South Africa’s crypto-currency players are witnessing renewed interest in Bitcoin and other crypto-currencies, as the country grapples with the COVID-19 lockdown.
South Africa is currently on day 14 of the national 21-day lockdown aimed at curbing the spread of the coronavirus, with the Department of Health yesterday saying SA has 1 845 confirmed cases of the pandemic, which has so far claimed the lives of 18 people.
The South African rand has taken a battering during the lockdown and this was exacerbated by the downgrading of SA to junk status by ratings agencies. Last Friday, the rand reached a low of R19.03 against the US dollar.
However, amid the turmoil, Bitcoin, crypto-currency and equity markets have all climbed. After hitting a high of $10 000 in the middle of February, the Bitcoin price plunged $5 000 a month later.
Since then, the price of Bitcoin, the world’s most popular digital currency, has improved. At the time of publishing, Bitcoin was trading at $7 300 (R133 000).
Conscious decoupling
Eugéne Etsebeth, COO of local crypto exchange iCE3X, comments: “Initially the Bitcoin price moved downwards with the markets.
“There appears to be a decoupling from the large indexes – along with gold – and the Bitcoin price has steadily moved upwards. With the stock-to-flow ratio of Bitcoin reducing in the next five weeks, the scarcity of Bitcoin may increase its value.”
According to Etsebeth, Bitcoin can protect against the falling rand. “Bitcoin has a highly liquid 24/7 global market. Bitcoin has a finite supply, whereas fiat currencies are by their nature not finite.”
He points out the iCE3X exchange has seen an increase in traffic and trading. “Interestingly, a lot of dormant users have renewed interest and started to buy crypto again. Many of our users are looking for alternative investments that can weather a global depression and protect their asset value,” Etsebeth says.
User interest revs up
AltCoinTrader, another exchange, says it has seen an increase in enquiries and user registrations on its platform over this period.
It explains the coronavirus has been instrumental in the fall of many stock markets and fiat currencies around the world.
“The fallout has caused governments to react and begin to stimulate economies artificially to solve a short-term crisis. The medium- to long-term effect of printing fiat is inflation. The spending power of fiat currency is reduced whereby people are having to pay more for less,” says Richard de Sousa, CEO of AltCoinTrader.
“Bitcoin and other crypto-currencies are proving a hedge against fiat currencies especially in countries that are affected the most. Over the last couple of years, Bitcoin has been flourishing in countries like Zimbabwe, Greece, Venezuela and India, where political instability tanked the local fiat system.
“The coronavirus will soon be adding countries to the list. South Africa is no exception and demand for protection against the falling rand is growing. More and more South Africans are looking to crypto-currencies as an international hedge.”
De Sousa adds businesses are using the current lockdown crisis to revaluate how their business operates and will be considering the benefits of blockchain.
He points out blockchain solutions and the respective crypto-currencies will provide ability to reach international customers and not be limited by a cash-strapped environment.
According to De Sousa, the lockdown coupled with the final Moody’s downgrade has seen the rand tumble to all-time lows against the US dollar and other First World countries.
“Bitcoin has a fixed supply and can never be inflated like fiat currencies. As the rand falls, the price of Bitcoin keeps going up.”
Bouncy Bitcoin
Another local exchange VALR says it has seen trading volumes tick up significantly since the onset of the COVID-19 crisis.
Farzam Ehsani, co-founder and CEO of local crypto exchange VALR, says on 12 March, there was large sell-off across all asset classes, both traditional and crypto.
He notes the price of Bitcoin plummeted 27% against the rand that day. “Since then, the price of Bitcoin has bounced back and risen by 43%, which has been the strongest recovery we’ve seen across asset classes.
“We’ve seen Bitcoin being used as a hedge against the rand which we’ve seen depreciate significantly over the last few weeks, especially given the downgrades by both Moody's and Fitch.”
Ehsani points out that at the onset of the crisis, Bitcoin traded down with other asset classes when many had hoped it would act as a safe haven and would be uncorrelated to other assets.
“However, since then, Bitcoin has bucked the trend of moving in unison with other asset classes. But the jury is still out. While many in the crypto community believe we’ll see the price of Bitcoin rise significantly in the weeks and months ahead, only time will show the resilience of Bitcoin in this crisis, the likes of which we haven't seen in over a decade.”
He adds VALR is still seeing the primary function of crypto as a store of value. “Over the last few weeks, Bitcoin has held up well against other asset classes in this regard, but it remains very volatile.
“While the thesis is that Bitcoin should appreciate while the central banks of the world print trillions of dollars’ worth of money in the form of stimulus packages, this thesis will need to prove itself with time. While we are seeing Bitcoin and other crypto-currencies used for some payments, this is still not the primary use case at the moment.
“While the price of sending Bitcoin is very cheap compared to traditional cross-border payments, it can still be expensive for domestic payments and low value payments. The technology to bring these costs down is still developing,” Ehsani notes.
He observes this is the first major crisis that has taken place since Bitcoin and other crypto-currencies came into existence just over a decade ago. “This crisis will test the mettle of Bitcoin and other crypto-currencies.”
Rough ride
According to crypto-currency exchange Luno, there are signs that, at least for now, some normality is being restored to the Bitcoin market.
“We’ve seen double-digit percentage changes in both directions for most crypto-currencies over the past week,” says Marius Reitz, Luno’s GM for Africa.
“Suddenly, stock markets look as volatile as the crypto market, and we expect the wild price action to continue as the economic uncertainty caused by sweeping shutdowns continues to influence market behaviour.”
Reitz says Luno has seen a 25% hike in new account openings in SA in the first quarter of 2020 compared to the previous quarter.
“Since the initial knee-jerk reaction to the rapid spread of COVID-19, the crypto market has shown a good degree of buying power. Bitcoin has registered a year to date gain of just over 3%,” he says.
Luno says both COVID-19 and the sudden supply shock in oil created tremendous uncertainty in the global financial markets. It also saw Bitcoin and the S&P 500 reach an unprecedented level of correlation, raising questions about the nature of Bitcoin as an asset and how it was perceived by investors, it explains.
However, it adds, the price action last week seemed to suggest Bitcoin is again decoupling from the stock markets, as its value increased again while the stock market stayed stagnant. This may indicate Bitcoin is beginning to be seen as a potential safe haven and hedge in these uncertain economic times, says the company.
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