South Africa’s crypto exchanges have described 2023 as a landmark year in regards to the gains the digital currencies made this year.
This is despite the challenges faced by some of the biggest global exchanges, such as the collapse of FTX and the legal challenges faced by Binance in the US.
Sam Bankman-Fried, US-based founder and ex-CEO of bankrupt crypto exchange FTX, went on trial for fraud and money-laundering. He awaits sentencing after being found guilty of all charges.
In November, Binance and its now former CEO Changpeng “CZ” Zhao agreed to pay nearly $3 billion to settle a US Commodity Futures Trading Commission lawsuit. CZ is also awaiting sentencing after pleading guilty to a charge of violating the Bank Secrecy Act.
However, the local industry is buoyant 2024 will bring better prospects for the fledging crypto-currency market. The players say on the regulation front, South Africa made huge strides.
According to David Porter, GM of AltCoinTrader, 2023 got off to an exuberant start with the total crypto market cap posting a roughly 50% gain to $1.2 trillion.
“We believe this was the first signal that the bear market was running out of steam and was going to make room for the bulls. This gain also largely reversed the damage done by FTX’s collapse. Q2 witnessed the market take a bit of a breather to consolidate gains, with the market cap staying pretty static.”
Porter notes the big news in Q2 was the 30% growth in Ethereum staking after it enabled withdrawals. Q3 saw a small decrease in overall market cap.
“The big news since the middle of Q3 has been the possibility of the Securities and Exchange Commission (SEC) finally approving a Bitcoin Spot ETF in the US after losing an important court battle against Grayscale.
“This has provided a spark to the market and resulted in a nice positive run for the bulls as we near the end of the fourth quarter. The total market cap of crypto is now sitting in the region of $1.65 trillion.”
Farzam Ehsani, CEO and co-founder of VALR, comments that while Bitcoin is up 166% in the last year, the major highlight for Bitcoin in 2023 is that it remained open to all, ‘uncensorable’, transparent in its issuance algorithm and secure.
“In other words, regardless of the ups and downs in price movement; regardless of any regulatory advances or setbacks; regardless of what any of the players in the crypto space did or did not do; Bitcoin remained one of the most powerful financial assets ever invented,” Ehsani says.
Says Luc Varejes, COO of Ovex: “Not only has Bitcoin outperformed every other major asset class, it has also truly reinforced the narrative of becoming a ‘digital gold’ or a store of value. I think 2023 has been testament to Bitcoin's resilience and store of value notion.”
Christo de Wit, Luno SA country manager, states the start of the year was tough on the back of 2022’s crypto winter and the FTX fallout, but crypto surged during the year.
Bitcoin is ending on a much higher note, having risen 170% (in ZAR) during 2023, he says.
“The announcement of BlackRock’s application for a Bitcoin spot ETF came in June 2023. With a dozen such applications pending SEC approval, industry giants await a landmark decision. Bitcoin spot-ETF filings can be seen as the catalyst in driving this renewed confidence, signalling wider institutional interest in Bitcoin and the broader crypto market,” De Wit says.
In October, the S&P 500 hit a five-month low on the back of a selloff of its top seven tech companies, he adds.
“Bitcoin will have launched 15 years ago in January. In this time, there have been many changes and improvements – regulation is increasing consumer protection and the industry is attracting increasing institutional investment.”
De Wit points out that there have been significant strides this year in developing SA’s regulatory framework.
He believes consumer protection was boosted by the inclusion of crypto asset service providers as accountable institutions by the Financial Intelligence Centre. Luno submitted its application to operate as a financial service provider as soon as applications opened in June, he adds.
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 SA as a regulated financial product.
“Earlier this year, SA’s Advertising Regulatory Board added a crypto clause to the Code of Advertising Practice.”
According to Porter, 2023 will be remembered by South African crypto asset service providers (CASPs) as the year of regulation.
After declaring crypto to be “financial products” in late 2022, the FSCA provided the industry with a deadline to apply for financial service provider licences. CASPs had between June and 30 November to apply, says Porter.
“The FSCA doesn’t just hand out licences; they require CASPs to have a firm grip on compliance and a multitude of controls designed to protect customers and the broader financial system. Through this licensing regime, crypto is being brought from the fringe of finance into the mainstream, where reputable and honest companies will thrive and hopefully nefarious elements discouraged.”
Ehsani concurs that 2023 was a big year for crypto regulation in SA. “In June, the FSCA opened applications for CASPs − a significant step in ensuring the players in the crypto industry are regulated appropriately and that the interests of the public are safeguarded.”
This year has been about regulation adherence and ensuring CASP compliance is up to regulatory standards, Varejes adds.
Looking ahead, Varejes believes if history is anything to go by, the industry could be in for a strong bull market. “We have already begun to see crypto and market sentiment change, with a nice uptick in risk assets.”
He points out two major events in the crypto world will happen in Q1 of 2024 – Bitcoin halving (where the Bitcoin block reward halves) and the SEC spot BTC ETF decision.
“A favourable spot ETF outcome will add fuel to the bullish sentiment and will mark the beginning of mainstream institutional adoption. To reinforce this narrative further, the wider macro market is expecting rate cuts towards the far end of 2024, which could relieve some of the economic tightening and create a more favourable environment for higher risk assets. Lastly, the crypto market analytics are looking healthy.”
Ehsani anticipates 2024 will be another year of strong recovery for the crypto markets and the industry will likely retest the all-time-highs for Bitcoin and other crypto assets.
“The next Bitcoin halving is expected to take place in April 2024 and this reduction in Bitcoin supply will very likely result in higher price pressure, as has been the case in the past.”
Says De Wit: “2023 was the year that artificial intelligence (AI) became very real for almost everyone around the world. OpenAI set off an AI race in the tech industry when it launched ChatGPT, the essay-writing, data-crunching, do-it-all and know-it-all large language model. The consequences of AI development are far-reaching, some good, some bad, and so too for crypto.
“AI will leave no industry unchanged and could help drive the integration of crypto into more far-reaching use cases.”