By Jurgen Kuhnel, CEO and Co-Founder at Xago
With trading opportunities suddenly few and far between in the New Year, it’s a good time to reflect on the important issue of regulation of the cryptocurrency industry.
To put it in a nutshell: We’re waiting with bated breath to see how the South African Reserve Bank (SARB) seeks to regulate the industry.
At the heart of the matter is the thorny issue of exchange controls. One of the concerns often raised about cryptocurrencies is that it allows people to freely move money out of the country with SARB being none the wiser.
As things stand, we only have a single discretionary allowance (SDA) of R1-million per calendar year, so there are strict limits imposed on what we may spend overseas without asking SARB’s permission.
This at a time when many South Africans may be tempted to move money out of the system due to political uncertainty. If SARB were to take a cynical view, they could come up with something draconian or a blanket ban.
However, that would also be self-defeating because of the paradox that exchange controls present a barrier to the inflow of money from trading activities.
For example, if you trade with R15000 and bring R15500 back less than an hour later, you’ve done the country a good turn because the profit is there to spend and stimulate economic activity. In addition, the Receiver of Revenue will benefit from the income tax you are liable for.
Unfortunately, you’ll be using up your SDA in no time if you’re an active trader buying crypto with your credit card on overseas exchanges. And South Africa will lose with you.
Consequently, I trade prudently and won’t take the first and best opportunity of making a quick buck when a gap opens between Binance and Xago. It must be big enough to return a decent profit because I don’t want to use up my SDA by grabbing R100 on a trade of $1000.
But, of course, cryptocurrency is not just a vehicle for trading. In fact, it can potentially have a very positive social impact. For example, the cryptocurrency (XRP) allows for a quick transfer of money across borders. XRP can be swiftly transferred from one wallet to another, and then be withdrawn at little cost by the recipient. Therein lies a potentially huge value, especially in terms of meeting the needs of many Africans.
As things stand that can’t be done without red tape as it requires permission from SARB. The entire purpose is therefore defeated.
The crux is fundamentally the disruptive nature of cryptocurrency. By doing such transferrals, you’re effectively taking business away from banks, who are predictably very nervous about the impact on their bottom lines. First prize for banks is probably that SARB takes a stance that cryptocurrency transactions should be banned in South Africa.
The only problem with that is that the horse has bolted. Just like traditional pay-TV networks will find it difficult if not impossible to get streaming services like Netflix regulated, and cellular phone network providers angry about the loss of SMS-revenue cannot sabotage WhatsApp, the world as a global village has moved on.
Innovation is what drives humankind. Airbnb is a natural evolution of the hotel/guest house industry just as Über has revolutionized the taxi industry. We’re perfectly entitled not to be ripped off when it comes to accommodation and transport, just as banks should not be afforded total control over us.
We can’t realistically expect SARB to be laissez-faire on the issue of regulation, but let’s hope they keep an open mind.
Regulation of the cryptocurrency industry will be a good thing. Even closer scrutiny of our activities won’t necessarily be bad, provided there is flexibility in terms of how we trade and the likes of XRP can be used for the constructive purpose for which it was created.
Cryptocurrency should be considered an opportunity rather than a threat, so here’s hoping the next move is progressive rather than restrictive.