Will cryptocurrencies become more integrated into South Africa’s mainstream investment landscape following tightened regulation by the Financial Sector Conduct Authority (FSCA) and its granting of financial services provider licences to crypto dealers?
This issue is explored in the “State of Crypto in Africa” report for the first quarter of 2024 by Luno, the global crypto investment platform founded in South Africa in 2013. It comes on the heels of a press release by the FSCA last week, confirming the approval of 75 crypto asset service providers (CASPs) in South Africa.
“The licensing process for CASPs commenced on June 1, 2023. Existing institutions that were rendering financial services relating to crypto assets were required to submit their licence applications by November 30, 2023. The FSCA continues to receive and consider applications from new and existing CASPs – 374 licence applications have been received to date,” the authority said. The full list of currently licensed CASPs is available on the FSCA’s website, www.fsca.co.za.
The Luno report indicates that most crypto investors do not regard crypto as the type of investment they would discuss with their financial advisers. (The case for crypto has not been helped in recent years by two massive crypto-related investment scams in which investors lost billions: Mirror Trading International in South Africa, in 2020, and FTX in the US, in 2022.)
In a social media survey it carried out in South Africa, Luno posed the question: Do you consult a financial adviser when making investment decisions? Two-thirds (66%) of respondents answered “No”; 15% answered “Yes”; 16% answered “Yes, but not for crypto investments” and 3% answered “Especially for crypto investments”.
The ongoing perception of crypto as something apart from mainstream investing is reflected in other research. The “Daily Investor 2024 South African Investor and Banking” report showed that only 6% of investors surveyed thought that crypto provides the best returns (as against 47% who thought global equities provides the best returns), and only 1% of investors thought that crypto protects against losses.
Further, Luno’s research shows that South African investors hold their crypto for an average of 178 days, or just under six months. This is longer than investors in Nigeria (95 days), Malaysia (109 days) or the European Union (121 days), but nonetheless indicates that crypto is generally not held as a long-term investment.
The report suggests that advisers and asset managers remain reluctant to get involved in crypto, but may do so if it enters the mainstream. Christo de Wit, Luno’s country manager for South Africa, said: “Many advisers have seen a lack of regulation as a barrier to entry. With FSCA licensing, the asset class should attract the attention of more sophisticated investors that are offered professional and responsible advice.”
Another boost in the arm for crypto was the approval, in January, by the Security and Exchange Commission (SEC) in the United States of spot-Bitcoin exchange-traded funds (ETFs). The Luno report quotes Annatjie van Rooyen, chief executive of asset manager MyWealth, who said: “The recent approval of Bitcoin ETFs by the SEC in the US has endorsed the viability of crypto as an asset class. The possibility of approved ETFs of other cryptocurrencies will build on the institutionalisation of this asset class as a mainstream asset.”
Matt Hougan, CEO of BitWise, one of the Bitcoin ETF providers in the US, said on X: “Investors who are buying Bitcoin ETFs today are retail investors, registered investment advisers, family offices, hedge funds, venture capital funds and asset managers.”
Meanwhile, Moonstone Information Refinery reports that CASPs will have to collect and share information about their clients when facilitating cross-border crypto transfers. Last week, the Financial Intelligence Centre (FIC) published a draft directive that places obligations on CASPs and financial services providers that act as intermediaries when receiving or transmitting crypto assets. It sets out the information that must be obtained, which includes the identities of the transmitting and receiving parties and information about their crypto wallets.
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