Crypto is gaining significant traction in South Africa, with over 90 financial services providers applying for licenses with the Financial Sector Conduct Authority (FSCA) to offer crypto-related services. This follows the FSCA’s move in October 2022 to classify cryptocurrencies as financial products, thereby subjecting crypto trading platforms to its regulatory oversight.
The FSCA has conducted an extensive study on the crypto industry to assess the risks associated with its widespread adoption. Awelani Rahulani, head of the FSCA’s fintech division, highlighted that this study aims to provide insight into potential impacts on South Africa’s financial system and economy, helping the FSCA to refine its regulatory frameworks and licensing procedures.
The study revealed that unbacked crypto assets like Bitcoin are particularly popular in South Africa, reflecting global trends. It suggests that many South Africans engage with crypto primarily for speculative purposes, seeking quick returns. The research also indicated that a significant number of crypto trading platforms are based in South Africa, with approximately 45% located in Cape Town, which facilitates regulation by the FSCA.
Interestingly, many businesses applying for crypto licenses are established financial services providers. Tarris Arnold, Business Development Manager at Luno, noted a surge in interest from both new and existing businesses since the licensing application window opened in June.
Crypto assets are increasingly seen as an attractive investment class, not just for their speculative potential but also for their ability to offer volatility, which can translate into higher profit margins. Arnold pointed out that even financial institutions that may not fully embrace the fundamental value of crypto recognize its value due to its volatility and its role as a non-correlating asset class.
The introduction of regulation also paves the way for institutional investment, which is expected to bring a substantial increase in capital compared to retail investments. Arnold observed that South Africa’s major banks, which have had crypto teams for years, are now preparing to offer crypto products and services to their customers.
