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Dawn Ridler, of Kerenga Wealth Ecology, joined OVEX CEO Jon Ovadia to discuss the controversial cryptocurrency, bitcoin. Ridler notes that the cryptocurrency is to be regulated in South Africa, which means that financial advisors will be able to advise on bitcoin. – Jarryd Neves
Dawn Ridler on Bitcoin:
I think blockchain technology is definitely the way of the future. But we do expose our clients – our bespoke clients and specifically offshore clients – to a small percentage of Bitcoin. I was actually in a meeting at the Financial Planning Institute today. Bitcoin is now going to be regulated product in this country, which means that advisors like myself will be able to advise on it.
I think it’s a good way to add a little bit of diversity. It behaves a little bit like gold. It is a sort of alternate asset. I did ask the question – from a tax perspective – is it going to be considered an asset that has capital gains tax or is it going to be considered income? And, apparently the answer to that is it depends on how it’s used. If it’s used as an investment, then it’ll be CGT (Capital Gains Tax) applicable. If it’s used as a currency, then it’s going to be different.
So I think there’s room for it. We’re talking 2% or 3%. We’re not talking about huge amounts of money. Any client that says to me, ‘I want to set up a Bitcoin account’, my flippant answer is I don’t have a gambling license. I’m a financial adviser. But it is becoming more mainstream. It’s now starting to get into solid portfolios. I think it’s got a little bit more upside to it. But, I think it is going to – over the medium-term – continue to be pretty volatile.
Jon Ovadia on OVEX and what they do:
I run OVEX, we’re the biggest cryptocurrency OTC desk and prime brokerage in South Africa. We trade about R4 billion rand per month. Our clients trade through our OTC. This is essentially an exchange similar to Luno. It could be argued that it’s a gambling license. I don’t think so. I think it’s becoming more of a recognised financial product. It’s very exciting that the FSCA is going to regulate cryptocurrency, because currently it is speculative and unregulated, which means that financial advisers aren’t able to advise their clients to invest.
Jon Ovadia on how people are using cryptocurrency:
It’s a dollar-pegged currency. You’re definitely getting a ZAR hedge when you’re buying cryptocurrency. I think that’s a very big use case for it. There’s also a very popular segment of cryptocurrency called Stablecoins, which are essentially pegged one-to-one to the dollar. You can get really high yields – as high as 15-20% – on USD, which is obviously incredible. I think there’s a lot of people doing that. Alternatively, there’s people speculating on the price of Bitcoin, which is up about, I think, 120% percent this year if I’m not mistaken, but up significantly – and it’s going up even more.
Alec Hogg on Bitcoin:
I was at a conference in London and the investigation’s head of the IRS in America and the investigation’s head of their equivalent in the UK [were there]. These guys said that 90% of the trade in crypto is by the underworld. It’s by crime. Now, that’s cool – as long as crime can continue to do this. But the minute that the authorities clamp down on it, it is going to change that market. Perhaps then making it palatable to Roubini and Bill Gates etc.
Jon Ovadia on the illicit use of Bitcoin:
Around 2013 – when Silk Road was taken down – everyone thought that was the end of cryptocurrency, because they seized 300,000 Bitcoin or whatever it was. Everyone thought that was the whole use case. But in reality, that was only about 3% of the Bitcoin use case. Bitcoin continued to flourish and continues to grow. I think we’ll see growth outside of illicit activity, mostly in the hedges to the government and current financial systems – like the US printing unlimited money. You do need some sort of hard currency.
Jon Ovadia on the alternative use of Bitcoin:
In Nigeria – where the government is oppressive – and there were those protests against police brutality, the way they were funding them was often with Bitcoin. So often funding ‘illicit activity’ is a positive for society because the government might not be good.
Alec Hogg on the risks of Bitcoin:
People on Bitcoin have made an enormous amount of money. I don’t know cryptocurrency. All I know is that what was being said by the guys at the IRS, is that there is a lot of illegal activity in it. And when there’s illegal activity – like them or not – the regulators get involved. When the regulators get involved, free markets get affected. I would not dispute that lots of people have made piles of money out of Bitcoin and good luck to them. It’s just too high risk for me, that’s all.
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