Mark bought his first Bitcoin in 2017. After dabbling in several other coins, he decided to go all in. A professional in his 40s, he opened a self-managed super fund to invest his retirement savings in Bitcoin.

“It’s been a bit of a rollercoaster,” he says.

“Going through a few market cycles is terrifying for the uninitiated. You buy it, watch it go to $20,000 and then crash back down to $3,000, all in the space of 24 months.”

Mark isn't out to make a quick buck. He claims he doesn’t trade his Bitcoin. Rather he has a "set and forget" approach based on his belief that fiat currencies like the US and Australian dollar will eventually inflate away.

"Bitcoin is hard money in a world where they're printing trillions of dollars out of thin air and inflation is starting to rise," he says.

“I don't have much faith that [fiat] money will have substantial value in 15 years when I retire, so I thought I'd move my super into an asset I could take custody of.”

Mark is in the minority, but he's not alone. A survey by comparison website Finder found one in three Australians believe Bitcoin will eventually be transacted more widely than traditional currencies. Among Gen Z, that figure grows to 52%.

"While the data shows many Australians are on the fence about Bitcoin, there’s no doubt many believe it is inevitably the future of currency," the report said.

And those Australians are increasingly willing to bet their retirement savings on a cryptocurrency-future. Research from BTC markets showed the number of SMSFs dabbling in cryptocurrencies via its exchange increased by 95% in FY2021. The average trade size rose 427%.

For John, a digital content creator in his 30s, investing in cryptocurrency with his super was a logical extension of his belief in the technology’s potential. After first encountering Bitcoin in 2013, today, 50% of his SMSF is invested in cryptocurrency.

“It’s what the internet was back in the 90s. Now look what it’s done,” he says, “If I’m buying and holding for the long term, why wouldn’t I use my super funds as well?”

According to the Australian Tax Office, total cryptocurrency assets held in SMSFs went from $190 million in 2019 to $212 million in the June quarter 2021. However, at 0.03% they make up a tiny portion of all SMSF assets.

Authorities are wary of single-asset SMSFs

Investors like Mark and John illustrate the headaches SMSFs can cause regulators. While cryptocurrency is a legal asset-class for trustees, the Australian Taxation Office (ATO) doesn’t look kindly on single asset SMSFs.

In 2019 it sent nearly 18,000 letters to SMSF trustees and auditors raising concerns about the lack of diversification in their funds.

Single asset funds are possible thanks to the latitude SMSFs give trustees in choosing assets to fund their retirement. These can range from traditional assets like shares, all the way to collectables such as boats and wine.

Roughly $463 million in “collectables and personal use assets” are held in SMSFs as of June 2021, according to ATO data.

Regulators are nudging trustees towards diversification. SMSFs are legislatively required to develop a investment strategy outlining how their chosen investments match their retirement goals. The ATO expects single-asset SMSFs to demonstrate they understand the risks of failing to diversify.

If an investment strategy doesn’t contain an explicit rationale and understanding of risk, auditors will flag the fund, says Sevan Tuna, a partner at Melbourne accounting firm Alexander Spencer.

“They can’t stop you from having a single asset class. But they can make your fund uncompliant if you haven’t taken the necessary steps to have an investment strategy,” he says.

Trustees with noncompliant investment strategies are required to fix them. Auditors can notify the ATO in the case of repeat offenders. If notified, the regulator can levy fines of several thousand dollars.

More serious violations, like the use of SMSF funds for non-retirement purposes, can lead to trustees being disqualified and the funds being transferred to an industry or retail fund.

Good advice is hard to find

Navigating government regulations and investment risk might call for financial advice, but Tuna says many financial advisers aren’t interested in younger crypto investors with small SMSF balances.

Instead, people turn to online platforms like esuperfund, which offer cheap and easy SMSF setups. For $999, the platform says it will set up an SMSF and administer it for one year. A 2018 estimate by the ATO put median operating costs at about $4,000 a year.

But self-service increases the risk of falling afoul of government rules. Both Mark and Tuna raised the risk of mixing personal and super crypto assets.

Tuna says the industry has a duty of care to educate clients coming to them for advice on the issue.

“It seems so simple but it’s not. That’s what people need to understand,” he says.

Tuna says he’s seeing increasing interest from those wanting to use a SMSF to buy cryptocurrency. His clients tend to be between the ages of 20 and 40. They’ve have had some success with cryptocurrency investments and want to increase their exposure using their retirement savings.

“It’s all clients who have never had SMSF on their radar. And this has prompted them,” he says.

Morningstar’s Amy Arnott and John Rekenthaler say cryptocurrencies like Bitcoin or Ethereum can have value as portfolio diversifiers given their low correlation to equities. They recommend keeping exposure low, to around the 2% mark.

For now, investors like Mark rely on online communities where the names of trusted advisers are often passed by word of mouth. Jeremy Kinstlinger, co-founder of online trading provider Global Prime, recommends new investors follow cryptocurrency Twitter accounts and join active communities on Discord—a popular messaging service.

But that comes with its own set of risks. The community is “awash with scammers”, says Mark  Anyone looking to follow in his footsteps should avoid what’s on social media and seek out reputable services.

“Do your own research, verify everything yourself,” he says.

“You can’t ring the crypto bank if you stuff up.”

*Names have been changed to protect anonymity