South Africa is officially embracing cryptocurrency trade and investment laws, with its financial and capital markets regulators predicting an increase of crypto activity in the country.
That marks a departure from much of the rest of Africa. In many other countries, central banks are directing commercial banks to avoid processing transactions involving trade in crypto assets.
This is despite a surge in trading activity with South Africa, Nigeria, and Kenya now among the top markets for trade and investment in bitcoin and other cryptocurrencies in Africa. One report puts Nigeria “as the top peer-to-peer bitcoin trading nation on the continent” with $99 million in trade volumes in the first quarter 2021 while volumes for Kenya and Ghana–in second and third ranking–came in at $34.8 million and $27.4 million respectively. South Africa was fourth with $25.8 million.
African crypto markets need regulation
The lack of regulation in these big markets is pushing users to adopt peer-to-peer trades and underground trading alternatives as mainstream crypto exchanges and other open platforms encounter hurdles in settling payments involving banks. That situation is widespread across Africa, the United Nations noted in its Africa Renewal magazine this month, emphasizing that “given the constantly changing nature of the cryptocurrency world, one of the biggest risks is lack of proper regulation” in some African countries. “Regulation is exactly what the industry needs most,” according to the report.
South Africa, which has the most sophisticated financial sector on the continent, is walking a different path, sensing an impending boom in crypto trade in the country and on the African continent, financial and capital markets said. The country already recognizes cryptocurrencies as an investment and taxable asset.
“Crypto assets cannot remain outside of the South African regulatory purview,” said a new intergovernmental working group tasked with developing new policies.
South Africa’s crypto boom
The rapid rise in crypto-trade in South Africa—and rising fraud cases where ransom is demanded in cryptocurrency—appears to be motivating the country to regulate virtual assets. Daily crypto asset trading values in South Africa were “exceeding $145 million for the first time” in January 2021, according to a report from the working group. The new regulations are aimed at fostering transparency and minimizing the abuse of cryptocurrencies for nefarious activities.
To guard against money laundering and the financing of terrorism, the new regulations will be address customer identification and verification, customer due diligence, keeping records of client and transactional information, and monitoring of suspicious and unusual activity. Additionally, the South African Reserve Bank will also closely monitor crypto assets and service providers for “cross-border financial flows.”
Despite these moves, South Africa still plans on limiting the exposure of banks and other financial institutions to crypto assets ”as the risk could over time spill over” and create financial stability risks, according to the new regulatory framework. Financial regulators in Zimbabwe, Nigeria, and Kenya have already banned banks from processing transactions relating to cryptocurrencies, resulting in the adoption of mobile money and other digital payments means for settlement of cryptocurrency transactions.
According to a video posted on YouTube by LocalBitcoins–a trading platform for peer-to-peer transactions–mobile money platform M-Pesa is the most common payment method followed by Pesalink, a payments transfer platform, in Kenya, where the number of crypto traders on the platform had risen to 17,000 by the end of February this year.
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