Cryptocurrency trading has become mainstream with Bitcoin, the world’s biggest cryptocurrency, growing beyond $50,000 in February 2024.
As millions turn to cryptocurrency trading and thousands of new tokens on the market, the market has grown to a 1.2 trillion in market capitalization.
But what is cryptocurrency trading? How does it work? And more importantly, is it safe?
In this article, Finbok takes a deep dive into the world of cryptocurrency trading, shares valuable insights, and helps all South African traders.
Cryptocurrency trading: Growth in South Africa
South African traders, as is the case in Nigeria and Kenya, have developed a strong appetite for cryptocurrencies over the years. Many South Africans are attracted by the high volatility and profit potential in crypto.
The country has a favorable regulatory climate, and the South African Reserve Bank (SARB) has stated that it does not intend to ban or restrict the usage of cryptocurrencies.
Aside from a good regulatory climate, crypto in South Africa has a thriving community of blockchain engineers and entrepreneurs, with various startups and companies functioning in the sector.
Furthermore, the banking industry is looking at blockchain technology to improve operations and deliver better services to clients.
Cryptocurrency trading – Where to buy crypto in SA
Several cryptocurrency exchanges and trading platforms in the country allow individuals to purchase, sell, and trade cryptocurrencies like Bitcoin, Ethereum, Litecoin and more!
Valr, Altcoin Trader, and iCE3X are three South African cryptocurrency exchanges where users may buy and sell cryptocurrencies in ZAR and other currencies.
To buy cryptocurrency in South Africa, investors normally need to open an account with a cryptocurrency exchange, go through the necessary identification verification and compliance checks, and then fill their accounts using ZAR or another acceptable currency.
Once the account is funded, customers can purchase the cryptocurrency they want at the current market price.
Cryptocurrency trading exchanges
The most common way to purchase Bitcoin in South Africa is through a cryptocurrency exchange like Luno or local providers like Valr, Altcoin Trader, and iCE3X.
To acquire Bitcoin on these exchanges, customers must first create an account, go through the required identification verification and compliance checks, fill their account with ZAR, and then place an order to buy Bitcoin at the current market price.
Cryptocurrency trading: – Peer-to-peer (P2P) marketplace
Another method is to purchase Bitcoin through a peer-to-peer platform like Paxful or Hodl Hodl. These markets enable users to purchase Bitcoin from other people wishing to sell.
Users can pay for Bitcoin with ZAR or another approved payment method agreed upon by the user and seller.
Cryptocurrency exchange regulations
South Africa’s financial regulatory authority, the FSCA, governs cryptocurrency exchange legislation and regulates the activities of South African crypto platforms.
In 2019, the FSCA issued a draft declaration on crypto asset regulation, aiming to establish a regulatory framework for crypto assets in South Africa.
The proclamation included several major proposals, including the following:
Cryptocurrency exchanges must register with the FSCA and adhere to various regulatory standards, such as AML and KYC.
Cryptocurrency trading: Regulations in SA
In 2021 and 2022, the SARB and the Financial Sector Conduct Authority (FSCA), among other organizations, collaborated to create a consultation document that proposed a regulatory framework for the sector.
The research advocated that cryptocurrency service providers, such as exchanges, wallet providers, and brokers, be required to register with the Financial Intelligence Centre (FIC) and follow Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) guidelines.
The collapse of FTX and other cryptocurrency businesses in 2022 highlighted the need for improved regulation to protect consumers in a highly volatile and decentralized market.
Most governments continue to face challenges in the Bitcoin ecosystem as they strive to strike a balance between risk minimization and innovation maximization.
Cryptocurrency trading: Is it legal in SA?
Cryptocurrency trading is allowed in South Africa, where the regulatory framework is reasonably favorable to cryptocurrencies, and both individuals and corporations can lawfully use them.
In addition, the FSCA oversees several cryptocurrency exchanges and trading platforms in the country.
However, it is important to highlight that cryptocurrencies are not recognized as legal cash in South Africa, and their use and acceptance as a form of payment are still limited.
South Africans can invest in cryptocurrency; individuals and corporations can purchase, sell, and trade cryptocurrencies on a variety of exchanges and platforms.
The local government has built a regulatory framework to safeguard investors and prevent fraudulent activity while also allowing for innovation and growth in the cryptocurrency business.
Cryptocurrency trading: Hazards & Security
Crypto investors must be aware of the hazards involved, which include market volatility, cybersecurity threats, and fraud.
Cryptocurrency trading: FSCA in South Africa?
The FSCA established in October 2022 that crypto assets — referred to as “a digital representation of value” — are financial product subject to FSCA regulations under section 1(h) of the Financial Advisory and Intermediary Services Act.
Every bitcoin service provider must be authorized by the FAIS to conduct business in the sector and apply for a license. Existing suppliers must apply by the end of 2023.
The need for digital asset regulation began following the publication of the Paris-based intergovernmental organization Financial Action Task Force’s (FATF) report in 2021, which highlighted South Africa’s absence of crypto asset legislation, particularly in light of AML and CTF rules.
In South Africa, a joint initiative of the National Treasury, the SARB, the FSCA, the South African Revenue Service (SARS), and the FIC issued a public statement in 2014 to raise awareness of the risks associated with crypto assets.
