Luno, the crypto-exchange backed by Naspers, did not see the bear market of 2018 as the disaster that many others did. It opened an operation in Zambia in April 2019 and plans to open offices in about 10 SADC and East African countries by the end of the year.
In fact, the price decline and subsequent slowdown in trading on the Luno platform gave the startup company time to regroup, invest in its systems and expand — in a measured and controlled fashion.
The bull market of 2017 was fuelled by speculators and media hype, which in turn fuelled the production of more and more digital currencies, 95% of which are dubious, says Marius Reitz, Luno South Africa country manager.
Luno’s platform allows individuals in various jurisdictions, South Africa, Singapore and the European Union among them, to buy and sell just two currencies — bitcoin and etherium.
The company used 2018 to invest in its technology platforms and regulatory compliance. Where crypto regulations don’t exist, which is most jurisdictions, it works with the central banks and complies with the financial laws of that country, such as Anti-Money Laundering and Know Your Customer legislation.
“The uptake of cryptocurrencies has been strong in emerging markets,” says Reitz. “Financial systems are less developed in many emerging markets and moving money across borders is difficult and expensive.”
This is a view shared by Mark Mobius, co-founder of Mobius Capital Partners. Having previously adopted a cautious stance toward crypto, the veteran emerging markets investor told Bloomberg Daybreak Europe recently that emerging markets could be one of the fuels boosting the price of cryptocurrencies.
“There’s definitely the desire among people around the world to be able to transfer money easily and confidentially, and that is really the backing to bitcoin and other currencies of that type, so I believe it’s going to be alive and well.”
Whether he would invest in cryptocurrencies is another question.
“There is an incredible amount of volatility in the price,” he says.
Undaunted by the volatility, this week crypto platform VALR, which is a play on the word valour and which allows customers to buy, sell, store and transfer cryptocurrencies, announced that it was launching rand trading to allow customers to buy and sell bitcoin directly with rand. Customers can start funding their accounts with rand on 4 June, while live trading will begin a week later.
While cryptocurrencies hold the promise of being the most frictionless asset class humanity has seen, institutional money has generally stayed away and asset managers scorn the idea that it could be considered an asset class. The general public, while dipping its toe in at the end of 2017, has not fully understood the power of this technology.
“We’re talking about the first public infrastructure that allows digital peer-to-peer transfer of monetary value,” says Farzam Ehsani, VALR CEO.
“This is seriously significant. Up until now we’ve had to rely on third-party intermediaries to transfer digital value across distances and they have often charged exorbitant rates. Now this can be done near-instantaneously, at a fraction of the cost, without ever touching a financial intermediary. This has huge implications for remittances and payments.”
Financial intermediaries have extracted $1.7-trillion a year (representing about a third of total global banking revenues) from payments, he says. This revenue stream will continue to come under attack and cryptocurrencies will play a significant role in bringing this down.
VALR raised R20-million in July 2018 and launched its digital-asset trading platform on 1 March 2019. It is backed by former FNB CEO Michael Jordaan and US-based Bittrex, one of the largest cryptocurrency exchanges in the world.
The limitations of moving money in emerging markets have also caught the eye of Paxful, the US company that enables buyers and sellers to meet online and trade bitcoins.
Despite the fluctuating bitcoin price, the Paxful marketplace has seen significant growth in digital currency transactions on the African continent in recent years, with the surge largely spearheaded by students and graduates under 25.
“Bitcoin is the most manipulated asset class in the world,” says Ray Youssef, CEO and co-founder of Paxful.
“That is not a good thing. Bitcoin was not meant to be an asset class for rich kids. It is meant to have a social use case.
“In Africa the financial system is broken and thus people have leap-frogged to the forefront of peer-to-peer finance adaptation. It’s not a way to dodge exchange control limitations, but a way around problems.
“This is a way to restart international trade. In 2018, our user base in Africa exploded, with most customers being between 18 and 24. We had to quadruple our support staff,” he said. DM
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