The demand for Bitcoin is growing in South Africa, with buying mainly done for investing purposes by traders and investors who see Bitcoin as a speculative instrument.
The global daily volume of BTC is currently estimated to be around $29.72 billion, and by comparison the volume at South Africa’s largest exchange – Luno – is around $5 million (R80 million) per day based on BTC/ZAR pair.
According to an analysis done by ForexBrokers.co.za on the Bitcoin trading volume and search trend data for Bitcoin related terms in South Africa, it was found that Bitcoin demand in South Africa is mostly for speculation.
“When we compared the trend of Google Search Volume on Bitcoin-related terms in South Africa and around the world with the actual Bitcoin chart and trading volume, we found that there is a direct correlation between the price changes, BTCZAR trading volume and the search data,” said ForexBrokers.co.za.
As an example, in the period spanning March to July 2019, the price of BTCZAR increased from R54,600 ($3,843) on 1 March 2019, to R210,000 ($14,767) in late June – which was its highest price in 2019.
The price remained around the same range until early August 2019, at which point it started to fall.
“The same thing was observed when we compared the BTCZAR net trading volume of the March to July period with the next 5-month period spanning August to December (i.e. 82,653 net volume in March to July, and 52,334 net volume in Aug to Dec); the March-July volume was found to be 58% higher as compared to the following five months.”
Volume was higher over the same period, when Bitcoin saw a bullish rally.
The search volumes for ‘Bitcoin’ related keywords were also around 33% higher on average during the same period, with the traffic peaking at end of June and maintaining the same trend until mid-July – the same time when BTC touched R21,000 briefly on 26 June.
This data suggests that South Africans mainly buy more Bitcoins when the cryptocurrency is in a bullish trend, which means that most of the demand is from speculation on Bitcoin, rather than its use as a currency or commodity.
How South Africans Trade Bitcoin
South Africans trade Bitcoin either by buying Bitcoin directly through an exchange or using a CFD broker to trade Bitcoin as a financial instrument.
Owning Bitcoin through direct exchange: This generally involves buying Bitcoin with ZAR via a Bitcoin exchange, and then storing BTC either in your wallet with the exchange itself or in your own wallet on your device.
There are 3 major Bitcoin exchanges operating in South Africa. Luno is largest of them, with the others being iceCUBED (ice3x) and VALR.
Through these Bitcoin exchanges, users buy Bitcoin by opening an account with them and then depositing the required amount in ZAR based on the current Bitcoin price set by the exchange.
The BTC price in ZAR is based on the current BTC/USD price globally, calculated with the current exchange rate and the exchange’s own fees.
This is the most popular Bitcoin trading method in South Africa, as generally there are no technical or financial background requirements for users to sign up with these platforms.
Some exchanges also offer trading tools to their advanced users who are looking to do market analysis or automated trading, but this is not required for buying BTC with them.
The exchanges are mostly self-regulated, as the sector doesn’t have any current regulation. Normal corporate and general common laws apply to them if they are registered as a company in SA.
Trading through a crypto CFD broker: This involves trading Bitcoin as a Contracts-for-Difference (CFD) instrument at Bitcoin brokers in South Africa.
These brokers offer various crypto instruments as CFDs, derived from cryptos against major currencies (including USD and EUR), such as BTCUSD, BTCEUR, LTCUSD, and ETCUSD and cross crypto pairs like BTCETH.
The CFD brokers provide traders with popular trading platforms like MetaTrader and cTrader that are designed for investors with technical backgrounds. Some of these tools also offer in-depth market analysis and news feeds as part of their interfaces.
The CFD brokers generally offer range of investment instruments like Forex, stocks and commodities CFDs, apart from crypto CFDs, so these brokers are for professional traders.
These brokers also offer leverage and margin trading options to investors where you can open a trading position with a lower margin as set by the brokerage.
However, using leveraged trading has its risks and investors need to understand the risks before entering into such a trade.
Brokers offering CFDs are required by law to be regulated under local jurisdiction.
South Africa has its own financial regulator, FSCA, which regulates these brokers under its current regulations and new proposed ODP licensing for OTC brokerages.
This requires them to have certain capital, local directors, trading conditions, product offering restrictions, check investor proficiency and verification, and in some cases leverage caps.
Trading in a regulated environment ensures investor safety in the case of wrong doings by the brokers.
Investors can trade Bitcoin as a CFD through any regulated broker by opening an account with that broker, verifying their account with them and depositing the minimum trading balance required.
Regulation for Bitcoin and cryptos in South Africa
The use of Bitcoin and cryptos is currently unregulated as it is not recognized by the Central Bank as a legal currency but is also not illegal in SA.
The South African Reserve Bank (SARB) has alerted users about the potential risk of fluctuations in Bitcoin as it is not backed by the Central Bank or the government.
SARB is currently considering new regulations for the sector and released a consultation paper on crypto assets for public comment in January 2019.
This paper contains a draft of what considerations they think are required for the safety of investors.
For now, however, individual investors are permitted (but at their own risk) to invest their money in crypto assets (CA) under a single discretionary allowance (SDA) for investments up to R1 million and/or under an individual foreign capital allowance (FCA) of up to R10 million with a Tax Clearance Certificate per calendar year through any Authorized Dealer/Bank (AD).
Investors must sign a self-declaration that their investments are under these limits.
Investors can invest their own money but cannot ask others to invest their money in cryptos to use their SDA/FCA limit as per Exchange Control Regulation 10(1)(c).
Nor are users allowed to make payments to other users in cryptos to evade taxation or financial reporting.
No exchanges or ADs (either with full or limited authority) have been allowed to trade in cryptos under the Currency and Exchanges Manual for ADs.
Non-residents who are selling cryptos in SA are not allowed to transfer the sale proceeds abroad.
Gambling or actual investment?
Bitcoin price movements in the past have shown that it is a highly volatile instrument, driven by market demand and human sentiments.
This makes it is very difficult to predict its movements – even for seasoned investors.
This means that one can’t compare cryptos like Bitcoin with other investment instruments like stocks, government bonds, commodities, and forex – all of which are backed by government regulators and are based on actual economic factors.