Investing in crypto stablecoins is a popular way for investors to keep money in the crypto market for extended periods. These coins are pegged to other real-life assets and do not fluctuate with demand and supply. But are they a good choice for your retirement funds?
Small Self-Administered Scheme (SSAS) Pension and Investments
A small self-administered scheme (SSAS) is a defined pension scheme in the UK commonly set up by small businesses, family-run businesses and company directors. This type of pension is trust-based and allows the members to control their pension investments significantly. The greater flexibility and freedom to invest in SSAS pensions is a major advantage over other pensions.
SSAS pension membership is limited to 11 members or fewer, and members enjoy several tax advantages. These include exemption from corporate tax, tax-free growth on investments, and tax relief on contributions. Members can also use their SSAS to extract profits from a business through company pension contributions. SSAS offers a tax-efficient way for business owners to optimise their tax position and investments.
Commercial property, industrial/retail units, agriculture, unit trusts, investment trusts, and fixed-interest stocks are popular investments in SSAS pensions. However, crypto investments are growing, attracting different categories of investors, including SSAS pensions.
In 2024, the crypto market outperformed others as Bitcoin returned 125% (the S&P 500 grew 23%), far more than most traditional stocks, currencies, or financial markets. The result is increased attention in the crypto market that SSAS pension members can explore.
Crypto Investments and Stablecoins
You can invest in cryptocurrencies in two ways: active trading or buying and holding coins to accumulate returns. Most passive crypto investors prefer the latter, especially at the institutional level. Non-retail investors prefer investing in cryptocurrency through platforms that offer more control over their assets than others. This is important for them to retain flexibility and ownership of their investments.
Stablecoins are one of the best innovations in cryptocurrencies because they are pegged to fiat currencies like the US dollar, British pound, and euro. This allows crypto holders to store value in blockchain-based assets without risking negative volatility. Stablecoins are popular and are increasingly used for local and cross-border payments.
Crypto investors also favour stablecoins, especially the US dollar stablecoins like USD Tether (USDT), Circle USD (USDC), and BUSD for trading purposes. Most crypto coins are paired with the USDT stablecoin for trading and it is easy to trade such pairs with high liquidity.
Benefits of Investing in Stablecoins Via SSAS
Some of the benefits that SSAS pension investors can enjoy with stablecoins are:
- Investment flexibility. The stability of stablecoins allows investors to explore more opportunities within the crypto market and traditional markets. SSAS pensions offer a high degree of flexibility to spread investments over a wide range of assets, including stablecoins and other cryptocurrencies.
- Market volatility. With stablecoins, you can quickly liquidate your crypto holdings on major exchanges to exploit market volatility. For example, the recent surge of Bitcoin to over $100,000 allowed investors to buy BTC and sell secure profits in stablecoin.
- Legal compliance. It is legal to invest your SSAS pension in cryptocurrency in the UK. Having legal cover provides a conducive and regulated environment that ensures market stability and standards so you can operate your account on an even playing field.
- Hedge from inflation. Cryptocurrencies are often considered safe from inflationary pressures that affect fiat currencies. Unlike fiat currencies, they have limited supplies. Thus, they offer a potentially effective way to preserve retirement savings from inflation and other currency risks.
- Ownership and control. Stablecoins allow pensioners to access their savings and investment returns anywhere globally without third-party interference. This is important for those who may decide to move abroad or live in a new region where receiving money from their home countries is difficult.
What To Consider When Investing SSAS Pensions in Stablecoin
The first consideration is the investment platform. There are dozens of crypto exchanges, but only a few offer infrastructure for non-retail investors. Find a fully compliant UK crypto-asset company registered with the Financial Conduct Authority (FCA), and remember to check for their operating license and historical performance.
Next, check that you can access highly liquid forex markets that offer investment opportunities in stablecoins, crypto markets, and fiat pairs. This is important to keep your investments safe from low liquidity.
Finally, consider a profitable investment strategy that is suitable for your goals. You can consider a mix of short-term and long-term profits. Explore portfolio diversification to spread investments across various stablecoins and crypto coins.
Verdict: Is It Wise To Invest in Stablecoins?
Stablecoins have a necessary role in investing. They provide a convenient way to switch from the volatile cryptocurrency market to a stable asset without incurring significant transaction fees. However, when it comes to long-term pension investments like SSAS pensions, the short answer is no — stablecoins are generally not a wise first choice.
This is especially true for fiat-backed stablecoins, such as USDT. While they are designed to maintain their value and reduce volatility, they do not provide any real growth or hedge against inflation. Holding USDT in your SSAS pension is essentially equivalent to storing US dollars in your account — it offers stability but no long-term value appreciation. By their very nature, pensions should be invested in assets that grow over time and help you outpace inflation, ensuring that the value of your retirement savings increases in real terms.
That said, stablecoins can serve a temporary role in certain scenarios. For example, during periods of market downturns or high volatility, stablecoins can be used as a parking asset to preserve the value of your investments.
However, not all stablecoins are the same. Commodity-backed stablecoins present a more interesting alternative for pension investors. These stablecoins are backed by physical assets, such as gold, silver, or other commodities, and are pegged to the value of the underlying reserves. For example, a gold-backed stablecoin would be tied to the price of gold, giving investors exposure to the precious metal without the need to store or manage the physical asset. A popular example is PAX Gold (PAXG), representing one troy ounce of gold stored in secure, audited vaults. These stablecoins can act as an inflation hedge, much like physical gold, while offering the convenience and liquidity of a digital asset.
Keeping up with crypto market events and regulations that impact financial markets is important. This is necessary to spot investment opportunities in the crypto market as coins react to certain news.
Strategic Use of Stablecoins in a Diversified Pension Portfolio
While stablecoins can temporarily protect the value of investments during market downturns, they are generally not a suitable primary choice for long-term pension investments like SSAS pensions. Fiat-backed stablecoins lack the growth potential and inflation-hedging properties necessary for building a robust retirement portfolio. However, commodity-backed stablecoins, such as gold-backed options like PAX Gold (PAXG), may offer an intriguing yet safer alternative, protecting against inflation while offering the convenience of digital ownership.
Stablecoins should be used strategically and as part of a diversified investment approach. Explore online communities where like-minded investors discuss crypto investments, but keep an independent outlook on the market.
The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. While we aim to offer accurate and up-to-date insights, readers are encouraged to conduct their own research and consult with qualified professionals before making any financial or business decisions. Earning potential and results may vary significantly depending on individual effort, skills, and market conditions. Always approach online opportunities with caution and be aware of potential risks such as scams or legal obligations.