Tuesday, 12 December 2023: After a bumpy ride last year, there have been some upbeat developments in crypto during 2023. Christo de Wit, Luno’s country manager for South Africa, unpacks the big events of the year.
“The beginning of this year was marked by a tough environment on the back of 2022’s crypto winter and the fallout from the high-profile collapse of FTX. However, the sentiment is heading in a more positive direction,” says de Wit.
FTX fallout carried over from 2022
Sam Bankman Fried, the US-based founder and ex-CEO of the bankrupt crypto exchange FTX, went on trial for fraud and money laundering. He awaits sentencing after being found guilty of all charges.
While the collapse of FTX further strengthened the anti-crypto stance from the US Securities and Exchange Commission (SEC), it also confirmed that the events occurred as a result of a lack of corporate governance and not a failure of crypto. It highlights the importance and responsibility companies have in our industry around customer protection and the necessity for regulation.
Regulating crypto
Globally, there has been significant progress in the regulation of crypto. The EU’s crypto regulation, Markets in Crypto Assets (MiCA), was approved in April, allowing crypto exchanges and digital wallet companies to offer regulated services and requiring stablecoin issuers to hold licences and sufficient reserves.
There have been significant strides this year in developing South Africa’s regulatory framework. Consumer protection was boosted by the inclusion of crypto asset service providers as accountable institutions by the Financial Intelligence Centre and Luno submitted its application to operate as a financial service provider as soon as applications opened in June. Crypto was declared a financial product by the Financial Services Conduct Authority (FSCA) in 2022. It is groundbreaking that crypto is now part of the mainstream financial services sector in South Africa as a regulated financial product.
A key benefit is that it should allow financial advisors to formally advise their clients on crypto investments. Until now, financial advisors could not provide advice on unregulated investment opportunities.
Earlier this year, SA’s Advertising Regulatory Board added a crypto clause to the Code of Advertising Practice. The process was driven by Luno to protect consumers from being misled by unethical crypto advertisers.
US Bitcoin ETFs drives up price
In August, a US court ruled that the SEC was wrong to reject the Bitcoin ETF application brought by crypto asset manager Grayscale Investments. Total BTC spot trading volumes on exchanges around the world jumped as investors reacted positively to the news and the industry is hopeful for ETF filing outcomes early in 2024.
Market movements
In October, the S&P 500 hit a 5-month low on the back of a selloff of its top seven tech companies. Crypto surged, leading commentators to wonder whether this a sign of the crypto winter thawing or a temporary wave of optimism.
Milestone birthdays
Fifteen years ago, Satoshi Nakamoto published the Bitcoin white paper that introduced Bitcoin as a currency and explained the foundations of blockchain technology. Bitcoin has since evolved as a robust, decentralised network and asset class and continues to challenge our perceptions of finance.
Luno was founded by South Africans with a vision about how cryptocurrency could be the basis of a new financial system 10 years ago and now has 12 million customers worldwide, with four million in SA. One of the first crypto transactions on Luno was a purchase of 0.1 Bitcoin worth R403 at that time. Today, the value would be over R80 000 at Bitcoin’s current trading price on Luno.
Crypto in action
In a significant step towards broader cryptocurrency acceptance, British banking giant HSBC has begun to allow customers to settle their mortgage and loan bills using various cryptocurrencies. This move potentially paves the way for wider cryptocurrency adoption across global financial sectors, underscoring the growing intertwining of traditional finance and digital assets.
Closer to home, Pick n Pay, made it possible for customers to pay for items using cryptocurrency at all of its 1,628 stores from February 2023.
In November, Ukheshe announced that its Scan to Pay app now supports cryptocurrency payments at over 600,000 South African vendors, various banks and fintechs.
South Africa’s decision to designate crypto assets as a financial product is prompting movement in the space, with financial services giant Old Mutual Wealth and Inves Capital announcing they will financially back the ZARP (SA Rand pegged) stablecoin network and promote its use in decentralised finance.
Signs that crypto is maturing
In the last few years, we’ve seen the price of Bitcoin and other cryptocurrencies go up and then pull back. And while past performance doesn’t always guide future returns, the price is still up more than 1000% over the last five years and has climbed significantly during 2023.
“Beyond the meme coins and fads, it’s important to recognise that the crypto industry is still in its early phase and adoption rates are still relatively low. Additional use cases will come to the fore. We’re tracking the innovative ways crypto will continue to shake up the traditional financial system,” concludes de Wit.
