Cryptocurrency trends in SA & Beyond

With the Rand depreciating, South Africa is increasingly turning to crypto.

Susan Symondson identifies trends in the South African crypto-spere.

Bitcoin is taking over the world, and South Africans are jumping on the bandwagon— by the millions. According to Google trend data, South Africans are very curious about crypto. When comparing the search data, South Africa is ranked eighth globally, and second on the African continent behind Nigeria. And what about actual investing?

A recent study shows South Africa has the second-largest bitcoin-investing population in the world—an estimated 15 per cent, ranking ahead of the U.S. and Japan.

So who is leading the charge into the crypto space? The younger generation, striving to help offset the depreciation of the Rand while trying to circumvent the highly concentrated traditional financial institutions with their high costs.

MILLENNIALS AND GEN Z ARE LEADING THE PACK

The world of blockchain, decentralised finance, and cryptocurrency can be incredibly intimidating for many. As technology continues to advance, it can sometimes feel confusing and foreign to those not considered “digital natives,” or the generation that grew up raised on the internet. So it is unsurprising that crypto is more popular among millennials, digital immigrants, and of course, the generation of digital natives, Generation Z.

South Africa’s cryptocurrency trading is dominated by people under the age of 50, and nearly 40 per cent of transactions are executed by people under the age of 29. That will change, however, as people of all ages join the crypto-sphere. Jonathan Ovadia, the CEO of Ovex, a Bitcoin and cryptocurrency exchange, explains that this trend isn’t out of the ordinary. The younger generations are typically the ones to bring about change.

“As we’ve seen for centuries, those looking to bring about change are typically the younger generation,” says Ovadia. “It shouldn’t surprise anyone that we are also the ones looking to change financial institutions and the way we invest.”

BANKING THE UNBANKED

Traditional financial institutions have struggled to properly service lowincome earners, micro-entrepreneurs and the poor because of the high costs involved. Nearly a quarter of all South Africans do not have a bank account. The Big Four banks, which between them have a market excess of 80 per cent, are putting forth initiatives to bring banking opportunities to those previously left out.

But it’s not enough.

The banking system is somewhat structurally unsuited to push into poor and remote areas. It remains conservative and inaccessible, with regulations that focus on stability and keep financial services highly concentrated in specific areas that are not always accessible to the average people. This makes it difficult to give out small loans and collect smaller deposits.

There is also the issue of identification in trying to secure a bank account. The country is currently looking at the possibility of re-issuing ID numbers to be more inclusive of the general population, but many issues remain. The system excludes unregistered children, deaths that are not recorded properly, and people who don’t fall into the male/female binary.

The adoption of blockchain can help circumvent these issues. Certain wallets and blockchains have built-in identification systems, allowing many to evade the traditional financial routes.

“The past 12 months have hastened the adoption of cryptocurrencies globally. It’s not just institutional adoption, but also retail adoption,” says Ovadia. “Now, people who struggled to get an ID or have no access to traditional financial institutions can use cryptocurrencies to pay for necessities. They no longer have to drive hours to find a bank and apply for a loan. It can all be done online.”

DEPRECIATION OF THE RAND

Over the last two years, the South African Rand has been weakening. As the U.S. economy improves, South Africans are preparing for the Federal Reserve to implement an interest rate hike. Any hike would negatively impact any emerging economy, including South Africa’s because there will be less borrowing and less investing. Additionally, we have the volatility of Chinese foreign relations to contend with. The Rand is heavily exposed to China, and any change in China’s foreign policy directly affects the Rand.

As the rand continues to be dependent on so many external factors, South Africans are looking for alternatives, and crypto seems like the place to flock to.

Some of cryptocurrencies’ early adopters are now billionaires, among the wealthiest people globally, and with the recent bull run, other investors have made massive profits. So what should people do with their earnings, and how can they diversify their portfolio?

Rael Demby, CEO of The South African Gold Coin Exchange & The Scoin Shop, says that The Scoin Shop now accepts specific cryptocurrencies (bitcoin, Ethereum, USD Coin, Litecoin, Dai, Bitcoin Cash) as payment for gold coins and collectables. So now people can cash out crypto profits and buy gold.

The cryptocurrency ecosystem is growing rapidly. More brands and companies are moving into the space of accepting crypto for goods and services—setting up payment systems that enable bitcoin transactions. Ovadia believes The Scoin Shop’s innovation is a bold move and shows an open view to a new and rapidly growing asset class. According to him, “better to embrace it than ignore it.”

So then, people can use their crypto to buy physical gold coins and collectables. That’s an exciting strategy which The Scoin Shop is pioneering. Demby tells us that since The Scoin Shop introduced this payment innovation in late 2020, he has seen strong demand for the option of “coins for coins” and expects this trend to continue going forward.

Ovadia says, “as far as I know, there are no other major gold coin companies integrating cryptocurrency. Eventually, every single one will.”

So why sell cryptocurrency for gold? Gold provides wealth preservation, store of value, currency hedge, and it combats inflationary concerns—all advantages many cryptocurrencies claim to offer. “For most, wealth preservation is a focus. We are seeing a huge interest in gold bullion, silver and numismatics,” says Demby. People are buying gold and silver as a hedge against elevated risk in the financial markets.

As we continue to move into 2021, the cryptocurrency hype will continue to grow and evolve worldwide. Institutions will continuously, even if somewhat reluctantly at first, integrate crypto into payment systems, portfolios, and long term plans.