In this article we will take a look at the cryptocurrency landscape in South Africa. We will discuss the brief history of cryptocurrency in South Africa, the exchanges available for South Africans, as well as where South Africans can spend their cryptocurrency locally.
A Brief History of Cryptocurrency in South Africa
While bitcoin has been available since 2009, it wasn’t until the 2017 spike in bitcoin price that cryptocurrency really became well known in South Africa. Before that, it was just a few hobbyists and technology enthusiasts were experimenting with cryptocurrency. Since 2017, With regards to the rest of the African continent, South Africa has led, and still continues to lead, the usage of cryptocurrency.
Poverty remains a major problem in the 3rd world and developing countries, including South Africa. Currently 49.2% of the South African population over the age of 18 years of age earn less than 1,183 Rand per month. South Africa’s high unemployment rate, together with its high inflation rate, has pushed South Africans to explore cryptocurrency. The opportunity to preserve the buying power of their capital is one of the possibilities of cryptocurrency that is desirable to South Africans.
A survey showed that 750 BTC (bitcoin) worth of transactions took place on the South African cryptocurrency exchange, Luno, and that there were between 500 000 and 600 000 active South African cryptocurrency users in 2017. It is forecasted that there will be approximately 4 million cryptocurrency users in South Africa by the end of 2023.
Laws that affect cryptocurrency in South Africa
The South African Reserve Bank (SARB) does not yet recognise cryptocurrency as legal tender. Therefore there are a small amount of laws around cryptocurrency. However, the South African government is constantly monitoring the growing cryptocurrency ecosystem. Although no strict regulations have been proposed, the South African government has formed the Intergovernmental Fintech Working Group (IFWG) which is working on designing the regulation around cryptocurrency in South Africa.
Currently, users are required to report their cryptocurrency earnings to the South African Revenue Service (SARS) as part of their regular income reporting. Exchange platforms are also required to notify SARS and SARB of any suspicious activities performed on their platforms. The movement of large amounts of funds in a short period of time is one of the biggest red flags that exchange platforms need to report to SARB and SARS.
Aside from monitoring for any suspicious user activity, exchange platforms are also required to conduct the appropriate Know Your Customer (KYC) and Anti Money Laundering (AML) procedures which involve verifying your identity and the source of the funds that you deposit on the platform. This is to ensure the platform that the funds that you are depositing were not stolen, e.g. from another crypto exchange that you hacked.
Coins that can be bought in South Africa
The most well-established cryptocurrencies, with the highest trading volumes, that can be exchanged for fiat (Rand), and vice versa, are Ethereum, Bitcoin, Litecoin. Bitcoin and Ethereum are the most volatile of the three.
It is recommended that beginners only invest in these three cryptocurrencies as they are the most well-established and well supported.
For people that want to explore more investment opportunities, and have a higher risk appetite, you can also trade your newly purchased Litecoin, Bitcoin and Ethereum for other cryptocurrencies such as SiaCoin, Monero, or even Dash.
Available exchanges in South Africa
All of these exchanges are suitable for beginners because of their quick buy/sell functionality that allows users to buy or sell cryptocurrency without having to interact with a trading chart like a veteran trader would.
Another option available is Kraken which is a European exchange. South Africans can deposit funds via a bank transfer or send funds via cryptocurrency transactions. The banking fees may be a bit expensive to send the funds and may end up not being feasible depending on the amount that you want to deposit.
For veteran traders, Binance and VALR are the best picks.
However, it is recommended that you do not make use of South African cryptocurrency exchanges if you are a veteran trader as the live market feeds may be a bit delayed.
Experienced day traders know that fast updates of what is happening in the markets as soon as they happen is benefical to be able to take advantage opportunities as they arrive.
Therefore, the recommended exchange out of the list is Binance, an Asian exchange.
The delay in market feed that occurs between South African and non South African exchanges does open up the possibility for arbitrage whereby you can exploit the difference in price for the same cryptocurrency on 2 different exchanges. However, these opportunities are only available for a few seconds when they occur and are only worthwhile if you trade large amounts of capital at a time.
The most popular exchange in South Africa is Luno, accounting for 91% of South African cryptocurrency users. Luno offers Bitcoin, Litecoin, Ripple, Ethereum and Bitcoin Cash as the available cryptocurrencies for sale. Not only do they enable you to exchange Rand for these 5 cryptocurrencies, you can also exchange one of the cryptocurrencies for another of the available cryptocurrencies on Luno, e.g. you can exchange bitcoin that you just bought with Rand for some Litecoin. This opens up more trading pair opportunities for consumers to take advantage of.
VALR is a relatively new exchange that was launched in 2018. Similar to Luno, you can exchange Rand for either Bitcoin, Ethereum, or Ripple. However, you can now exchange your Bitcoin and Ethereum for a lot more other cryptocurrencies than Luno has to offer. The most notable options available are Monero, Dogecoin, and TRON which can either be exchanged for Ethereum or Bitcoin and vice versa. This allows users to invest in a lot more cryptocurrency projects than Luno allows.
