Bitcoin trading in South Africa
Bitcoin was the first digital currency to explode onto the world market and its popularity has literally exploded. If you’re interested in Bitcoin trading, you’ll be pleased to know South Africa is very much part of the Bitcoin revolution. In fact, Bitcoin in Africa is stronger than it is anywhere else in the world because it offers multiple benefits to the banked and unbanked sectors.
According to the cryptocurrency exchange Luno, South Africa is a leading market for cryptocurrency adoption and ranks second after Nigeria on Google searches for the term ‘Bitcoin’. Luno has witnessed a surge in the number of new Luno wallets (accounts) that have been opened through the exchange in the past two years, despite the highs and lows that Bitcoin has experienced more recently.
South Africa offers investors and traders a well-established financial services market with high mobile penetration. The country’s trusted financial infrastructure makes it convenient for the banked market to trade in Bitcoin in South Africa and there’s now a fight to gain market share in the unbanked sector using digital coins as the currency.
What is Bitcoin?
Bitcoin is virtual money that is traded in virtual space. It’s an electronic financial asset that’s known as cryptocurrency. You cannot touch a Bitcoin or put one in your leather wallet. It only exists as a snippet of code that you have access to through the digital world.
Bitcoin was the first cryptocurrency to make a significant impact on the world. It was invented in 2008 by the mysterious Satoshi Nakamoto, and its open-source code was released on the global platform in 2009.
Bitcoins are created as a reward for a process known as mining. The virtual currency can be traded as a commodity or forex and used as a payment alternative to fiat currency for goods and services.
Cryptocurrencies bypass central authorities such as the Reserve Bank, financial institutions and payment gateways and are traded over-the-counter (OTC) in cyberspace. The blockchain technology prevents the digital coins from being counterfeited. It also means they are not owned, issued or controlled by any one single group or party.
Digital funds are stored online in digital wallets or offline as a snippet of code which represents ownership of the digital concept, much like a traditional IOU. The Bitcoin distributed network acts as a ledger of balances in the same way it would in traditional accounting practices but in the digital space and not on paper.
In the decade since Bitcoin appeared, the cryptocurrency has endured extreme highs and lows. The volatile asset was initially traded for next to nothing and then shot up in July 2010 from USD 0.0008 to USD 0.08 for a single coin.
Is Bitcoin dead?
Before we discuss trading Bitcoin in South Africa, let’s talk about the big question on everyone’s global lips, “Is Bitcoin dead?”
With the great hype around Bitcoin and then the shattering lows, most cynics expected Bitcoin and the other copycat cryptocurrencies to die a quiet death and disappear. However, it would seem, that the world is ready for a digital currency and it’s just a matter of time before the open-source software offers the world the perfect alternative to fiat currencies.
The loud noise around Bitcoin has certainly died down to a low buzz but there’s a buzz nonetheless. To move Bitcoin off its long-term investment positioning to more of a mainstream payment mechanism, the cryptocurrency has made further innovations.
Bitcoin held the top spot on the leaderboard for a big chunk of the time since cryptocurrencies emerged and then found itself facing a serious challenge where it was being usurped by hard-fork currencies such as Litecoin, Ethereum Constantinople and Ripple.
Bitcoin addressed this by launching its own hardfork cryptocurrency called Bitcoin Cash. It did this to increase its transaction capacity, making it a more workable digital currency for payment transactions. The main goal of Bitcoin Cash was to make the digital coin accessible to the whole world and not limited to investors.
Bitcoin Cash has a bigger block size limit parameter compared to Bitcoin. The increased block size limit means up to 2 million transactions can be processed per day. The bigger block size also allows the digital currency to process transactions faster than Bitcoin.
Bitcoin Cash addressed Bitcoin’s weaknesses of scalability and offers the world the perfect solution of a cryptocurrency that makes digital payments faster and cheaper than the original version.
Another feature of Bitcoin Cash is it offers Emergency Difficulty Adjustment (EDA). This provides a responsive and quicker way to adjust the proof-of-work difficulty which means miners are able to easily migrate from the legacy Bitcoin chain while making sure that users are not affected by hashrate fluctuations.
So, to answer the question “Is Bitcoin dead?”; most certainly not. The cryptocurrency is in its infancy like all the other digital coins in circulation. Bitcoin is scaling up its functionality and the world, particularly South Africans, have shown a willingness to adopt whatever Bitcoin has to offer.
