$1.4b in superannuation tied up in 'wild west' cryptocurrency as the FTX fallout continues – ABC News

$1.4b in superannuation tied up in 'wild west' cryptocurrency as the FTX fallout continues
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Mum and dad investors including pensioners are facing big losses on their superannuation and savings, after investing in the largely unregulated "wild west" of cryptocurrency markets.
Brisbane-based couple Sharon and Alan Saul are among the "scared" investors.
The self-employed pair in their 60s have about one quarter – or $50,000 – of their superannuation tied up in a Brisbane-based cryptocurrency broker, Digital Surge.
Digital Surge froze everybody's accounts earlier this month as it works through liquidity issues. This means Sharon and Alan can't touch their funds.
"What happens now? What are we going to do with our money?" Sharon told ABC News.
"I am really worried about what's going to happen next."
The woes being experienced by Digital Surge are tied to the collapse of the global crypto exchange FTX.
FTX allowed people to trade in the non-state-backed market in a centralised way, like investing in shares. 
The company, once promoted by stars like Larry David and Tom Brady, declared bankruptcy in early November after revelations about its business practices led to a bank run by customers. 
Here in Australia, people who had funds in FTX are at a loss about the next steps, with ABC News being told some individuals are facing losses upwards of $500,000.
Meanwhile, values of the so-called coins at the centre of cryptocurrency markets are continuing to crash, as they were doing even before tech wunderkind Sam Bankman-Fried's FTX collapsed.
Australians who invested in the FTX cryptocurrency exchange are unable to withdraw their funds as the company's local arm goes into voluntary administration.
Digital Surge's current woes show the ripple effect being felt around the world. The broker says it had digital assets – presumably crypto – with FTX.
"Digital Surge has some limited exposure to FTX," it says on its website.
While some people trading in crypto think they own the currency themselves in a digital wallet, when it is traded through platforms or brokers, often the funds are controlled by the company.
Digital Surge hasn't revealed the exact amount it has caught up with FTX and whether it will be able to refund all the money it holds for its clients in Australian dollars.
"Digital Surge has always held a reserve of 1:1 for all user deposits, however due to our exposure to FTX, this is now unknown," it says.
"We are reaching out to the US advisors for the FTX Group and will update customers as the situation continues to develop."
Digital Surge bills itself as an "effortless" way for people to invest in crypto, including through their self-managed super funds (SMSF).
A SMSF is where somebody makes decisions on what to invest their retirement savings on themselves – from property through to the volatile crypto market – rather than rely on a specific super fund to do this for them.
There is about $867 billion worth of assets in SMSFs nationally, according to the latest figures by the Australian Tax Office (ATO).
Just $1.4 billion of that is in the newly emerging space of crypto assets. While the number is small, it's come up quickly off a low base.
Sharon and Alan had managed their own super through a SMSF for about seven years. They'd always stuck to the stock market, but 18 months ago they decided to invest in cryptocurrency too.
That was during last year's crypto boom times, when the hype saw it's best-known asset Bitcoin soar to $US60,000 ($88,800) per single coin.
Sharon and Alan said they set up a SMSF for trading in crypto with the Melbourne-based platform ESuperFund after it offered up three years without admin fees.
ESuperFund describes itself on its website as a "one stop shop" for SMSF. It has a page where it explains how people can invest in crypto.
ESuperFund didn't respond to multiple emails by the ABC News. Digital Surge confirmed it has a "data sharing" arrangement with the fund. 
Sharon and Alan said they had "no issues" with Digital Surge until the FTX announcement. They're now in limbo and anxious they'll never get their investment back.
Even before the FTX collapse, the crypto market was crashing. Overall, its market value in so-called "fiat", state-backed, currency dived from roughly $US3 trillion this time last year to $US800 billion.
As their crypto sits frozen, Alan and Sharon can see that the Australian value of it has dropped by 20 per cent in just two weeks.
The couple in their 60s run a small gardening business together, and had been hoping to retire with their self-managed super fund in coming years.
"I probably now need to keep on working and not being able to retire when we really wanted to," Alan said.
Sharon is a bookkeeper and Alan had done his research. They wonder how much worse it could have been if they weren't financially literate.
