South Africa Bitcoin ETF a step closer – but hurdles remain

After two failed attempts, a Bitcoin or other cryptocurrency exchange-traded fund (ETF) could be possible in South Africa following the approval of such an ETF by the Securities and Exchange Commission in the United States. 

Earlier this month, US regulators, for the first time, approved exchange-traded funds that invest directly in Bitcoin. 

This raised interest from South Africans regarding the potential launch of a Bitcoin ETF listed on the JSE. 

Sygnia has been refused twice by the JSE regarding the listing of such an ETF on the exchange on the grounds that no national policy exists to guide the listing of crypto assets.

The asset manager first applied to the JSE to list a Bitcoin ETF in mid-2018 but was refused, with its second application turned down in 2021. 

Sygnia said it would keep trying to list a Bitcoin ETF on the JSE and lobby the exchange and regulators to devise a framework to enable the listing of cryptocurrency assets. 

A director and co-owner of etfSA Portfolio Management Company, Nerina Visser, in response to queries from investors, raised the lack of a regulatory framework again. 

“The Financial Conduct Authority (FSCA) must still finalise the Financial Advisory and Intermediary Services (FAIS) regulatory framework for cryptocurrencies. Until this is in place, we can’t expect a listing on the JSE,” she said.  

Daily Investor reached out to the FSCA regarding the finalisation of the FAIS regulatory framework with specific regard to cryptocurrencies. 

In October 2022, the FSCA declared crypto assets as a financial product, which meant that any company seeking to provide a financial service with crypto must be an authorised financial services provider (FSP) and comply with the FAIS Act. 

Following a transitional period where companies only had to comply with certain provisions of the Act, the FSCA mandated full compliance with FAIS from 1 December 2023. 

However, there are still regulatory hurdles for companies before a crypto ETF can be listed. 

The FSCA said that the current regulation of crypto assets does not automatically nor necessarily apply to ETFs, as the latter would still need approval in terms of the Collective Investment Schemes Control Act (CISCA).

To better understand the cryptocurrency space in South Africa so that it can be adequately regulated, the FSCA conducted research through 2022 and published its Crypto Asset Market Study in 2023. 

A particular focus was the analysis of crypto asset-related activities performed by FSPs in South Africa. 

Data from the study suggested that the majority of FSPs in South Africa provide financial services by making use of unbacked crypto assets (60%), stablecoins (26%), security tokens (7%), and NFTs (4%). 

However, the FSCA said the study did not yield sufficient information regarding cryptocurrency ETFs. 

“The absence of data on cryptocurrency ETFs highlights the evolving nature of the digital assets space, where certain segments may still be emerging or experiencing limited visibility (low awareness),” the FSCA said. 

“This outcome emphasises the need for ongoing exploration and monitoring of the cryptocurrency landscape to keep pace with its dynamic and rapidly evolving nature.”

The regulator warned that crypto assets are highly volatile and are susceptible to fraud and facilitate cybercrimes. If used properly, however, the technology behind crypto can add value, it said.