Nearly 10% of South Africans — 5.8-million people — own crypto assets, with Cape Town having emerged as the preferred base for entrepreneurs in the sector, data from the Financial Sector Conduct Authority (FSCA) shows.
“Retail customers use crypto assets for transacting and speculation/investment but were — until now — largely unprotected, often investing in products without understanding the risks and complexities of the instruments,” according to the FSCA.
“Moreover, crypto assets are increasingly being used as the underlying assets in derivative instruments and [are] becoming more popular with retail customers with the proliferation of online trading platforms.”
The watchdog embarked on research to better understand the fledgling industry. Data from the study shows 38% of the crypto asset financial services providers (FSPs) received revenue of less than R1m, while 46% received between R1m and R50m.
The study further shows that about 10% of crypto asset FSPs derive their income from both regulated and unregulated financial services.
Cape Town leads the way in head office location, with the largest percentage of crypto asset FSPs having established their head offices in the city, followed by Johannesburg (33%) and Pretoria (7%).
“The results bear testimony to the fact that Cape Town is considered the largest technology hub in Africa and has been dubbed the Silicon Valley of Africa, home to more than 450 tech start-ups. A small proportion of crypto asset FSPs operating in SA have their head offices in foreign countries,” the FSCA said.
“The strong local presence bodes well for regulatory and supervisory protection. For the 10% of entities that have an offshore head office, consideration will need to be given to the requirements relating to having a local branch.”
The FSCA said the physical presence of companies that operate in the sector allows it to have appropriate oversight and to ensure accountability for the institutions conducting activities in SA.
“SA crypto asset FSPs recorded the highest monthly transaction value, which was over R8bn in November 2022. The average crypto assets traded were approximately R520m per month during the year,” it said.
“The findings of this research contribute to the growing body of knowledge on financial sector innovations, both domestically and internationally. This allows us as the regulator, but also other affected stakeholders, the ability to better understand and explore how we can more proactively assess and respond to emerging risks and opportunity.”
The regulator said it would need to explore whether customers are provided with key information on their products on a regular and continuing basis, and that the information provided is appropriate and understood by the target market.
SA has designated crypto assets as a financial product. Christo de Wit, country manager of Luno, Africa’s largest crypto platform in SA, said in the past few years Luno has seen the price of bitcoin and other cryptocurrencies rise and then pull back.
“Beyond the meme coins and fads, it’s important to recognise that the crypto industry is still in its early phase, and adoption rates are still relatively low. Additional use cases will come to the fore. We’re tracking the innovative ways crypto will continue to shake up the traditional financial system,” De Wit said.
Crypto assets have attracted their fair share of scandal. Liquidators of Stellenbosch-based Mirror Trading International (MTI), which gained worldwide attention after its CEO, Cornelius Johannes Steynberg, defrauded nearly 30,000 unsuspecting investors of billions of rand, are continuing to receive claims.
Based on the evidence, most of the money invested by MTI was not part of MTI clients’ bitcoin pool, but belonged to MTI and Steynberg personally. He would transfer sufficient bitcoin to the Coin Buyers Club to convert to rand and then pay salaries and other expenses.
SA-born Steynberg was hit in 2023 with an order to pay $3.4bn by a US court. The fine is made up of $1.7bn in restitution to thousands of victims and another $1.7bn in a civil monetary penalty.
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