SVB collapse may impact SMSF crypto investors

A banking collapse like the one seen in the US last week is unlikely to occur in Australia, according to Graeme Colley, executive manager at SuperConcepts.

Mr Colley said the Australian banking system is much more heavily regulated than that in the US, however, he warned that the Silicon Valley bank collapse has had impacts on cryptocurrency which could have some ramifications for Australian investors.

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It was revealed on Monday following the bank’s collapse over the weekend, that Stablecoin issuer Circle had $3.3 billion in the bank and after the collapse of crypto-friendly bank Silvergate also last week, investors are keeping a watch on the price of bitcoin and other cryptocurrencies.

It was also revealed that a number of ASX-listed companies had tens of millions of dollars in exposure to bank’s collapse.

“In the case of cryptocurrency, if you never sell it, you never end up with loss,” Mr Colley said.

“But if the cryptocurrency goes against the wall as some of them have, there is not a great deal you can do.

“As a lot are set up in the US and are subject to US laws of bankruptcy and liquidation of companies, where the company has gone bankrupt they go into limbo.

“There’s no great difference from a company going into bankruptcy.”

The main insurance policy for investors, especially those in SMSFs, Mr Colley said, is having a reasonable investment strategy with diversified investments.

“Crypto is a risky business and if you have gone heavily into cryptocurrencies in a super fund, events like this can lead to things like cash flow issues where fund members can’t pay the bills. They need to put in contributions to get cash flow.”

The security of investments really comes back to the security of the fund with a diversified portfolio, he said.

“With banks, you may not get your money back from those investments as most of them have equities with their brokers in the US. Loans or deposits with particular banks in the US may be put on hold, so it may freeze some of the investments of superannuation funds because they can’t trade in those cryptocurrencies.”

Mr Colley said SMSF clients who may lose money or investments due to the collapse can put in a loss for tax purposes as they would if a company in Australia declared bankruptcy.

“They would have to wait for the liquidators’ or administrators’ statement and at that time they would indicate there is no likelihood or some likelihood of getting no money back and can then claim it as a capital loss and offset it against capital gains.”

Mr Colley said as most of the Australian banks – from the big four to the smaller institutions – are regulated by the Reserve Bank of Australia, there are certain securities that have to be in place to avoid a similar circumstance happening here.

“The Australian Prudential Regulatory Authority and the RBA make sure that they stress test the banks regularly to see if they can withstand an event like this,” he said. 

“In the US it is a different system, there is not the level of corporate governance as there is in Australia.

“The smaller banks are required to have the same level of backup as the big banks and in Australia the loan books of big banks are not totally in high-risk type investments. They diversify and are nothing like specialised banks in the US, as the Silicon Valley Bank was.”