Binance is an Asian exchange platform and also allows users to exchange Rand for a cryptocurrency or one cryptocurrency for another. The available cryptocurrencies that can be traded for Rand are Bitcoin, Ethereum, Binance Coin, Binance Dollar and Tether. Similar to VALR, Binance offers users a bigger variety of cryptocurrency projects to invest in than Luno.
Ice3 is also an available option with the largest list of cryptocurrencies that can be exchanged for Rand. Not only is Rand to Bitcoin, Litecoin, Ripple or Ethereum exchange available, but also Rand for Zcash, Stellar or NEO. Ice3 also has a large list of cryptocurrencies that can be exchanged for other cryptocurrencies. A full list can be found here.
Local vs international
When comparing South African exchanges to international exchanges there are a few things to be aware of.
South African exchanges do not have the same liquidity (funds in their platform) as the international exchanges do. This could be because of South Africa’s high exchange rate compared to international fiat currencies like the U.S. or Asia.
Low liquidity could open up the possibility for someone to manipulate the prices of cryptocurrencies, if they have a large enough capital base.
However, liquidity is not a big concern for a beginner or anyone trading or investing less than a couple of Billions of Rands into the cryptocurrency markets.
Another observation, that we have touched on earlier in this article, is that the live market feed is slightly delayed in South African exchanges as compared to international exchanges. Live market feeds refer to how quickly an exchange indicates a change in the market as it occurs. Once again, this is not a big concern for someone who is investing for the medium to long term in cryptocurrency. However, it is more of a concern for day traders who enter and exit the markets several times a day and rely on the live market feed to decide when the ideal time to do so is.
Where cryptocurrency can be spent in South Africa
There are not many retailers or shops that accept cryptocurrency in South Africa. One of the available stores is Jekyll and Hyde where you can buy leather goods in exchange for cryptocurrency. However, South Africans do have more possibilities to spend cryptocurrency online. Two of South Africa’s major online retailers, Bidorbuy and Takealot, allow users to make purchases using cryptocurrency.
Prospects for cryptocurrency adoption in South Africa
Aside from poverty and inflation, there is another major catalyst that could push South Africans to use cryptocurrencies: corruption and distrust in the Government.
It could be argued that distrust in government will lead to South Africans transacting with cryptocurrencies due to the transparency that cryptocurrencies offer.
However, a major obstacle before cryptocurrency usage goes mainstream in South Africa, and the rest of the African continent, is the lack of financial literacy and education in the informal sectors. Many people in the informal sectors still believe that transacting with physical cash is the best way to pay for goods and services.
Staying safe when trading cryptocurrency
There are simple rules a person can follow to stay safe when trading with cryptocurrency. The first rule is to only use trusted platforms for exchanging cryptocurrency. Also, never share your wallet details or wallet codes with anyone. If you are ever in doubt about something, do not proceed with it.
An extra security layer that you can add to your accounts is 2 factor authentication. This involves you entering a randomly generated number sent to you via email or SMS when logging into your account. Most cryptocurrency platforms make this a requirement before allowing you to make use of their services.
Besides staying safe from a security and fraud perspective, there are other ways to stay safe that need to be covered. This is with regards to your mental health when trading cryptocurrency.
Cryptocurrency makes use of addresses when transacting between users. An address can be regarded as a bank account number for your wallet. It is important when transacting that you enter the recipient’s address correctly, if not the funds will be lost forever. Also you must send a cryptocurrency to an address designed for that cryptocurrency. For example, only send bitcoin to a bitcoin address. If not, the bitcoin will be lost forever. The same holds for all of the other cryptocurrencies. The loss of funds, especially a large amount, can be very traumatic.
Another way to stay mentally safe is to not look at the value of your cryptocurrency holdings every 10 minutes. The volatility in price is ridiculous and can lead to temporary loss of value in your cryptocurrency holdings. Depending on the amount, this could also be very traumatic.
How to get started trading cryptocurrency in South Africa
To get started trading cryptocurrency, simply choose one of the exchange platforms discussed in this article and sign up on their website. You will need to complete the KYC step, which normally involves sending a proof of address, a copy of your ID, or a bank statement.
Once you have completed the KYC step of the sign up process, your account will be verified and open to trade (buy and sell) cryptocurrency. This can be done either through the exchange platform’s trading platform or the quick buy/sell page that some platforms provide.
To do either, you will need to deposit funds first.
This involves making a deposit request on the platform. You will then be provided the banking details and the reference to use for the deposit. Simply log into your banking app and make a payment to these banking details with the specified amount of Rand you would like to deposit. Once the payment is made, the funds should reflect on the platform within 2 business days.
Once the funds reflect on the exchange platform, in your account, you can start trading.
To withdraw the funds, you will need to enter in the bank details of the account that the withdrawal should go to (your bank account details). After the withdrawal request is made to the platform, and your banking details have been filled in, the funds will reflect in your bank account within 2 business days.
There are signs of the potential for mainstream cryptocurrency adoption in South Africa. More South Africans will be attracted to cryptocurrency as economic factors take their toll. Cryptocurrency is a very new way of transacting, one that we still need to adjust to. By following the simple guidelines covered in this, and future articles, you can transact in the cryptocurrency world securely and freely.