Bitcoin has climbed above the $11,000 level and leads gains among the biggest cryptocurrencies, as risk assets across Asia, Europe and North America tumbled on escalating trade-war tensions.
According to Gavin Smith, head of Africa at financial advisory firm deVere Acuma, cryptocurrencies can be a lucrative way to invest, provided you follow certain principles.
“The greatest concern is that most governments have not formed coherent fiscal policies for the technology, which makes investors skittish that the trading rules, outright legality or taxation status may change overnight,” he said.
“It is, however, unlikely that these matters will take effect in South Africa, and we believe that returns will continue to be realised in the cryptocurrency space.”
The South African Reserve Bank (SARB) issued a consultation paper earlier this year calling for stricter regulation of cryptocurrencies citing the risk to the public of dealing in an unregulated financial product. Smith explains that, encouragingly, the paper stated that South Africa does not currently intend to ban the buying, selling, holding or making payments with crypto assets.
“They also stated that any increase in regulation pertaining to cryptocurrencies would be carried out in a phased and dynamic manner – suggesting that there won’t be any radical overnight changes,” Smith said.
The status of regulation in South Africa aside, Smith said that investors should exercise healthy caution when considering a cryptocurrency purchase.
He suggests that the following steps should be taken when investing in cryptocurrency:
- Get informed: Don’t enter into the cryptocurrency market without really understanding what you are doing. Cryptocurrencies are complex, but the internet has a wealth of information to help you understand exactly how it all works and how to buy into it. As with any other investment, it is vital you know what you are doing and read all the fine print. The trading environment is completely new to most investors, so be sure you understand how to buy and offload your assets;
- Find a reputable cryptocurrency provider: In August 2018, there were 1,800 recorded cryptocurrencies. It’s unlikely that all of these will continue to grow and evolve in the coming years. Other than Bitcoin, some of the well-known or best-performing currencies include Ethereum, Ripple, EOS and Bitcoin Cash. But you may want to invest in a lesser known currency with greater growth potential. Whatever your investment approach, make sure you have a good reason for why you are going with the cryptocurrency of your choice;
- Take responsibility for your asset’s security: Just like any other asset, cryptocurrencies are vulnerable to theft. As cryptocurrency is digital and decentralised, there is no central bank or broker than you can turn to if your money is accessed by an unauthorised party. You will have a private key (a piece of code) that gives you access to your investment, so this is what you must keep safe. Your cryptocurrency exchange will provide many layers of security to prevent a breach from occurring, but experts recommend that the best way to keep your money safe is to keep your private key in a “cold storage wallet”, which is not connected to the internet and therefore impossible to hack.
“Taking the steps to educate yourself and putting these security measures in place will go long way to ensuring that your investment in this new and exciting asset is safe,” said Smith.
“It’s a brave new world out there, and for the informed investor, there are great returns to be realised by investing in what is becoming universally regarded as the future of money.”