Bitcoin reaches fever pitch — but always know what you're buying, say experts
At more than R1-million a coin, Bitcoin's latest bull run is once again flooding feeds with promises of overnight wealth. Amid the media noise, experts are stepping in, urging caution: don't buy into something you don't understand.
That was the message at Daily Maverick's Decrypting Crypto webinar, hosted by senior journalist Lindsey Schutters, in conversation with Christo de Wit, country manager of Luno, and Diketso Mashigo, head of the Financial Sector Conduct Authority's (FSCA's) licensing department.
'There's obviously a lot of clamour in the market,' Schutters said. 'Bitcoin is at an all-time high, it's a lot of money and everyone's trying to get in.'
Don't invest in what you don't understand
'It is very important that people really get to understand what it is that they're buying into, what they're investing in and understand what the risks are,' Mashigo said.
He stressed that the regulator expected authorised providers to actively educate their clients, especially when it came to a volatile asset such as crypto.
While that may sound obvious, the crypto space is designed to move fast, often faster than many retail investors can realistically follow.
Goals before gains
'When it comes to any kind of investment, whether it's crypto or not, it's important to have understanding and a very clear idea what your financial goals are, both short term and long term,' De Wit said.
Crypto is notorious for its wild swings. Bitcoin itself has gone from R300,000 to R1-million, with some stomach-churning dips in between.
'Crypto is a higher risk asset class, and there is a lot of volatility,' De Wit said. Having a fundamental understanding of this was crucial in informing oneself when investing in crypto.
Fractional ownership, full exposure
A common crypto myth is that one needs to own a full coin to get started; an idea De Wit was quick to dispel.
'I think it's important for new-time investors to understand that you don't have to purchase an entire Bitcoin. You can purchase a fraction of it,' he explained. 'Even though Luno or the centralised exchange custodies it and keeps it in safekeeping, you have immediate access to further trade it, to withdraw it, to convert it back to rands, to convert it to other currencies.'
The trick is choosing a credible licensed provider.
'Very carefully select your centralised exchange,' De Wit said. 'You can verify that on the FSCA website as well, to make sure that you know this is a cryptocurrency exchange platform that is licensed.'
If your slice of the coin gains value, so does your investment. 'Any growth or loss, depending on what the market does, is related to the percentage that you hold,' De Wit said.
Users can convert crypto to rands, transfer between wallets and even send Bitcoin to friends, which are growing trends in parts of the country.
'The whole Garden Route is becoming a crypto haven,' Schutters said. 'A lot of [people] are using stablecoins because they're just easier to transact with.'
What does it mean to 'own' crypto?
Ownership in the crypto space doesn't always look like traditional finance, but it follows similar principles, Mashigo explained.
'If I purchase a financial product, my ownership in that asset is represented somehow,' he said. 'And in this space, you can look at tokens. That, proportionately, is what I'm holding in that particular asset.'
But how do you know that ownership is real and respected? De Wit pointed out a crucial consumer safeguard: proof of reserve.
An important aspect to look out for is whether an exchange showcases proof of reserve, which is an audited report that validates that all consumer crypto currencies are exactly where the platforms say they are, he said.
It's one of the most transparent ways users can confirm their holdings exist and they're not being lent out or siphoned off without consent.
The three golden rules
Mashingo broke down FSCA's consumer guidance into three pillars for anyone considering a crypto investment:
Understand the product. Know exactly what you're buying, how it works and if it addresses your needs.
Know the risks. Volatility, market swings and speculation are part of crypto's nature. Be ready to stomach the sudden drops.
Verify the platform. 'Understand the party or the platform or the venue or the provider that you're dealing with, whether they're licensed or not,' said Mashigo. 'That's simple. You come through us. You check on our website, pop us an email, and we can confirm.'
Growing regulation
Mashigo made it clear that the FSCA was here to make sure that people knew what they were getting themselves into.
'We make sure that … certain basic things are in place,' said Mashigo and specified that businesses had to be contactable, transparent and authorised to do what they claimed.
With crypto asset providers (CASPs) now being brought under formal licensing and regulatory oversight in South Africa, the hope is that consumer protection will continue to improve. DM
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