A regulated cryptocurrency product, a solution to the public – Jaltech’s Gaurav Nair

Jaltech co-founder Gaurav Nair shared his insight into regulated cryptocurrency products, the first of its kind in South Africa. It has been the Achilles heel of all financial advisers in recent months, with the rise in popularity of crypto. However, the financial services watchdog in South Africa – the FSCA – has stated on several occasions that the asset class is not regulated in South Africa. Although, it has announced its intentions for this to change in time. Jaltech has created a financial instrument that gives investors exposure to either Bitcoin, ether or a diversified basket of cryptocurrencies in a regulated environment, a solution to a problem faced by many financial advisers. The rest of the details and fees are outlined during the conversation. – Justin Rowe-Roberts

Gaurav Nair on Jaltech’s background and service offering: 

Jaltech is an alternative investment management company. We have two major services. One is we do fund administration for fund managers; companies that manage money, we do all their back office and reporting, compliance, etc. Then our business that faces a lot of retail customers is we invest into alternative assets. These are not your usual listed equities or listed bonds or money markets. We had quite a bit of success with Section 12J, which was a tax incentive that ran up till 2021. We manage about R1.6bn of the public’s money in that space.

On offering a regulated cryptocurrency investment product: 

I guess the fact that this is an unregulated asset in South Africa means that for many investors, they can’t turn to their usual trusted adviser. The space is complicated and investors don’t have the time while keeping their job to spend hours and hours researching and understanding it. Normally, they go to their financial adviser. But since the FSCA – the regulator – hasn’t yet created a licence category for the financial advisers – who normally do this due diligence and research – a lot of advisers can’t actually advise on it just yet. FSCA said they’re going to do this at some point, but until then, the space is growing and many investors want to get into the space. Investors there are also left in quite an awkward position. They have to go to firms that don’t have any regulations and we’ve seen some of the crazy scams of MTI and Africypt. So, we want to present a solution to the public. The way we did this is we created a public RF company. Now, this doesn’t mean that it is listed but it is public, and that means there are extra levels of governance, transparency and reporting that we have to do. We issued a prospectus that was approved by CIPC. The other thing is that we made these investments into debentures. Debentures are just unsecured debt investments. But the important point about this is that financial advisers – they can advise on debentures – and we have a legal opinion from a leading law firm that says so. However, they don’t just need to have the relevant licence to advise on debentures. They should have some working knowledge of cryptocurrencies because that’s the underlying exposure the investor will have. We’ve got three investments right now that are all debentures or notes as we call them. There’s a bitcoin note; it’s in this regulated investment of this public investment and they just get exposure to the bitcoin price. There’s an ether note, which gives the same exposure to the ether price. And finally, there’s a note that provides an index, a diversified basket of cryptocurrencies.

On why an investor should have exposure to cryptocurrencies: 

The main reason investors should be investing in crypto is that the blockchain technology created with bitcoin has amazing applications and is going to revolutionise a lot of things we do. I’ll just talk about some of these features. One is that these blockchain networks are totally decentralised, and that means it makes them robust or immune from hacking. For someone to hack, they have to hack millions of computers round the world because they are decentralised. The other thing about these blockchain networks is that they’re very robust. They just keep going 24/7. A few months ago, we had the JSE having its largest trading day and then the next day they opened late. Still, kudos to them because they are running on an old system. But with blockchain, even with ether or bitcoin dropping 50% in July, huge volumes went through and it didn’t go down for a second. That’s one of the advantages of the technology. Then there are these automated transactions called decentralised finance, where you have exchanges, banks and insurance companies running in a totally automated way. No humans, just code and the whole system involves no trust. If you imagine all of these uses –and there are many more uses that are going to be discovered – the technology is going to revolutionise a lot of things.

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