Cryptocurrency trading – laws and protection
According to government officials, crypto laws in South Africa, as well as a robust regulatory framework, are required to protect investors and ensure industry stability.
Due to the industry’s extraordinary volatility and cyber dangers, people and businesses investing in cryptocurrencies should stay up to date on legislative developments and exercise caution while dealing with bitcoin assets.
A major change to South African legislation is that crypto platforms and tokens can be advertised and are now regulated. In January 2023, the South African Advertising Regulatory Board updated its Code of Advertising Practice to add new standards for cryptocurrency assets.
Such laws necessitate that marketing for crypto assets in South Africa explicitly indicates that investing in crypto assets may result in capital loss. Advertisements must also be easily understood by their target audience and provide a clear message.
Cryptocurrency trading Beware of social media
To avoid spreading deceptive information, notable professional figures in the Bitcoin social media sphere known as “influencers” or “ambassadors” must follow the standards outlined in the Social Media Code.
Cryptocurrency trading – Taxes in South Africa?
South Africa taxes cryptocurrencies. The SARS considers Bitcoin to be an intangible asset for tax reasons, thus, any earnings from buying and selling cryptocurrencies are taxed.
Individuals who acquire and sell bitcoin must include crypto asset gains or losses in their taxable income and pay taxes on any profits earned.
The tax rate is determined by the individual’s income tax band, with the current maximum rate at 45%.
Taxable income Taxable income up to R216,200 ($11,112) is taxed at 18%, with different rate brackets increasing to 45% on taxable income over R1,656,601 ($85,151).
Capital Gains Crypto profits subject to capital gains tax are taxed at a maximum effective 18% rate on gains over the annual exclusion threshold of 40,000 ZAR ($2,056), depending on the individual’s total taxable income.
It is the taxpayer’s responsibility to declare all cryptocurrency-related taxable income in the tax year in which it is received or accumulated.
Taxpayers must keep detailed records of their transactions and comply with tax rules. Failure to do so will risk incurring penalties and fines.
SARS has a broad variety of collection rights under the Income Tax Act, including the necessity for crypto service providers to produce financial data whenever authorities request it.
Users who have an account with a South African cryptocurrency exchange may have SARS access to their data, and even if they have an account with a foreign exchange, they should be aware that SARS may access that data as well.
Cryptocurrency trading – No tax on Bitcoin
South Africa, like most other governments across the world, does not tax all Bitcoin transactions. SARS only taxes investors when they generate additional revenue or sell cryptocurrency.
Therefore, some crypto transactions are tax-free, which include the following:
- Buying cryptocurrency with ZAR or another fiat currency
- Holding cryptocurrency
- Transferring cryptocurrency between wallets that belong to the same owner.
In addition, Bitcoin mining is taxed in South Africa. The income made from cryptocurrency mining is taxable and should be reported on the individual’s tax return.
Cryptocurrency trading – FSCA rules
The FSCA would oversee and enforce compliance with these regulations. Cryptocurrency exchanges would be required to maintain a specific level of capitalization and financial resources to fulfill their financial responsibilities to customers.
The FSCA would also have the authority to impose penalties or sanctions on cryptocurrency exchanges that do not comply with these standards.
In 2020, the FSCA formalized its policy position on cryptocurrency assets and produced a new declaration that generally reaffirmed the fundamental ideas expressed in the previous draft.
It also included extra rules to handle specific issues, such as consumer protection and risk management.
On December 19, 2022, a modification to the Financial Intelligence Centre Act (FICA) designated crypto service providers as “accountable institutions.”
What this means is, that anonymous cryptocurrency transactions are illegal in South Africa. This amendment is aimed at preventing money laundering and terrorist financing.
In comparison to traditional non-cash payment methods, the FATF has highlighted that crypto asset payment products and services may pose risks for money laundering and terrorist financing, requiring a higher level of attention to anonymity while using them.
Cryptocurrency trading – Future of cryptocurrency in South Africa
Public opinion, economic realities, and legislative changes have all had an impact on South Africa’s embrace of digital currencies in recent years.
The creation of new crypto assets like nonfungible tokens (NFTs) is happening at the same time as the global regulatory framework is being developed.The economic state of South Africa is a significant factor affecting the growth and use of cryptocurrencies there.Due to the various economic issues plaguing the nation, such as high unemployment and inflation, many South Africans are investigating in riskier financial options such as crypto and forex.Because cryptocurrencies are decentralized, they could be able to address some of these problems affecting traditional investments.The way that people feel about cryptocurrencies in South Africa will affect its adoption in the country. As long as there are profits to be made, crypto will be an attractive proposition.Like all traders, South Africans are enthusiastic about the innovations and potential advantages of digital currencies.Others are wary or cautious because of the recent turbulence and unpredictability in the bitcoin market, Despite soaring to record highs in 2024 in has also shown it can drop to record lows in recent years.There are many reasons to be optimistic about the future of cryptocurrencies in South Africa, even in the face of these obstacles.The young, tech-savvy populace of the nation is becoming more and more interested in blockchain technology and its possible uses.Furthermore, several cutting-edge fintech and cryptocurrency businesses are based in South Africa, and they are the ones propelling industry acceptance and innovation.