Why Bitcoin is so strong in South Africa
Bitcoin is strongly traded in South Africa, despite the cryptocurrency getting some extremely negative press in the international media. There are four reasons for the high level of interest in Bitcoin in South Africa.
South Africa’s remittance market
South Africa has a strong remittance market which has grown substantially since the country gained its independence. A remittance is a transfer of money, typically by a foreign worker to a family member or business in another country. The remittance market is the largest financial inflow for developing countries.
An example of a remittance is money sent by migrant workers in South Africa to families living in Zimbabwe, Lesotho and Mozambique. And the remittance market not only cross-border; migrant labourers working in Johannesburg have families in the rural areas.
What they call family remittance is the strongest form of remittance in South Africa. It differs from online payments that are made to pay for products or services. In South Africa, the remittance market is driven by rural-to-urban migration within the country and the influx of migrant workers from neighbouring nations.
According to Bloomberg, South Africa’s remittance market is expected to reach R34 billion by the end of 2023. Before Covid-19, that was US$ 2.3 billion.
The role Bitcoin can play in South Africa for the remittance market is offering the banked market a cheaper and faster alternative for sending money to relatives in the rural areas and out of the country.
Currently, South Africa is one of the costliest on the continent to remit money to neighbouring states and countries around the world. The emergence of cryptocurrencies such as Bitcoin Cash and Litecoin as a strong competitor in the remittance market should see those high transfer costs come down.
Bitcoin offers South Africans a radical technological alternative to what the traditional banks offer and this should further accelerate the growth of South Africa’s remittance market. Bitcoin, or rather its hardfork Bitcoin Cash, is expected to boom over the next few years because it’s a faster and cheaper means of sending and receiving family remittance.
South Africans are by-in-large highly financially literate
Even at a fairly grassroots rural level, South Africans are highly literate when it comes to online banking. At least 80% of the South African population is banked and the majority adopted financial technology products early on. This is mostly because Smartphones and online banking have made banking more accessible for your average man-in-the-street.
South Africa has a huge advantage over the rest of sub-Saharan Africa where more than half the inhabitants are unbanked. Eight out of 10 people in South Africa have an active bank account and at least half of those depend on the banking platforms for money remittances.
It makes sense that South Africans in both the banked and unbanked sector would find it easy to adopt mobile money in the form of Bitcoin Cash or Litecoin. Digital funds really are just an extension of the formal payment system that South African’s are comfortable with, as long as digital funds can be trusted to convert easily to hard cash and the cost of transactions is faster and cheaper.
Altcoins like Bitcoin Cash have a lot to offer the remittance target market in South Africa. This is where you’ll find the gap for cryptocurrencies on the African continent. The uptake of Bitcoin in South Africa is largely driven by faster and cheaper cross-border and cross-provincial transactions and less to do with trading in Bitcoin as a financial asset.
South Africa’s volatile fiat currency
According to Bloomberg, the South African Rand is one of the most volatile currencies to trade on the forex market. In fact, the USD/ZAR is what is referred to as an exotic pair in forex trading. The Rand component (ZAR) is an emerging market currency which carries less liquidity than that of developed market currencies.
An exotic currency is a foreign exchange term for a thinly-traded currency. It’s a currency that’s illiquid, lacks depth of market, can be extremely volatile and trades at low volumes. Trading an exotic currency is more expensive because the bid-ask spread is generally large in order to compensate for the lack of liquidity.
A cryptocurrency like Bitcoin offers investors a viable alternative to the major fiat currencies. The majority of forex traders trade the top 8 currency pairs: USD, EUR, AUD, GBP, JPY, SGD and HKD. This is because the trading prices are good and the spreads are small.
Bitcoin trading as opposed to the top 8 global currency pairs has become hugely attractive for traders who trade on volatility. Huge volatility means it’s possible to buy low in the morning and sell high a few hours later. The cryptocurrency market is not influenced so much by political and socio-economic sentiment as it is by market sentiment on the value of the digital coin.
Less stringent regulations on cryptocurrency trading in South Africa
For the moment, the cryptocurrency regulations in South Africa are not strictly regulated. There is much talk that South Africa’s financial authorities will soon adopt stricter regulations for cryptocurrencies but little has come out of the policy papers tabled so far.
