National Treasury has told Parliament that South Africa’s only option was to regulate activities related to crypto assets like Bitcoin.
It said that the country can’t simply leave the crypto asset market unregulated, and it also can’t ban the use of crypto assets. Therefore the only choice is to regulate.
Treasury’s presentation was delivered by chief director Olaotse Matshane, who was speaking to the finance committee in the National Council of Provinces (NCOP).
She said that National Treasury use the term “crypto asset” instead of cryptocurrency because “currency” refers to money which was legal tender and issued by the Reserve Bank.
“Crypto assets have thus far largely failed in their ambition to be a widely used payment instrument,” Matshane stated.
Crypto assets are therefore not money, are not legal tender, and are not issued by a central bank.
Also speaking to the NCOP finance committee was Dumisani Jantjies, director at the Parliamentary Budget Office (PBO).
Jantjies said that cryptocurrencies lacked intrinsic value because they were not backed by government, and were regarded as high risk due to high volatility.
This made it difficult to draw market assumptions about cryptocurrency valuation, unlike other mainstream assets, he said.
Jantjies noted that there where countries that continue to advocate the use of cryptocurrency.
Some of the benefits of using cryptocurrency included eliminating extreme money printing, giving individuals control of their own money rather than regulators, cutting out the middleman, and widening access to financial services.
He said that there were several myths about cryptocurrencies, including the assumption that they are only good for criminals, that Bitcoin was the only application for blockchain, and that all blockchain activities are private.
“With the benefits of cryptocurrencies came risk,” said Jantjies.
This included regulatory risk, meaning that governments were unable to monitor or protect users of the cryptocurrencies.
There is also a security risk, such as the scamming of potential investors and the hacking or theft of data. These have been common risks in the cryptocurrency market since its inception in 2009, Jantjies stated.
Matshane said that for Treasury, there were several key risks involved with crypto assets:
- Money laundering and terrorism financing.
- Exchange control circumvention.
- Inability to regulate market conduct and a lack of consumer protection.
- Cybersecurity risks.
- Price volatility.
- Environmental risks.
- Risk of parallel, unregulated and fragmented payment systems.
- The risk of perceived regulatory acceptance.
- Financial stability risks.
To address these risks, Matshane said South African regulators essentially have three approaches available to them:
- Complete ban — this is not advised, as according to the Financial Action Task Force (FATF) it drives activities underground
- Do nothing — continue with the current stance of not having regulations specific to crypto assets. This is also not feasible, as FATF membership obliges South Africa to regulate crypto asset service providers for anti-money laundering and Counter Financing of Terrorism purposes.
- Regulate — according to Treasury, regulation is the only option.
Matshane said that South Africa is being very cautious and will take a facilitative, “test and learn” approach to regulating crypto assets.
She said that South Africa wanted to allow the activity, but it must be responsible with the consumer being protected.
As far as retirement funds and collective investment schemes were concerned — until proper research has been done, exposure to crypto assets would not be allowed, she said.