Crypto Regulations in South Africa

According to insights from the analytical portal Statista, the forecasted revenue from South Africa's cryptocurrency market in 2024 is expected to hit $246 million, with an average revenue of $19.3 per cryptocurrency user.In a country where a third of the population earns a minimum wage of 4405 rand ($245), this represents a significant bonus of about 10%.In comparison, revenue from cryptocurrency operations in the USA in 2023 was estimated at $18 billion.   

Thus, despite regulatory uncertainties, virtual assets are attracting increasing attention in South Africa.

Rising Levels of Cryptocurrency Income in South Africa. Source: statista

The digital asset market's growth is also fostered by several factors:

1. High level of internet penetration. South Africa boasts the fastest and most affordable internet access in Africa, making connectivity available to even the least economically advantaged layers of the population.
2. Volatility of the national currency. The South African Rand is subject to fluctuations, positioning cryptocurrencies as an appealing alternative asset for investors.
3. Increasing interest in financial markets. An increasing number of South Africans are exploring investments in various financial instruments as a hedge against inflation.

Consequently, one in every five South Africans is investing in cryptocurrencies.

Regulatory Steps for Virtual Assets in South Africa  

The Financial Sector Conduct Authority (FSCA) is the principal regulator for South Africa's nascent cryptocurrency market. In 2021, it designated cryptocurrencies as financial products, which means they are now subject to financial service regulations, including reporting requirements and Anti-Money Laundering (AML) protocols.

The Cybercrimes Act passed in 2022 includes specific provisions related to cryptocurrencies, notably requiring crypto exchanges to register with the FSCA. 

That year, a thorough national survey of the cryptocurrency market demonstrated that the economic benefits for South Africans using digital currencies far outweigh the risks.  

This has opened the door for international crypto platforms to establish offices in Pretoria and Johannesburg.

Presently, Binance dominates the South African market, handling 39% of all virtual asset trades, with other platforms such as Kucoin, Gate.io, Coinbase, and OKX also operating in the country.  

Cryptocurrency Users in South Africa. Source: statista

The FSCA is now working on drafting more detailed regulations for crypto exchanges and other market participants. These regulations are anticipated to be finalized and published by the end of 2024. 

Following this, the South African Revenue Service (SARS) is expected to introduce measures regarding the taxation of virtual assets. Previously, revenue from cryptocurrency mining or trading was not categorized separately, and earnings were taxed at the standard income tax rates, which range from 18% to 45% based on the profit amount.  

Currently, cryptocurrency exchanges are not required to submit their clients' transaction data to tax authorities, which means accurate reporting of crypto income and tax payments is relatively rare.

Cryptocurrencies currently represent a minor portion of total investment capital in South Africa. However, the issuance of FSCA licenses to financial service providers could potentially transform the landscape.