The only regulations in place at the moment for Bitcoin and other digital assets concern tax regulations in South Africa and AML/KYC compliance. Another point of concern the Intergovernmental Fintech Working Group (IFWG) is focusing on is policy regarding anti-money laundering and regulations around it being a domestic payment platform.
Is Bitcoin traded in South Africa?
Bitcoin has been adopted by South Africans on a scale that’s quite surprising. According to a survey conducted by the Intergovernmental Fintech Working Group (IFWG), at least 10.7 percent of South African Internet users invest in Bitcoin.
It’s anticipated the adoption of Bitcoin will surge over the next five years as more and more of the remittance market in South Africa adopt digitisation to send money back to families, between states and cross borders.
It’s further anticipated that Smartphone usage in South Africa will increase to 27.3 million users by 2022. With a total population of 58.8 million people, there’s a target audience of 28.8 million adults between the ages of 25 to 64 years who’ll have access to decentralised banking via transaction cryptocurrencies like Bitcoin Cash.
This increase in penetration of technologically-advanced Smartphones presents the ideal opportunity for the adoption of mobile wallets and e-wallets. South Africa currently enjoys a fairly liberalised approach to its regulation framework for remittance service providers and this flexibility offers the banked market in South Africa a further incentive to adopt digital transaction mechanisms.
Is Bitcoin accepted as a payment mechanism in South Africa?
In a lax regulatory and fiscal-friendly environment, South Africa is posed to adopt Bitcoin and other cryptocurrencies on an unprecedented scale. Basically, any merchant in South Africa who accepts credit card and bank payments through payments processing services such as PayFast are in a position to also accept Bitcoin payments.
Bitcoin has the potential in South Africa to grow as an improved payment technology for day-to-day transactions and as an alternative asset class for wealth creation. At the moment, Bitcoin has gained traction in South Africa as a mechanism to ‘store wealth’ in the area of commodity trading. However, there are signs that Bitcoin will be adopted by more and more merchants for online and offline payments.
Tens of thousands of South African merchants are in a position to accept Bitcoin and many of the leading online merchants are already accepting it as a payment method. This includes Takealot.com and Bidorbuy.co.za.
The future of Bitcoin in South Africa
The South African population appears to have a huge appetite for digital currencies that offer them a faster and cheaper alternative to its fiat currency, the Rand. After some opposition, the major traditional banks in the country are coming on board and revising their approach to banking in the digital currency environment.
This includes Standard Bank, Nedbank, Absa, First National Bank and Capitec. The Big 5 banking giants in South Africa want to capture the unbanked population in southern Africa. They can only really compete for market share if they adopt a more customer-centric approach to transaction mechanisms like Bitcoin Cash.
The cloud environment takes transactions from the paperless model to the digital model which means lower operating costs for the banking industry. It’s another incentive that traditional banks will find appealing.
The ‘single click’ method of banking on mobile apps will certainly shrink the number of times South Africans need to visit their bank and the need for ‘bricks and mortar’ branches will dramatically decrease. The size of the banking market in South Africa is not anticipated to grow substantially (currently 80%) so the big banks will be fighting for digital market share and cost savings.
The Big 5 traditional banks are already competing with what’s termed the ‘challenger banks’. This includes innovative digital banking players such as Discovery Bank, Thyme Bank and Bank Zero. These banks are geared to meet the demand by consumers for quicker, more convenient and cheaper banking services and the solution will be delivered off state-of-the-art mobile banking platforms.
The challenger banks may or may not dislodge the Big 5 off their pedestals. If they don’t, they’ll certainly shake up the way the traditional banks do business and cryptocurrencies will certainly come into play.
Why South African merchants prefer Bitcoin to bank transfers, credit cards and PayPal
It’s taken a while but more and more merchants in South Africa are starting to recognise the benefits of accepting Bitcoin over bank transfers, credit card payments and online money transfers such as PayPal.
Firstly, Bitcoin transactions between wallets are not linked to a bank account and anyone can buy and sell merchandise using Bitcoin. It does not require account verification, identity checks or proof of residence.
Secondly, trading can take place anywhere and at any time. Cryptocurrencies have no international boundaries. The Reserve Bank and traditional banks don’t get to dictate what you can and cannot do with your digital coins. More importantly, you take back control of your bank account and your financial transactions.
