall in value, investors were still interested.

“It’s more at the retail investor level where whether it’s in the SMSF space or others where investors have a large part of their wealth caught up in cash potentially and cash has not potentially returned a great deal, so they’re looking for an outperformance,” Guest said.

“You can see there’s been traction through cryptocurrencies where there have been some great stories around significant returns.”

Speaking at the release of the firm’s “IPO Watch Australia” report, which tracked Australian initial public offering (IPO) activity in 2017, Guest cautioned investors against overenthusiasm in investing in cryptocurrencies, noting the lack of regulation in the area.

“Subscribing for an IPO into an ASX-listed entity through the ASX (Australian Securities Exchange), ASIC (Australian Securities and Investments Commission), the Corporations Act, there’s a regulatory framework which investors put their money into,” he said.

“There’s no guarantee that the asset they’re acquiring into is going to return in value for them, but at least there’s some confidence for them that the funds they’re investing is into an entity which is the director’s and the company that operates within the regulatory framework.”

However, the cryptocurrency space and initial coin offerings were not currently governed by regulation nor could investors acquire equity interest in the businesses. It was purely speculation at this point, which brought with it significant risk, Guest said.

He said SMSF interest in investing in cryptocurrency had increased recently, with discussions centred on whether it was an appropriate asset that could be held within a superannuation fund.

“It’s a long way off from being a recognised investment class in any sort of asset allocation just because it is hugely speculative. And it’s not to say that over a three to five-year period of time, regulation may come into the market,” he noted, adding South Korea, Japan and China were calling for closer scrutiny of cryptocurrencies.

“The regulators in Australia are calling for submissions on the same thing. It is recognition that potentially cryptocurrencies, blockchain and technology could solve some real world needs, but the regulations really do need to catch up.”

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