Recent statistics have revealed that close to 10% of South Africa’s population currently holds crypto assets, and this number is forecasted to soar to 43% by the end of the decade. These findings, presented by Triple A, a Singapore-based blockchain company, were part of an in-depth market study conducted by the Financial Sector Conduct Authority (FSCA), released late last Thursday.

The increasing trend in South Africa indicates a significant surge in buying, selling, and investment in crypto assets, including derivatives tied to cryptocurrencies, largely due to the growing availability of online trading platforms.

However, this heightened participation in the retail market has prompted concerns about adequate regulation. The FSCA emphasized the need for a balanced regulatory response, given the challenges posed by the decentralized and globally expansive nature of the crypto asset ecosystem.

The FSCA outlined three primary approaches observed globally:

1. Outright Ban: Some nations like China, Algeria, Bolivia, and Egypt have enforced complete bans on crypto asset usage.

2. Regulation: Countries such as Japan, the US, Canada, the EU, and Australia have opted for legal recognition of crypto assets with stringent licensing measures.

3. Observation: Certain countries have chosen a ‘wait and see’ approach, observing crypto asset innovation before taking regulatory action. Ireland’s Central Bank, for example, currently lacks specific crypto asset regulations.

In October 2022, the FSCA classified crypto assets as financial products under the Financial Advisory and Intermediary Services Act. Despite this classification, the FSCA highlighted significant risks associated with crypto investments for consumers. The existing legal framework, while in place, might not sufficiently address the specific risks posed by the crypto industry. Consequently, any entity offering financial advice or intermediary services in the crypto space is required to register as a financial services provider.

In South Africa, the regulatory working group for crypto assets, part of the intergovernmental fintech working group, published the final position paper in June 2021, indicating a shift in regulatory and policy perspectives on crypto assets in the country.

The FSCA’s emphasis on consumer exposure to cryptocurrencies, aligned with risk-based supervision, aims to identify potential risks that could adversely affect consumer welfare. The gathered data suggests that a majority of crypto service providers in South Africa primarily deal with unbacked crypto assets, followed by stablecoins and security tokens.

Additional findings from the study include:

– Cape Town stands out as the primary location for the head offices of crypto service providers.

– Most of these companies generate revenue through trading fees.

– Over half of these businesses cater primarily to retail customers.