While South Africa has been hailed as one of the most crypto-friendly countries in Africa, recent events indicate that challenges might be brewing within its crypto landscape. A notable trend has emerged with several US-based crypto firms opting to block users from South Africa, potentially signaling difficulties in the local crypto industry.

Kraken’s Blacklisting of South African Users

Recent reports from local media outlet Moneyweb shed light on a significant development: the renowned crypto exchange Kraken has ceased accepting deposits from South African users. This move was triggered by Kraken’s banking partner, which took the step due to South Africa’s inclusion on its anti-money laundering blacklist. This situation mirrors an earlier incident involving Circle, the issuer of USDC, when it halted fiat payments from South African users. Circle’s decision was seemingly prompted by the anticipation of more substantial financial sanctions against the country.

The decision made by Kraken’s banking partner might be influenced by the actions of the Financial Action Task Force (FATF). In February of the current year, the FATF designated South Africa as a country subject to “increased monitoring,” categorizing it under the “grey list.” This classification pertains to nations under scrutiny due to concerns about their anti-money laundering and counter-terrorist financing efforts. While the FATF acknowledges South Africa’s robust framework in combating financial crimes, it has identified shortcomings in dealing with new technologies, including digital assets.

The FATF has noted the country’s “non-compliance” with the technical prerequisites for combating money laundering within the crypto industry. Consequently, financial institutions, including Kraken’s banking partner, might be exercising caution in processing transactions from South African users to avoid any potential involvement in money laundering activities, particularly those related to cryptocurrencies.

Impact on South African Crypto Arbitrageurs

Crypto arbitrage, a popular practice in South Africa, involves exploiting price differences for assets like BTC and USDC, which often trade at a premium of 0.7% to 3.5% on local exchanges. However, regulatory and technical setbacks have cast a shadow over this thriving business. The prior decision by Circle to halt payments in the country disrupted arbitrage trading, mainly conducted in USDC. Consequently, the premium on these assets surged by 4% due to reduced trading volumes.

Kraken’s recent move to block deposits from South African crypto users has dealt a significant blow to the crypto arbitrage sector. Many traders reportedly relied on Kraken to execute their trades, causing a decline in arbitrage trading volume and leading to an increase in the premium, with reports suggesting it has reached as high as 3.5% following Kraken’s decision.