Institutional investors in South Africa are considering diversifying their portfolios to include digital assets once the required regulation is in place.
This is according to cryptocurrency expert Simon Dingle, who told MyBroadband that he had seen increased interest from local institutions in adding Bitcoin to their portfolios.
Dingle is the author of In Math We Trust and the founder of cryptocurrency startup Venox, a private digital asset custody and execution company focused on the South African market.
“We are getting an increasing number of calls from institutional investors considering Bitcoin as an asset class,” Dingle said.
However, he said that South African regulation around cryptocurrency investment needs to progress to enable these funds to safely invest in digital assets.
“The regulatory environment locally does not provide them the certainty they require,” he said.
“As soon as we see a firmer regulatory framework for digital assets in South Africa, institutional investors will climb on board as well.”
A small portion in Bitcoin
Dingle said that many of the calls he has been taking have been from local family offices and other investors, who are contemplating their potential returns if they placed just 1-2% of their portfolio in digital assets like Bitcoin.
“There is a realisation that without taking too much risk, you can get a taste for this asset class,” Dingle said.
Bitcoin’s volatility makes it a high-risk investment, but it has seen significant returns since its inception, and therefore a small percentage of an investment portfolio used to buy Bitcoin has the potential to yield great returns.
Dingle said that Bitcoin still has significant room for growth, and noted that as soon as major institutional investors climb into cryptocurrency, others will follow.
“Once the regulatory certainty is there, then the herd mentality and social validation will kick in,” he said. “It will take one big fund to move and then the others will start to follow.”
“There is still such massive room for growth in Bitcoin. If the regulation is there we will start to see it happening.”
He added that Bitcoin’s previous growth spikes may pale in comparison to the exponential growth in value that would result from institutional investment.
“We thought Bitcoin hitting $20,000 at the end of 2017 was unthinkable five years before, but we are now considering numbers many multiples of that for what would happen if institutional money started showing up,” he said.
Further institutional investment in Bitcoin
South African cryptocurrency exchange Luno has echoed this projection, stating that it expects a surge in interest from traditional investors in Bitcoin.
“2020 was the year of institutional investment, with MicroStrategy, Mode, Square and more moving high percentages of their cash reserves in Bitcoin in a bid to hedge against the inflationary potential of fiat currency,” said Luno Africa general manager Marius Reitz.
“Corporations, institutional investors, family offices, and hedge funds all want Bitcoin to diversify their portfolios.”
“While the numbers are small relative to traditional markets, institutional investment will continue to grow as the economic implications of COVID-19 become clearer,” he said.
He added that regulation around cryptocurrency in South Africa is moving forwards quickly, with proposed rules that exchanges be registered as financial service providers (FSPs).
“In South Africa, proposed regulations have been tabled by the South African Reserve Bank and the FSCA recently announced a draft declaration of crypto assets as a financial product, which effectively means that any entity or person who renders intermediary services in relation to crypto-assets must be an authorised financial services provider,” Reitz said.
“Internationally, we expect to see more guidelines come into effect this year.”
“Numerous central banks held talks on central bank digital currencies during 2020, with many now either in the research phase or further along,” he said.
If regulation is promulgated swiftly, a range of traditional investment vehicles in South Africa, from family offices to retirement funds, could have Bitcoin in their portfolio in a few years.