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SA crypto service provider licensing to stimulate market

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 23 Apr 2024
Crypto is fulfilling a fundamental need across the African continent, says Luno.
Crypto is fulfilling a fundamental need across the African continent, says Luno.

As the number of licensed crypto asset service providers climbs to 75, this trend is a sign that crypto will become more mainstream in South Africa.

This is one of the key findings explored in a new report, titled The State of Crypto in Africa, compiled by crypto investment app Luno, a licensed financial services provider (FSP).

The report provides insight into the state of crypto on the continent, how it is being used, the immense potential and the challenges.

The Financial Sector Conduct Authority (FSCA) revealed this week that it had approved 75 operating licences for crypto-currency operators in SA, up from 59 licensees approved in March.

The list of licensees includes VALR, Velociti Investment Managers, Luno, RVX SA Capital and Sharenet Wealth. The approved licences relate to a range of crypto-related categories, including advisory services, exchanges, digital custodial/wallet services, payment gateways, crypto asset arbitrage and tokenisation services, according to the FSCA.

Crypto companies that wanted to continue operating in the country were obligated to apply for a licence with the FSCA from 1 June until 30 November 2023.

The State of Crypto in Africa report asserts that, while crypto-currencies presently form a small portion of total investment capital in SA, the growing number of licensed crypto financial service providers could change this.

Christo de Wit, Luno country manager for SA, notes: “The legitimacy from the crypto FSP licences could open the conversation with fund managers, wealth managers and financial advisors, and this could bring a fresh influx of investors into crypto.

“Luno engaged with people on the ground to get a snapshot of crypto-currency in Africa. Bitcoin’s market cap recently overtook that of silver, which many see as a sign of its graduation into mainstream investing.”

According to the report, there was an increase of over 43% in the number of first-time crypto buyers in SA on Luno’s platform in March. At the same time, Bitcoin posted a new all-time high and other cryptos rallied to multi-year highs.

Explains De Wit: “Research indicates that investors are open to crypto investments if recommended by financial advisors. Many advisors have seen a lack of regulation as a barrier to entry. With FSCA licensing, the asset class should attract the attention of more sophisticated investors that are offered professional and responsible advice.”

According to the report, it’s not only regulation that is driving adoption in Africa – crypto is fulfilling a fundamental need across the continent.

“Around 57% of adults in Africa do not have access to a bank account and African countries are among the most under-banked globally. Although Sub-Saharan Africa is one of the smallest economies in terms of transaction volumes, crypto adoption is among the highest in the world in Nigeria, South Africa and Kenya,” it says.

There’s also a growing trend towards Bitcoin and stable coins for hedging purposes, which may indicate grassroots crypto adoption in Africa is closer to the decentralised ideals.

This, as the highly-anticipated fourth Bitcoin Halving took place from Friday evening– a symbolic event in which Bitcoin's mining reward is split in half.

Farzam Ehsani, CEO and co-founder of VALR, says: “VALR welcomes the progress the FSCA and the South African authorities have made in bringing crypto asset service providers into their regulatory purview, to ensure the protection of the public from malevolent actors and that crypto assets are used for the benefit of society.”

The financial regulator has warned it will soon be investigating local crypto asset service providers that did not apply to acquire operating licences and continue operating illegally.

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