Big changes needed for Bitcoin ETF in South Africa

There are no avenues that allow for a Bitcoin exchange-traded fund (ETF) to be launched in South Africa as regulations currently stand, Sygnia investments co-head Kyle Hulett told MyBroadband.

Hulett said the current regulations do not allow the listing of Bitcoin ETFs or the holding of crypto assets in retirement funds.

Regarding a Bitcoin ETF, Hulett said recommendation 23 of the Crypto Assets Regulatory Working Group specifically blocks it.

It states: “The issuing and listing of derivative instruments or other securities that reference crypto assets as the underlying asset should not be permitted until further notice.”

As such, the Johannesburg Stock Exchange (JSE) cannot consider the listing of an ETF or exchange-traded note (ETN) that references crypto assets.

Asked whether Sygnia was still interested in listing such instruments, Hulett said they definitely were.

“Sygnia was days away from launching a Bitcoin ETN in 2018 but was then denied the listing,” he said.

Hulett said Sygnia is part of a working group with the JSE and the Financial Sector Conduct Authority (FSCA) with the aim of paving the way for Bitcoin ETFs.

When the JSE turned down Sygnia’s applications in 2017 and 2021, it said it wasn’t ready to approve cryptocurrency listings because there wasn’t a regulatory framework for them in South Africa.

This has changed, with the FSCA declaring crypto a financial product and bringing crypto asset service providers (CASPs) into the framework of the Financial Advisory and Intermediary Services Act.

The FSCA issued South Africa’s first CASP licences in March 2024.

However, Hulett explained that these regulations are about consumer protection. Listing crypto-based financial instruments requires additional regulatory changes.

VALR co-founder and CEO Farzam Ehsani recently told MyBroadband that it was high time South Africa’s traditional investment industry offered crypto assets to its clientele.

He highlighted that the United States has approved eleven spot Bitcoin exchange-traded funds (ETFs), and Hong King has launched spot ETFs for Bitcoin and Ethereum.

“This follows many other jurisdictions, such as Canada, where these financial instruments have existed for several years,” he said.

While there were still obstacles to offering Bitcoin exposure through traditional investment vehicles, Ehsani said they were working with “several household names in the traditional financial industry” to bring crypto to the public.

Sean Sanders, Altify CEO

Altify CEO Sean Sanders and Jaltech co-founder Gaurav Nair explained that two specific regulatory obstacles prevent the widespread adoption of crypto assets as investments in South Africa.

They said recent regulatory changes have made it easier for independent financial advisors and discretionary fund managers to consider crypto investments, but others still can’t access the asset class.

“Unfortunately, Regulation 28 of the Pension Funds Act explicitly prohibits pension funds from investing in cryptocurrencies,” Sanders said.

“This restriction serves as an indirect deterrent for all other asset managers who might otherwise take a more serious interest in the crypto asset class.”

Nair said regulations over Collective Investment Schemes (CIS) that aren’t governed by Regulation 28 would also need to be amended.

“Collective Investment Schemes have categories of permissible assets in Board Notice 90, and crypto does not appear on the list,” explained Nair.

Because of this, even CIS funds cannot invest in crypto directly even when they don’t fall under Regulation 28.

However, since crypto isn’t expressly forbidden, CIS funds could get exposure through another instrument allowed under Board Notice 90 — provided their mandate allows them to invest in such an instrument.

MyBroadband contacted the JSE for comment, but it did not respond by publication.