You probably noticed the shift during the second half of 2017. Bitcoin and cryptocurrencies went from something you vaguely knew about and planned to read up on real soon, to the main topic of conversation at dinner parties. Since then the crypto fanboys have quietened down just a touch with the Bitcoin price hovering around the R85 000 mark, down from the heady heights of more than R300 000 in December 2017.
There has been a massive correction in the market, and today anyone still investing in cryptocurrencies is doing it for its underlying future application rather than as a blind get-rich-quick punt. Now, investors are taking the time to understand the real-world application of the cryptocurrency and betting on its future.
In our view, the Bitcoin bubble was driven by investor hype, and now that things are normalising, the real-world value of the underlying technology (blockchain) will emerge in a range of new-age tech products such as Storj (storage), brave (browser), steemit (social) and status (messaging). In years to come, blockchain will be integrated into so many things we do that we won’t even know it’s there. In the same way that the Internet didn’t disappear after the Dotcom crash, it just got embedded more deeply into our lives, a similar thing will happen with blockchain.
Adaptations of blockchain will improve different processes and systems that we use every day. For example, in cross-border payments today money moves from A to Z via a complex, slow and expensive correspondent-banking network (Swift), which has hardly changed since 1973. Blockchain technology could revolutionise this by making transfers faster, safer and cheaper. Another area where blockchain has significant appeal, and where some early pilots are already being run, is in property. Last year Georgia became the first government to use blockchain to validate property transactions. Again, it’s quicker, cheaper and more secure.
Of course people have made money from the Bitcoin boom, but by the time the masses were getting involved – just as the market downturn happened, the “whales” had cashed in and moved on. One particularly clever and totally legal move we saw happening is called “roundtripping”. South Africans were using their offshore investment allowance (up to R 1 million a year) to buy cryptocurrencies such as Bitcoin and Ethereum on offshore exchanges. They’d then transfer the cryptocurrency back to a South African exchange and gain up to 20% on the price difference between the exchanges.
Essentially, they were trading cryptocurrencies as an equity, benefiting from the price difference between the two exchanges as well as a probable upturn in the value of the cryptocurrency during the transfer process. They’d sell their cryptocurrency locally and repeat the process until they had exhausted their R1 million annual allowance. The only real trick was to ensure their forex transactions were as fast as possible — delays added risk to the transaction as the market was so volatile. And of course, like any arbitrage situation, the more people who climb on board, the quicker the window closes.
So, now that the dust has settled on the Bitcoin rollercoaster, keep an eye out for agile disruptors using blockchain to take on the likes of Chrome, Dropbox, Skype, SWIFT, etc. Exciting times ahead…
So what’s next for South African investors? They will no doubt continue to look for opportunities to use their foreign exchange allowance to grow their wealth, so here is a quick overview of the rules.
Forex and South Africans:
1. Every South African Resident over 18 has a Single Discretionary Allowance of R 1 million per calendar year. You don’t need a tax clearance certificate and the money can be used for investment purposes.
2. Additionally, there is a Foreign Investment Allowance of up to a further R 10 million, but for this, you need a specific tax clearance certificate from SARS.
3. Over and above this R10m allowance, one can apply for a Certificate of Compliance from SARS. This is a fairly lengthy process, but there is effectively no limit to the amount that can be transferred offshore under this arrangement.