Following a big crash in the industry in 2022, crypto trading volumes in South Africa have stabilised, and three local exchanges are hopeful about a bright future thanks to improved regulation.
The most valuable cryptocurrency — Bitcoin — has seen its price increase by roughly 72% since the start of 2023, after a radical slump last year as global economies suffered from growing inflation and uncertainty.
Bitcoin’s performance typically influences the rest of the crypto market, and the digital coin is known — and often appreciated — for its volatility.
However, the crypto market has also recently started to move in sync with the general stock market.
MyBroadband recently spoke to Luno, Ovex, and VALR, three of the major cryptocurrency exchanges in South Africa, to learn more about how developments in the industry have shaped local crypto trading in 2023 and where it could be headed.
Luno South Africa country manager Christo de Wit said that overall trading volumes on Luno were lower than the same period last year.
“This is in line with less activity in this crypto bear market,” De Wit said.
“It is important to note that trading volumes should not be taken as an indicator of total crypto investment,” De Wit cautioned.
“Crypto traders follow different strategies, and will continue trading regardless of whether prices rise or fall.”
“Similar to equity and foreign currency traders, many crypto traders place hundreds of trades per day, trading high volumes at low margins.”
Nevertheless, the current trading volumes on Luno in South Africa gave the exchange confidence that the crypto market was still very active — even when markets contract.
“In terms of customer activity, we can see that more than 250,000 customers in South Africa engage with the Luno app weekly.”
De Witt said this meant that people were closely monitoring market movements — checking in and staying informed.
He explained that the market continued to battle the consequences of rapidly rising US interest rates and military conflict in Europe.
“During times of economic turmoil, investors tend to move from risk assets into cash or traditional safe-haven assets such as gold. Investors whose risk appetite doesn’t align with the volatility of crypto prices will sell.”
“When traders are unsure about crypto prices, they flee to stablecoins and bank deposits. When they are unsure about stablecoins and bank deposits, it’s crypto’s time to shine.”
“However, many still continue to declare Bitcoin finished whenever the price falls.”
“Luno’s view is that the technology that drives cryptocurrencies is one of the most important financial innovations of our time and even a lower price does not reflect the long-term value that cryptocurrencies will bring.”
Ovex remains optimistic
Ovex chief investment officer Imraan Moola and chief operating officer Luc Varejes also expressed optimism about the market despite continued challenges inherited from 2022.
Moola said after some significant growth spurts in the last bull run, Ovex has maintained its value traded at previous high levels even though cryptocurrency prices have come under considerable pressure in 2022.
Varejes said there were many applications beyond speculation on cryptocurrency prices that drove volume.
“This year has seen roughly a similar trading volume as last year. We do, however, see far more institutional interest in the space,” Varejes said.
Moola explained that some of the key developments in the crypto market were driven by macroeconomic events and consequences.
“High inflation, currency debasement, rapid interest rate rises and topped off with a swathe of US banks going bust, have all contributed to the price action and volatility exhibited in crypto so far this year.”
However, there have also been some positive developments, Varejes said, including major steps in crypto regulation.
That includes cryptocurrency officially becoming a financial product in South Africa, as defined by the Financial Sector Conduct Authority (FSCA).
“There seems to be a more defined path to the institutionalisation of crypto, not just in South Africa, where we now have a clear path to regulation, but also globally,” said Moola.
Varejes and De Wit also pointed out that Europe’s crypto regulation was being formalised through the Markets in Crypto Assets (MICA) licencing law of the European Union.
VALR CEO Farzam Ehsani said his exchange’s volume has stayed relatively stable since the beginning of the year, barring periods of high volatility when trading volume generally increased.
“Over the past few months, the crypto markets — particularly Bitcoin — have remained fairly stable,” he said.
VALR lays claim to being the largest exchange in South Africa by trading volume, having processed over $10 billion in trading volume since its launch, and the biggest globally for Bitcoin-Rand trading.
Echoing Ovex’s experience, Ehsani said VALR saw large financial institutions’ interest in the crypto market re-emerge.
“VALR recently launched spot margin trading for corporate and institutional customers, which has attracted interest from the market,” he stated.
Ehsani said despite Bitcoin prices being 50% below their peak in November 2021, VALR’s customer base continued to grow.
“We now serve half a million people and over 800 corporate and institutional clients,” Ehsani stated.
Ovex also welcomed the submission of multiple crypto spot exchange-traded fund (ETF) applications with the US Securities and Exchanges Commission (SEC).
“Even murmurs of a BTC spot ETF being approved by the SEC with some traditional market big players all putting their hat in the ring and vying for approval, have added the necessary ingredients to raise interest from conventional financial market institutions,” Moola said.
“A Bitcoin ETF is important for several reasons, primarily due to its potential to increase accessibility, liquidity, and mainstream acceptance of Bitcoin as an investment asset.”
Varejes said if these spot ETFs are approved in conjunction with the next Bitcoin halving, the market could achieve exponential growth.
The Bitcoin halving reduces rewards for successfully mining new Bitcoin by 50% with the aim of reducing the Bitcoin supply, De Wit explained.
“Halving is just one fact impacting price this year — and core to the investment case for Bitcoin as a store of value with limited supply,” he said.
De Wit expects there could be some significant movement in the market ahead of the Bitcoin halving coming up in early 2024, based on previous cycles.
“However, past performance can never be an indicator of future results,” he said.
Ehsani, meanwhile, expects further volatility in the crypto markets will emerge during the rest of 2023 and into 2024.
“The crypto markets are still recovering from some of the dramatic events in 2022, from the collapse of Celsius, 3 Arrows Capital and others in the middle of the year to the collapse of FTX towards the end of 2022,” he said.
