More than 5.8 million South Africans, or just shy of 10% of the population, own crypto assets, with the figure expected to explode to 43% by 2030.

These figures, by Singapore-based blockchain company Triple A, are contained in a new market study into South Africa’s crypto assets market compiled by the Financial Sector Conduct Authority (FSCA), which it published late on Thursday.

The country’s consumers are engaged increasingly in buying and selling crypto assets, including investing in derivative instruments with crypto as the underlying asset, especially given the proliferation of online trading platforms.

But heightened take-up and abuse in the retail market requires a proportionate regulatory response, the FSCA said. In general, governments and regulators are grappling with how to regulate the crypto asset ecosystem, given its decentralised nature and global reach.

There are essentially three approaches, according to the FSCA:

An outright ban: Some countries have completely banned the use of crypto assets. These include China, Algeria, Bolivia and Egypt.
Regulation: Some countries have given legal recognition to crypto assets with licensing restrictions, such as Japan, the US, Canada, the EU and Australia.
Wait and see: Some countries have opted to observe and monitor crypto asset innovation before intervening. Over time, as the regulators gain capacity around crypto and the technology becomes more commonly adopted, policymakers may amend regulations. The Central Bank of Ireland, for instance, does not have specific crypto asset regulation.

In October 2022, the FSCA declared crypto assets a financial product under the Financial Advisory and Intermediary Services Act. Despite this, the FSCA believes crypto investment poses significant risks to consumers. While there is a legal framework in place, it is not necessarily tailored to crypto services providers and the risks specific to the industry. This means any individual or business that provides financial advice or crypto intermediary services – what is typically understood to be a “broker” or “advisor” – must register as a financial services provider.

Read: South Africa’s Revix is now Altify after big crypto merger

In South Africa, the crypto assets regulatory working group of the intergovernmental fintech working group published the final position paper on crypto assets for South Africa in June 2021. The paper signalled a regulatory and policy shift on regulating crypto in South Africa.

Crypto exposure

By highlighting consumer exposure to cryptocurrencies, and in line with risk-based supervision, the FSCA hopes to identify risks that could negatively impact consumer well-being. The information gathered suggests that the majority of crypto asset service providers in South Africa offer financial services by making use of unbacked crypto assets, followed by stablecoins and security tokens.

Other findings include: