Coinbase, the largest cryptocurrency exchange in the United States, has set its sights on a growing market in Australia – the self-managed pension funds, also known as self-managed super funds (SMSFs).
These funds, which form a quarter of Australia’s $2.5 trillion pension system, have been increasingly investing in cryptocurrencies, according to data from the Australian Taxation Office.
TLDR
- Coinbase plans to offer a service targeting Australia’s self-managed pension funds, also known as self-managed super funds (SMSFs).
- SMSFs in Australia have been increasingly investing in cryptocurrencies, with nearly A$1 billion ($664 million) allocated to crypto assets as of the latest data from the Australian Taxation Office.
- Coinbase’s Asia-Pacific Managing Director, John O’Loghlen, stated that their offering aims to service SMSF clients well on a one-off basis, allowing them to trade and stay with Coinbase.
- The interest in crypto from SMSFs may be driven by the recent momentum in the crypto sector, such as the approval of spot-ETFs in the U.S. and the possibility of similar approvals in Australia this year.
- While some institutional money managers in Australia have refrained from the crypto sector due to past scandals and volatility, the recent changes and Bitcoin price increase have significantly increased the crypto holdings within SMSFs.
John O’Loghlen, the Asia-Pacific Managing Director of Coinbase, revealed in an interview with Bloomberg that the exchange is developing a tailored service to cater to the crypto demand from SMSFs.
“Self-managed super funds might just make a single allocation and set it and forget it. We are working on an offering to service those clients really well on a one-off basis – to have them trade with us and stay with us,” O’Loghlen stated.
The latest data from the Australian Taxation Office shows that SMSFs have allocated nearly A$1 billion ($664 million) to cryptocurrency assets.
This figure represents a significant increase from the A$197 million held in December 2019, highlighting the growing interest in digital assets among self-managed pension funds.
However, this interest has not come without risks. In March 2023, Reuters reported that thousands of Australians who used SMSFs to bet on cryptocurrencies faced substantial losses, with some losing millions of dollars.
These risky bets jeopardized their retirement savings, as SMSFs were originally set up to ensure adequate retirement income.
Despite the risks, the recent momentum in the crypto sector has likely fueled the interest from SMSFs.
Coinbase, the largest US crypto exchange, is zeroing in on potential demand in Australia’s $600 billion self-managed pensions sector https://t.co/WpH2tQkCmA
— Bloomberg Crypto (@crypto) May 15, 2024
The approval of spot-ETFs (exchange-traded funds) in the U.S. and the possibility of similar approvals in Australia this year have contributed to the increased crypto holdings within these funds. Additionally, the recent rise in Bitcoin’s price has also played a role.
Nonetheless, some institutional money managers in Australia have remained cautious about the crypto sector due to its past scandals and high volatility.
Michael Houlihan, the head of a private wealth management firm, warned investors against allocating a significant portion of their portfolios to risky assets like cryptocurrencies.
“You wouldn’t want a significant part of a portfolio in something that’s such high risk,” he noted, adding that investors interested in cryptos are typically in their 40s with low account balances.
In contrast to Australia’s self-managed pension sector, other countries have implemented regulations to govern the investment of DIY (do-it-yourself) pension funds in cryptocurrencies.
In the UK, for instance, self-managed pension funds cannot directly invest in Bitcoin or other cryptocurrencies.
As Coinbase prepares to launch its tailored service for SMSFs, it remains to be seen how the exchange will navigate the regulatory landscape and address the concerns surrounding the risks associated with crypto investments within retirement funds.
O’Loghlen emphasized that Coinbase does not view its offering as competing with ETF players but rather as meeting a rising tide of interest in the crypto space.
While the potential for growth in the SMSF market is evident, both Coinbase and the Australian regulators will need to strike a balance between fostering innovation and protecting the retirement savings of individuals who choose to invest in cryptocurrencies through these self-managed funds.
