Buying cryptocurrencies in South Africa
Though cryptocurrencies are often misunderstood and seen as speculative investments, it has raised eyebrows recently with large corporate companies buying a fairly large amount of crypto – specifically Bitcoin. For someone like me, who knows what crypto is and how it works from a code level, it makes sense to explore how to go about buying cryptocurrencies and the risks involved.
If you’re new to crypto, rather first read my article here about what it is – what follows is a “where can I…” guide. I will start with the most diversified/safest/regulated, and work my way down to the dodgy other things that angels fear to tread.
But before I do, let’s touch on the risk involved.
Unregulated assets and risk
It is imperative that I add a special section here on risk.
Buying and selling cryptocurrencies are unregulated in most of the world, including South Africa. With nobody that looks at the legitimacy of crypto funds-like structures, investment opportunities and new coins make this a breeding ground for scams.
Scams, such as Karat coin and Mirror Trading international are just some examples of
Be careful when investing in unregulated territory!
Investing in a company that invests in crypto
If you’re already investing in the stock market and ETFs, you probably are investing in crypto – without knowing it! Some companies are investing with an alacrity not only in cryptocurrencies but also in related technologies. For example, NVIDIA has processors for cryptocurrency mining and Tesla bought $1.5 Billion worth of Bitcoin.
If you’re looking to play it a bit safer, you can invest in some of these big corporates to have indirect exposure to cryptocurrency.
Investing in a crypto ‘fund’
Though fairly new, there are (unregulated) ‘funds’ that invest in cryptocurrencies. There has also been a storm brewing over this in South Africa, as the JSE rejected an initial fund by Sygnia. One of the people that rejected the fund started the only current sizable crypto fund – EC10
EC10 by DCX Capital
EC10 is owned by DCX Capital – a registered Pty Ltd. It states in its index rules that they look at market cap and inflation-beating performance as their guiding factors. Though they have an index-like structure (i.e. they rebalance/reindex), the board makes decisions on what the ‘fund ‘ invests in.
As with all funds, there are fees involved. As of 2021, there is a 2% TER (i.e. fee) and then 0.5% on all buys and then another 0.25% on all sells (link here).
I do want to mention that there have been some shocking revelations and PR blunders – I hope they will be more transparent going forward!
I will be bringing out a full post about this in the next few weeks – keep your eyes open for this!
Other fund and index-like options
There are some platforms that allow you to build your own fund that also reindexes weekly. One such company is BitFund. They do have a very high TER of 2.4% (link here).
Another option is Revix. They have a “weighted exposure to the 10 most prominent crypto assets as measured by market capitalisation”. They have a TER of 2.04% (link here).
Buying actual cryptocurrencies
If you’re a control freak like me, you might want to own the crypto yourself. You can do it! There are two options – keep it on an exchange or keep it on hardware – a digital wallet, your PC/phone or the like.
Most often, people will buy cryptocurrency from an exchange such as Luno. They then send the money to a wallet for safekeeping offline. The reason they would do this is not only for safety but also because of the free coins you get when a fork happens. An example of a fork is when Bitcoin and Bitcoin Cash split into two separate code basis/coins due to disagreements on approach.
With quite a few coins available, you will need to make sure you know what you’re investing in. Or you could diversify appropriately in the crypto sphere.
I want to do a dishonourable mention here of crypto mining. There are lots of crypto mining profitability calculators that can help you establish if this is a viable option. From my personal experience and calculations, this is not a great option in South Africa. Electricity and importing the equipment tend to be too expensive.
Be careful though of crypto mining scams – the world is full of them and you need to rely on your own due diligence.
Trading and “penny stock” coins
I have found that some people buy “penny stock coins” with the hope that one of them take off. The rationalisation is as follows: If I invest in 100 ICOs, and 1 takes off, I will get more than my money back!
Sadly, this has seen many people investing in Ponzi and pyramid schemes to “get rich quick” – to their own detriment.
Concerning crypto trading – though the idea of leverage and trading analysis might seem enticing, I do suggest lots of research and training before actually spending money. Don’t go sit in Starbucks and start trading! Upskill yourself with loads of free courses and YouTube videos before trying to make money.
Money can flow freely to the trained eye
Whether you’re investing in actual coins, funds or shares that invest in cryptocurrencies, you need to do your research.
Make sure you know what the costs and risks are.
There are still some awesome opportunities out there in cryptocurrencies. Just make sure that you don’t invest your entire portfolio in one asset class.