Digital Surge doesn't have an Australian financial services license (AFSL) and the broker confirmed that's because that is not a requirement for cryptocurrency trading here. It does have a business licence under ASIC. 
ABC News is not suggesting Digital Surge has broken any laws.
"Crypto exchange businesses are not regulated by ASIC and crypto assets are largely unregulated in Australia," the corporate regulator ASIC said.
"ASIC is very concerned that Australians who invested in crypto may not have fully understood the risks and may have lost money in this year's collapse in valuations.” 
"ASIC has repeatedly warned investors that crypto is incredibly risky, inherently volatile and complex."
The Sauls don't agree that they were adequately warned, although Sharon does say she was "sceptical".
"We all thought this was pretty safe," she said.
Michael Jenner is another Digital Surge client that wants answers about the current situation, and whether enough has been done to protect people's assets.
"I did my due diligence like anybody investing would," he said.
The pensioner, who retired early in his late 40s due to health problems, has $14,000 in limbo after signing up around six months ago.
"I was looking at investing in order to have a little bit more money to pass onto my kids," he said.
"I wasn't after exorbitant returns. I was happy to make $1,500 and see where it went, and keep going as I learned about crypto."
He is so aggrieved by the current "kick in the guts" situation that last week he drove 1,300km from his home in regional Queensland to Digital Surge's head office in Brisbane. He said he got no answers.
"You always try and hold onto hope," he said.
He also called ASIC demanding answers and was "dumbfounded" to learn about "how much of a cowboy market the Australian crypto scene is".
"There needs to be more government oversight around the structure of their business and more protections for consumers," he said.
Late last year, two local companies MyCryptoWallet and BlockChain Global collapsed, the latter owing investors $21 million.
Another Australian company Iris Energy is also in crisis, as its share price on the US index Nasdaq battles a 90 per cent wipe-out this year.
The Australian government is already looking at tighter laws to regulate this highly volatile and decentralised form of trading.
While mum and dad investors may want regulation, the topic is a sticky one in the crypto world.
Some enthusiasts stick to the belief that cryptocurrency is a revolution that will decentralise traditional financial markets – a goal inherently at odds with state-based regulation.
University of Sydney political economist Dick Bryan is one crypto fan who argues this side of the story.
"I think there's an enormous scope to create something new, but it's such early days in crypto, that it is a bit of the Wild West," he told ABC News.
"Crypto is innately volatile. And that's what's both appealing about it and worrying about it.
"We've found a propensity towards massive over leveraging in crypto markets. So if something was going to go wrong – and it has gone wrong – it was going to go very wrong."
He isn't sure how regulation of cryptocurrency could work but he wants a louder conversation on this issue.
He thinks the federal government, as well as regulators, have been "burying their head in the sand" because they don't want to take accountability for crypto and hope it will "go away".
Meanwhile, other financial experts say this may indeed happen.
Last week, author and former financier Satyajit Das told ABC's The Business that crypto was a "bubble" being pricked, as well as an example of "populist anger".
Mr Das added that it was "amusing" that a movement "predicated on displacing governments" now wants regulation.
Just last week, a group of Australian brokers and exchanges called for tighter rules. 
Some of their requests include creating laws that ensure cryptocurrency traders always hold the amount of cash their clients are trading in cryptocurrency on the side in fiat currency.
Mass hysteria, collective madness ending in a bang and an enormous amount of pain — business editor Ian Verrender asks, why do we never learn when it comes to financial bubbles? 
Jeff Yew runs a crypto firm Monochrome that helps people invest through SMSF.
"Our fund is professionally managed under an Australian financial services licence, and assets are secured by a licensed custodian," he said.
"In Australia, the collapse of the FTX crypto exchange and several others has brought to light the issue that crypto exchanges do not and cannot provide full legal ownership of the asset to their customers, as they are unregulated."
ASIC told ABC News that it will be making a submission to the federal government about the need for consumer protections.
Sharon and Alan Saul say that if they did have their funds released to them, whatever the market value, they would "immediately" be transferring what is left out of Digital Surge.
The couple have mixed feelings about trading in crypto in future.
Alan is still a fan of its inherent principals, whereas Sharon wants to go back to traditional investments like stocks.
"I'd rather just take my money out and not do any of this crypto," she said.
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