Asset manager Sygnia’s announcement last week that it plans to open a cryptocurrency exchange by November will make it easier for South Africans to invest in this controversial currency.
But with critics predicting the demise of Bitcoin on a regular basis, it is definitely somewhat of a gamble for the Cape Town-based company.
Sygnia’s clients will be able to buy cryptocurrencies, such as Bitcoin and Ethereum, on the planned exchange. In so doing, the exchange will hope to benefit from growing interest in digital currencies on the part of South African investors. Sygnia will also make the product available to retail investors.
The exchange will be known as SygniaCoin Cryptocurrency Exchange and will “offer investors a secure trading and execution platform backed by an international infrastructure, well-designed custody and integration with standard savings products,” said Sygnia.
The company also plans a fund that will invest in a variety of cryptocurrencies.
Sygnia manages R181 billion worth of assets and its daring move into cryptocurrencies has already raised eyebrows.
Other established asset managers, such as Allan Gray and Fairtree Capital, did not want to comment on the future of cryptocurrencies in their portfolios.
Sygnia’s boss Magda Wierzycka said the company believed strongly in the future of blockchain technology.
She sees an investment in cryptocurrency as an investment in digital form.
“I have no doubt that cryptocurrencies aren’t going to disappear anytime soon.”
Although experts caution that it is only a matter of time until the Bitcoin bubble bursts, Wierzycka said Sygnia did not have a position on the price of Bitcoin.
“We do not take a view on the price of Bitcoin, nor will we promote it as an investment.
“It really is up to individual investors to make up their minds as to the price movement.”
SygniaCoin is not so much targeted at people trading cryptocurrencies, as at what can be achieved using the exchange.
“We have ideas for some very interesting products using the concept of initial coin offerings [not dissimilar to the structure of an exchange-traded fund (ETF) and hope to launch those in the South African market,” Wierzycka said.
Sygnia is now waiting for Treasury to establish a framework on cryptocurrency exchanges.
“We would like to be part of that conversation,” she said.
“SARS [SA Revenue Service] has already come up with a framework for cryptocurrencies and their foreign exchange status.”
The cryptocurrencies are categorised under “other investments”, such as art and Krugerrands, said Wierzycka.
“It is recognised as a ‘digital asset’ in the 2018/19 budget and hence there is no reason not to look at it as an investment,” she said.
“But once again this is up to individual investors to decide. I would never recommend that anyone invests in anything they do not understand.”
Sygnia was part of an earlier, separate attempt to establish a Bitcoin exchange on the JSE, which was turned down.
But Wierzycka believes SygniaCoin could still become competition to the JSE in certain areas.
With regard to the Bitcoin exchange, she said that the JSE’s biggest concern was the absence of a policy framework, as well as the effect on retail investors.
“But the SA Reserve Bank (SARB) and SARS have put those in place. However, they [the JSE] have also publicly admitted that they have no obligation to protect retail investors whatsoever.”
She said there is between R2 billion and R5 billion trades in Bitcoin in South Africa, which take place on an unregulated, untaxed basis.
“We wanted to launch a Bitcoin ETF on the JSE which would have offered complete protection to investors, from both a custody and insurance perspective,” she said.
The exchange would have been a taxable vehicle to the benefit of the revenue service and it would have put the SARB in a position to monitor the flow of cryptocurrency.
“Apart from that, being the first product of its kind in the world, it would have generated a lot of positive publicity for South Africa and attracted a lot of foreign investors.”
Wierzycka claims Sygnia secured more than R1 billion in foreign investment for the JSE exchange before the idea collapsed.
She said cryptocurrencies could feature in some of Sygnia’s products in the future, at a level of 1% and as a diversification tool. But she said the decision would be left to the Sygnia investment team.
The SARB recently launched a financial technology unit to research cryptocurrencies and help it formulate better policy.
But the bank is careful about how it classifies cryptocurrencies and prefers to refer to digital currencies as “cybertokens” at this stage.
Francois Groepe, the deputy governor of the Reserve Bank, earlier told journalists that this was because they did not meet the requirements of being classified as money.
Wierzycka said Treasury had already defined Bitcoin as a digital asset that could be used as a medium of exchange.
“We’re not trying to give Bitcoin credibility,” she said. “Bitcoin has a market capitalisation of more than $200 million and hence it does not need Sygnia to give it credibility.”
However, Sygnia is the first financial services company that will offer cryptocurrencies with all the side benefits that investors expect from a financial services product, including insurance and cybersecurity, she said.
* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.