As demand grows in South Africa, regulators are now trying to find a middle ground: allowing crypto investments, but in a way that is as regulated – and safe – as possible

One red flag is that, of the 73 “accountable institutions” in South Africa under the Financial Intelligence Centre, such as banks and insurance companies, only 16 applied for crypto licences.

To what extent should pension funds be considering dabbling in cryptocurrency? It’s a question that arises often – mostly when Bitcoin is on a tear, as it is now, up 49% over the past six months in rand terms. But it’s worth discussing, not just because South Africans are big owners of the new asset, but also because of the heightened risks.

In December, the regulator, the Financial Sector Conduct Authority (FSCA), released a report on crypto assets, in which it stated that “over 5.8 million people – 9.4% of South Africa’s total population – currently own crypto assets”. This is expected to rise to 43% by 2030.

Crypto, in other words, is back, a conclusion underscored by analysts from Bloomberg. “After a series of collapses, scandals and one very high-profile federal conviction, crypto – and specifically Bitcoin – actually looks to be making a comeback. …Frenzied speculation in cryptocurrencies (as if there were another kind) extended its rally in the largest digital token to more than 150% this year,” it said.

In South Africa, there’s huge appetite, too. In its 40-page report, the FSCA said the highest monthly transaction value in crypto assets was recorded in November 2022, of R8bn. The average traded per month was R520m. “South Africa is one of the African countries with the highest number of crypto assets users in the region,” it said.

Clearly, the approach of burying its head in the sand, and hoping it goes away, isn’t working. To this point, the FSCA has been understandably skittish; not only is the price of Bitcoin, the proxy crypto coin, massively volatile (it’s up 124% over the past year, and also 17% below its peak in November 2021), but it’s high risk, since it’s underpinned by nothing other than market faith. (Normal currencies, at least, have governments behind them.)

This is why, in 2021, the FSCA issued a “health warning”, saying it “discourages such investments by retirement funds, until regulation has been finalised to safeguard investors”.

The picture for pension funds has also been tainted by high-profile global disasters – none more illustrative than that of Quebec’s largest pension manager, CDPQ, which bought a $150m stake in crypto-lending firm Celsius, which bombed. CDPQ wrote off this entire stake last year.

“We went in too soon into a sector that was in transition, with a business that had to manage extremely quick growth,”. “In these disruptive technologies, there’s ups and downs.”

said Charles Emond, CEO of the pension fund.

In Australia, Do-it-yourself (DIY) pension funds, run by individuals, have been allowed to invest in crypto assets. One Australian named “Peter” told Reuters he’d invested his entire A$130 000 in Bitcoin using a DIY fund in 2021, and lost out, after Bitcoin crashed.

“My conviction hasn’t changed,” he said. “It doesn’t bother me, honestly. After 10 years of being on this ride, part of me has died inside when it comes to price.”

But as demand grows in South Africa, regulators are now trying to find a middle ground: allowing crypto investments, but in a way that is as regulated – and safe – as possible.

Last month, the FSCA revealed that it had received 93 applications for crypto licences from a range of would-be operators, from those keen to run exchanges to those who simply want to give advice, and others wanting to run operations swapping rands-for-crypto.

Those 93 applications have since been whittled down to 74, once those without experience or operational policies were excluded. Assessments on 36 were done, and a decision was scheduled to be made by FSCA’s licensing arm in recent weeks. No announcement has yet been made on this, however.

Curbing illicit deals

Trustees of pension funds will no doubt be cautious, but one of the products likely to catch their eye will be the new index-based products, such as exchange traded funds (ETFs), which would track a basket of crypto assets – for which licences have been sought.

In its 40-page report, the FSCA set out exactly why this is tricky for regulators.

“Challenges often relate to jurisdiction and understanding how [these assets] fit into the existing financial-sector laws and supervisory landscape. More severe challenges include preventing money laundering and other illegal activities,” it said.


Countries have responded in three ways: ban it entirely (as China, Bolivia and Egypt have done), regulate it (as in the US, Canada, Japan, Europe and Australia) or ignore it (such as Ireland).

