While South African-based crypto exchanges expect digital currencies to continue gaining value in 2022, they also believe more regulation is set to be introduced to the sector this year.
The exchanges say price volatility of the crypto assets will persist this year, while trends in the decentralised finance will gather steam.
At the tail-end of 2021, some of the country’s leading exchanges told ITWeb that they see crypto-currencies continuing to gather momentum in 2022, although they called for the regulation of the sector for the digital assets to go mainstream.
According to Luno, crypto regulation is imminent in South Africa. The local crypto exchange notes that in addition, ongoing price volatility and more formal links to the financial services sector are predicted for 2022.
“Globally, we have seen moves to regulate crypto and we anticipate the introduction of a clear South African regulatory regime likely by the end of 2022. Regulatory certainty will have a host of positive spin-offs for the crypto sector,” says Marius Reitz, Luno GM for Africa.
The firm says in the US, where regulation allows for entry into crypto, firms like Fidelity, Goldman Sachs and JP Morgan are entering the crypto market, and the Proshare Bitcoin ETF (the world’s first Bitcoin ETF) saw record inflows into the fund.
In anticipation of local regulations, Luno notes several asset managers are working behind the scenes to craft crypto products and solutions.
According to the crypto exchange, previous attempts to list a Bitcoin ETF on the local stock exchange have not been successful, but the listing of crypto instruments on the JSE will be a watershed moment that will allow asset managers to enter crypto.
“Regulation will also boost the number of formal partnerships between banks and crypto companies, which will facilitate greater crypto adoption.
“Once regulation is finalised, financial advisors will be able to propose crypto products and services to clients. Luno is partnering with such businesses to ensure customers can enter crypto investments through their trusted financial advisors,” says Luno.
Bringing legitimacy
For Jonathan Ovadia, CEO of Ovex, 2022 will be the year of regulation for crypto assets. “It looks like the FSCA [Financial Sector Conduct Authority] will be coming out with some regulation this year.
“We’re incredibly excited for this as it will bring a lot of legitimacy to the sector, reduces uncertainty from our partners and opens up the market to institutional investors.”
Likewise, Brett Hope Robertson, lead investment analyst at Revix, believes 2022 will be a defining year for crypto regulation.
According to Hope Robertson, the South African Reserve Bank is working with the Intergovernmental Fintech Working Group and the Crypto Assets Regulatory Working Group on how best to treat crypto assets under the regulations and the more detailed South African exchange control rules.
“While there are many rumours as to what this regulatory framework might be, we do hope to get some clarity on the matter by the end of Q1 2022,” he says.
Michael Bernardt, CEO of ChainEX, comments that SA’s financial regulator is planning to unveil a regulatory framework early this year.
“We believe more legislative requirements will be put in place for crypto asset service providers (CASPs) to bring us closer to the current financial sector rules and regulations,” says Bernardt.
He adds that although CASPs have not yet been included as an accountable institution under Schedule 1 to the Financial Intelligence Centre Act 38 of 2001, many CASPs adhere to legislative requirements aimed at anti-money-laundering and combating the financing of terrorism as laid out by the Financial Intelligence Centre (FIC).
This includes being registered with the FIC, conducting user identification, conducting user due diligence, keeping records of client and transactional information, monitoring for suspicious and unusual activity on an ongoing basis and fulfilling its reporting obligations to the FIC, Bernardt explains.
Balancing act
Richard de Sousa, CEO of AltCoinTrader, says: “I think it’s fair to say the regulators will walk a fine line. On the one hand, they don’t want to stifle innovation but on the other hand, they have to keep economic law and order.
“From the regulators, we can expect to see a slow and steady progression, with them playing a big observation role – watching what’s happening in other countries.”
However, De Sousa does not expect to see any drastic changes in regulation.
“The South African government, the Reserve Bank and the Financial Intelligence Centre have been communicating with the international community. They are implementing slow and steady regulation, which is at par with the rest of the world. We expect to see this regulation coming in slowly.
“Institutional investors are looking at regulation and once they get clarity, they will start contributing a lot more to the crypto sector.”
De Sousa believes crypto-currency will continue to gain value this year. “I think this is a trend that we can expect to see for the next couple of years. Crypto-currency has gone mainstream – we have seen institutions giving them more attention − and with the current economic climate, we can expect crypto to be a safe haven for inflation and the economic turmoil we are experiencing.
Says Hope Robertson: “The crypto market capitalisation has grown at over +105% year-on-year since 2014. We expect this trend to continue.
“Many heavyweights in the investment space believe crypto as an asset class will have over one billion users by the end of 2022. For perspective, we are currently sitting at around 300 million users.”
Bernardt notes that alternative crypto-currencies follow Bitcoin. “Bitcoin’s price action is still printing a bullish pattern. I do believe we still have plenty of upside in the market if Bitcoin maintains this current level and we don’t see sub-$30 000 price levels.”
Persistent volatility
Ovadia concurs, saying there was over $100 billion raised last year to invest in the crypto-currency ecosystem.
“This money is on the sidelines waiting to get in. There will always be volatility; a 50% drawdown from here isn’t impossible. But we see a lot of new people getting into the ecosystems, new projects and real world use cases going live daily,” he notes.
During 2021, the crypto market experienced new all-time highs and also took some brutal hits. Crypto-currencies are still a new alternative asset class and ongoing volatility is expected, says Luno.
It points out that a longer-term view shows crypto keeps its upward trajectory even with occasional massive price drops.
“Last year, Luno reached the milestone of nine million wallets (customers) across more than 40 countries. As the sector grows in popularity, it is attracting world-class talent, as well as attention from leading media outlets that are dedicating more resources to quality reporting,” it concludes.
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