Words on Wealth:
In December 2017, cryptocurrency Bitcoin soared to a price of $19783 (R345 413). That represented the peak of what is now regarded as the Bitcoin bubble. The price then plummeted - it lost a third of its value (to about $13 000) within five days and then halved and halved again over the following 12 months. In December 2018, it reached its post-bubble low of $3300, about one-sixth of the 2017 high.
The subsequent ride hasn’t been a smooth one - it hit another bubble-like high (about $12 000) in the middle of last year, before dipping to below $5 000 in March this year. But since the pandemic hit, Bitcoin has climbed steadily, mirroring the rise in the gold price, to more than $11 000 at the time of writing.
After those initial big pendulum swings, is the cryptocurrency stabilising?
Joanna Ossinger, writing for Bloomberg, says there are signs that this may be the case. “There are indications the increase might be more sustainable this time around, with advocates pointing out the advantages of an alternative form of money while governments ramp up stimulus in the wake of the coronavirus pandemic,” she says.
The first sign is that there is increased interest from big institutional investors such as retirement funds, which maintain high fiduciary standards.
Ossinger quotes Henri Arslanian, PwC’s cryptocurrency expert in Hong Kong: “Institutional investors now are able to get access to digital assets via multiple players that are regulated, of institutional grade and that would pass any operational due diligence test of any institutional investor. This was not the case 18 months ago.”
The second sign is Bitcoin’s rise in value after its “halving” in May. “Halving” is an inherent feature of Bitcoin embedded in its code whereby, after every four years or so, the number of Bitcoins the miners of the cryptocurrency receive in reward for their efforts is halved. Without getting into technicalities, this limits supply, pushing up demand. For each of its two previous halvings, in 2012 and 2016, the price rose immediately thereafter.
Third, there’s a demographic trend, notes Ossinger. She says investment firms such as JP Morgan are seeing millennials supporting Bitcoin as a safe-haven asset in the same way that their parents and older generations have done with gold.
Regulation
By their ethereal nature, cryptocurrencies circumvent state control over a nation’s money supply and tax base. Governments will increasingly act to re-exert their control - our government has a working group looking specifically at the regulation of cryptocurrencies.
Regulation also functions to protect the public, so measures that give consumers added protection in the crypto space are likely.
Caryn Leclercq of Caveat Legal says the recent release by Treasury of proposed amendments to the Financial Intelligence Centre Act (Fica) “marks the first real step taken by government in achieving its stated aim of implementing a proportionate and appropriate regulatory approach to crypto assets”.
In her article on the Bizcommunity website, “And so it begins: steps towards crypto-asset regulation in South Africa”, she says the amendments seek to include certain crypto-service providers into the ambit of the definition of “accountable institutions” under Fica. “Such companies would be obliged to register with the FIC, conduct extensive customer due diligence, keep records in the prescribed manner and form, maintain detailed risk management compliance programmes, and comply with reporting obligations, in addition to already existing obligations such as the reporting of suspicious transactions.”
Leclercq says a positive aspect of this is that compliance “may be just the way to help build the reputation of a crypto business as a trustworthy crypto-assets platform or service provider”.
CRYPTO SECURITY TIPS
Although a Bitcoin itself cannot be stolen, your private key that opens your digital wallet can. Oliver Noble, an encryption specialist at encryption software producer NordLocker, says developing some basic cybersecurity habits will help to protect you.
- Don’t talk online about your cryptocurrency. “Social media platforms and online forums are places where messages about having something in your digital wallet can draw unwanted attention and make you a target.”
- Use advanced protection for your private keys. There are many different ways to keep your private keys away from prying eyes, but one of the safest methods is to keep them encrypted.
- Split your cryptocurrency assets among different wallets.
- Use a virtual private network (VPN) when making online transactions. “Public wi-fi and cryptocurrencies don’t go well together - free networks are often unsafe and allow hackers to access your private data, including your digital wallets,” Noble says.
- Use two-factor authentication for enhanced security.
PERSONAL FINANCE