Cryptocurrency havens lure firms fleeing regulator’s heat in South Africa

*South African authorities move to declare digital assets financial products, following the country’s national credibility dented by world’s biggest Bitcoin scam in 2020

*The US General Services Administration moves to sell surplus Federal equipment to the general public, offering an amount of Bitcoin worth about $38,000

Gbenga Kayode | ConsumerConnect

As major financial hubs like Singapore redraw legislation to lure crypto firms and with the UK Government facing calls to embrace digital currencies, South Africa’s burgeoning exchanges say they are concerned about moving headquarters abroad due to uncertainty over potential government regulation.

The world’s biggest cryptocurrency scam of 2020 was a jolt to South Africa’s regulator ─and not everyone will wait to see how it shakes out, reports Bloomberg.

Behind the frustration is a lack of oversight and limits on marketing to potential consumers.

Report stated that Revix, a Cape Town-based operator specialising in bundles of different coins, is shifting its head office to the United Kingdom (UK) and planning another location in Germany to fuel growth.

Luno, Africa’s largest digital-currency platform, is registered in London and has a presence in Singapore.

Revix Chief Executive Officer Sean Sanders, in an interview said that South African authorities “have been incredibly slow in terms of regulation in the industry and that leads to businesses looking internationally.

“In an unregulated environment, a customer arrives at our platform with skepticism, and rightfully so.”

Meanwhile, digital currencies are moving from the periphery of the finance world to the mainstream, with Elon Musk’s Tesla Inc. plowing $1.5 billion into Bitcoin and wealthy hedge-fund managers, such as Paul Tudor and Stanley Druckenmiller supporting the currency.

The interest from institutional investors has reportedly propelled Bitcoin to a record of more than $58,000 February 2021 before the token pared some of its gains, emerging as a hedge for inflation risk just as fears about price pressures escalate.

However, in a watershed for the crypto industry in South Africa, a suspected Ponzi scheme may have caused investors to lose as much as $1.2 billion worth of the most famous cryptocurrency.

ConsumerConnect had reported what has been described as the ‘Scam of the Year’ in the Southern African country, when Mirror Trading Investments (MTI) was placed in provisional liquidation December 2020, and has since been described as the world’s biggest crypto crime of last year by blockchain researcher Chainanalysis.

The firm allegedly collected over 23,000 Bitcoin from investors, and its CEO is thought to have fled to Brazil.

Earle Loxton, Chief Executive Officer (CEO) of Digital Currency Index, a platform he co-founded with former FirstRand Limited Head Michael Jordaan, said: “South Africa has a sad history of pyramid and Ponzi schemes, and crypto was the obvious new format for this.

“Honest operators welcome regulation as it makes it possible for their clients to invest with confidence, especially at institutional level.”

South Africa may be frustrating its entrepreneurs, but the country is seen as ahead of the rest on the continent, given regulators and industry are working together to table proposals.

ConsumerConnect reports that in Nigeria, the Securities and Exchange Commission’s (SEC) has suspended its earlier plans to regulate the crypto sub-sector, just as the Central Bank of Nigeria (CBN) recently banned cryprocurrency accounts and transactions in the Deposit Money Banks (BMBs) and other financial institutions in the country.

The priority for South African regulators is to seek better protection for consumers rather than businesses, according to Brandon Topham, head of enforcement at the Finance Sector Conduct Authority of South Africa.

Further proposals are being expected in the next two months, he said.

Meanwhile, the top banks in South Africa have all backed regulatory efforts at developing a framework for crypto assets, but are currently split in their approach to industry players in the country.

While Standard Bank Group Limited has not barred crypto-asset firms from any of its services, FirstRand’s First National Bank has no banking relationships with virtual-currency exchanges or traders, the lenders said in response to e-mailed questions, according to report.

As unregulated entities, South Africa’s crypto firms find it difficult to market on Facebook Inc. and Twitter Inc., setting back their prospects for growth, said Revix Chief Sanders.

He explained that South Africa’s revenue collection service is another loser from the lack of policy, as moving head offices means paying tax in different countries of the world.

In his remark on the development, Luno Head Marius Reitz stated the lack of regulatory framework has also made it difficult for crypto platforms to operate bank accounts in South Africa.

Reitz said: “In turn, this makes it very difficult for customers to buy Bitcoin with their local fiat currency.”

It was learnt, however, that draft rules to have cryptocurrency assets declared financial products have been published by the South African regulator.

But that runs the risk of ignoring the novelty value of crypto, according to Sanders.

He added: “South Africa seems to go in the opposite direction of some of the more developed market pioneers and innovators in this space.

“For regulators to apply hundred-year-old securities regulations to the novel cryptocurrency asset class seems lazy.”

In a related development, the United States Government is set to sell 0.7501 Bitcoin worth $38,000 at current prices

It was gathered tucked away among the Ford, Dodge and Chevy sedans, the 12,000-gallon storage container and the inoperable Caterpillar tractor being auctioned off by the government is an unusual item: 0.7501 of a Bitcoin.

The US General Services Administration (GSA) typically uses its auctions to sell surplus Federal equipment to the general public, according to report.

With lot 4KQSCI21105001, which goes up for auction in a week, the government is offering an amount of Bitcoin worth about $38,000 at Monday’s price.

Nevertheless, the government doesn’t say where its surplus digital currency came from, and while it’s a far cry from the 30,000 Bitcoins auctioned off by the US Marshals Service in 2014 after they were seized from the Silk Road marketplace.

The GSA auction is one more indication of how Bitcoin is becoming more and more mainstream in financial transactions in the country, report said.

On Wall Street, too, there is a newfound openness to the world’s most valuable digital currency: Custody banking giant Bank of New York Mellon Corporation said it would hold, transfer and issue digital currencies, while Mastercard Incorporated announced plans to let cardholders transact in certain cryptocurrencies on its network.

A Morgan Stanley unit known for picking growth stocks is considering adding Bitcoin to its possible bets and, recently, a person close to Goldman Sachs Group Incorporated noted that the bank plans to reopen a trading desk for cryptocurrencies.

Report noted that the Bitcoins auctioned off by the US Marshals Service in 2014 were estimated at the time to be worth about $19 million, though the winning bid, by venture capitalist Tim Draper, was not disclosed.

It was gathered those coins would be worth $1.5 billion today as the cryptocurrency’s price has skyrocketed to almost $51,000.

The GSA auction is scheduled to be held March 15─17, 2021.

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