Regulator warns against cryptocurrency schemes after collapse of Bitcoin trader

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  • SA's regulator for financial services has warned consumers not to be pressured into investing in cryptocurrency-related schemes for fear of losing out on the "next big thing".  
  • This follows the collapse of Mirror Trading International, a Bitcoin-trading company that abruptly stopped payments to tens of thousands of investors in December.
  • The FSCA says that, as cryptocurrency investments are not regulated by any official body in SA, investors may have no recourse if things to wrong.

South Africa's regulator for financial institutions has warned investors to be extremely wary of putting their money into cryptocurrency-related investments, saying the high risks already inherent in crypto assets are "further being compounded by scam activity".

Cryptocurrency-related investments – such as Bitcoin - are not currently regulated by any official body in SA.

Bitcoin's price rose sharply in 2020, reaching to all all-time high of above $40 000 (~R598 000) per coin in January this year, before falling to under $30 000 in late January. It has since started to rise again.

The Financial Sector Conduct Authority (FSCA) warned that "if something goes wrong, you're unlikely to get your money back and will have no recourse against anyone".

The regulator said it has been receiving increased queries around cryptocurrency-related investments from investors who lost money through scams "packaged as a crypto investment promising unrealistic high returns", or businesses they simply didn't understand.

In late December the Western Cape High Cape High Court placed Stellenbosch-headquartered Bitcoin-trading company Mirror Trading International into provisional liquidation, after it abruptly stopped paying out returns to tens of thousands of investors.

Illegal, not licensed

This came after the FSCA announced earlier that the trading platform – which promised lavish passive returns to investors – was an illegal operation that was not licensed to offer financial services.

The Hawks have opened a criminal case into MTI, and provisional liquidators have been appointed to try to trace its funds and ascertain the extent of its assets.

Meanwhile, MTI's founder and CEO, Johann Steynberg, has not been heard from for more than a month. On MTI's Telegram channel, used for updates to members, two messages were posted in December, saying Steynberg had left the country and could be in Brazil. There have been no updates since, and Fin24 has been unable to reach Steynberg.

Under pressure  

The FSCA said that, as the popularity of crypto assets increases, consumers must understand that investing in them or firms claiming to specialise in them does not equate to a "sure thing".

"Do not be pressured to go with the flow and do not be afraid of being left out of the 'next big thing'," it said. "There are no safe 'quick-rich' schemes in the world."

It added that many concepts used by multilevel marketers and Ponzi scheme operators are being applied to make potential investors afraid of being "left out".

"In the end there is no guarantee that, when you wish to sell, the sentiment will still exist and that buyers will even exist or be available to acquire the crypto asset from you.

"You are urged to invest with open eyes as to the high risks involved, understanding that these type of investments are not appropriate for the vast majority of the South African population. More appropriate and balanced investment products are available and offered by licensed Financial Service Providers regulated by the FSCA."

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