Lastly, Bitcoin payments are faster and cheaper than EFTs, credit card payments and online money transfers. Bitcoin transfers take minutes while it can take days for a PayPal transfer to take place. Merchants and customers don’t pay high banking and transaction fees on Bitcoin transactions and there is no limit to the number of transactions that can be processed.
Trading Bitcoin in South Africa
So, how do you get your foot into the Bitcoin door in South Africa? Well, to start with, you need to decide which door you want to investigate. You can buy and sell Bitcoin for profit, you can earn Bitcoin selling goods and services and you can mine Bitcoin.
Let’s look at your options in more detail.
Buy and sell Bitcoin in South Africa
This option is quite simple. You can buy and sell Bitcoin for profit through an exchange. The two oldest exchanges in South Africa are Luno and ice3X (iceCUBED). Once you’ve set up your trading account, deposited money in it and the funds have been cleared, you are ready to start trading Bitcoins.
Buying Bitcoin from an exchange like Luno is the safest and most secure way to buy, store and sell digital coins. There are Bitcoin traders who advertise digital coins for sale on sites like localbitcoins.com and the trade takes place using escrow. Some even meet their buyers in person and trade cash.
With Bitcoin, you can choose to store your Bitcoins in your exchange account, or you can play it safe and withdraw them and store them on your personal Bitcoin wallet. You also have the option of buying Bitcoin with your credit card or withdrawing Bitcoin from an BTM (a Bitcoin ATM).
Both exchanges have a convenient mobile App that allows its users to trade remotely. This means you can buy and trade in Bitcoin 24/7 from anywhere in the world. You don’t have to wait for the forex market to wake up at the start of the working week or wait a few days for a bank to process your funds and then charge you a whopping transaction fee.
Provide a service and get paid in Bitcoin. It’s the new way of doing things. You can sell your products and services for Bitcoin using a variety of methods. This includes Bitcoins transferred to your wallet address or using something like the BTCPay checkout system on your website.
The beauty of this is all you need is a good Smartphone with the Luno app loaded on it so you can manage your wallet address. You can make Bitcoin payments as well as receive Bitcoin payments with BTCPay.
Bitcoin is not a physical coin so you don’t have to don your mining boots and hard hat to mine for them. All you need is the capital to buy the expensive Bitcoin mining equipment and a budget for hefty electricity costs.
With Bitcoin mining, you win if the price goes up considerably. That means what you make covers your electricity costs and more. Unfortunately, if the price drops dramatically, you’ll find yourself heavily out of pocket on mining costs.
Bitcoin mining involves securing the network and verifying transactions. It’s not the most lucrative way of filling up your Bitcoin wallet and is best left to the professional miners. The equipment is expensive and the amount of electricity you need to mine Bitcoins is ludicrous. Then you also have the problem of power failures and loadshedding in South Africa and problems with the hardware.
Should you trade Bitcoin in South Africa?
This is the best time to trade Bitcoin in South Africa because the government has a fairly friendly outlook on cryptocurrencies and has not shut down the financial asset with burdensome regulations. It’s legal to buy, sell and earn Bitcoin in South Africa and the digital coins are proving to be a faster and cheaper alternative to the Rand.
The main worry the South African government has with Bitcoin is money laundering and investors avoiding paying tax on profits made trading Bitcoin. The South African Reserve Service (SARS) has made it clear that any earnings from Bitcoin trading is subject to taxation but for the moment, the decentralised platform makes it virtually impossible for them to pick up these earnings.
Bitcoin and Altcoin trading in South Africa is currently unregulated but the government through IFWG is working on a new regulatory framework to enforce stricter controls over the cryptocurrency industry. Time will tell if the proposed stringent controls will have a significant affect on South Africa’s eagerness to adopt Bitcoin as a payment mechanism and investment asset.
Forex Trading Africa Disclaimer
Trading in Bitcoin in South Africa is associated with risks and can lead to merchants and traders losing money. The cryptocurrency market is highly volatile and you can expect prices to fluctuate dramatically.
The information in this article should only be used to educate yourself on how Bitcoin works and the benefits of trading Bitcoin in South Africa. Pay due caution to the risks involved in trading Bitcoin and take the necessary precautions to avoid losing money on Bitcoin transactions.
21st Dec 2020
18th Dec 2020