South Africa, in looking to take the third road, is treading carefully.

This is why, for the 93 licence applications, the FSCA conducted a wide range of checks. These included whether would-be operators were “fit and proper”, in addition to how solid their processes were when it came to looking after customer data, and what “know your client” checks they used.

One red flag, however, is that, of the 73 “accountable institutions” in South Africa under the Financial Intelligence Centre, such as banks and insurance companies, only 16 applied for crypto licences.

“The significant number of registered accountable institutions that have not applied for FAIS licences necessitates a suitable response to curb the conduct of unregistered or unauthorised business,”.


 In 2022, the first hesitant step towards licensing was taken, when the FSCA declared crypto assets a “financial product” under the Financial Advisory and Intermediary Services Act. This meant anyone acting as a crypto “broker” or “advisor” had to register with the regulator.

For crypto advisors, however, the data shows that it’s a lucrative affair. The FSCA study found that 46% of them made revenues of between R1m and R50m, with the money coming from “both regulated and unregulated financial services”.

Mostly, these providers offered unbacked crypto assets (60%), followed by stable coins such as USD Coin and Binance Coin (26%), then security tokens (7%) and NFT tokens (4%).

Perhaps surprisingly, many crypto operators welcome regulation, believing this will help their business to gain traction in the wider public sphere.

Speaking at the Crypto Fest 2023, held in Cape Town in November, Chainalysis senior solutions architect Zakaria Ellaoui said it was a 

“great move to license crypto businesses, because we’re seeing a migration of fintech startups to South Africa”.

Zakaria Ellaoui… migration of fintech startups to South Africa

 IQbusiness’s Nonkululeko Musa Ntuli agreed. “Regulators want to control crypto because that will bring compliance and create stability. It is not necessarily bad for the market,” she said.

It’s a common view. Chris Maurice, CEO of crypto exchange Yellow Card, says that even though sub-Saharan Africa accounts for only 2.3% of crypto trades, the “sea change of regulation over the past 12 months” bodes well for the asset class.

Southern Africa is somewhat different from the rest of the world. In the US, crypto is bought as a speculative asset that is expected to grow in value, but, in southern Africa, it’s often seen as a practical alternative to traditional banking, a tool for cross-border payments, and hedge against currencies losing value. For countries, such as Zimbabwe, where it costs immense amounts for the diaspora to send money to relatives in that country, the application is obvious.

A 1% allocation? 

But licensing crypto is still quite a long way from green-lighting pension funds to invest in the asset class, even if this is becoming an increasingly common practice. The New York-based Jefferies Group sent a note to clients in October, saying that pension funds should consider ramping up their Bitcoin holding up to 10% of their fund. It said Bitcoin was a “critical hedge” to monetary policy which reduced the value of currency. Even if some trustees agreed, a 10% allocation would be too much risk for many trustees.

Two years ago, Heshil Mohanlal, a portfolio manager at trading hedge fund 1-Beta, presented a paper to the Actuarial Society of SA, arguing that pension funds should have a 1% exposure to Bitcoin.

It’s a similar level proposed by Morningstar’s John Rekenthaler, who argued that pension funds shouldn’t be barred from owning cryptocurrencies.

 “To be sure, they should not own enough cryptocurrency to sink their portfolios … but they should be able to own enough to help – or harm – their own careers,”.

John Rekenthaler

Clearly some funds are listening. In recent weeks, South Korea’s largest fund, National Pension Service, bought $20m worth of Coinbase crypto. It’s an important indicator of sentiment, given that it’s the third-largest pension fund globally, with $755bn in assets.
What will provide confidence for trustees is that it’s the big names, with a reputation to lose, that are building crypto products in expectation of institutional demand.

BlackRock and Franklin Templeton, two of the latest traditional fund managers, for instance, have applied to US regulators for permission to launch a new Bitcoin-based ETF. And the flurry of South African operators, looking to do the same thing, underscores this demand.

In South Africa, expect this debate to heat up, once operators are licensed … and cool down again, when the Bitcoin price inevitably see-saws again.

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