The value of cryptocurrency as a concept and as an investment vehicle continues to stir debate in South Africa’s financial and investor circles.
All investments carry their own set of risks and reward variables, and with newer investment vehicles like digital currency, the two questions investors should ask are: how much and over how long?
“As with most, if not all investments, research is key and especially so with cryptocurrency, which is still in its infancy,” says deVere Acuma Head of Africa, Gavin Smith.
According to Smith, if one is to invest in digital currencies, 5% or less of an investor’s total portfolio should be allocated to them.
He explains there are individual examples where an investor willing to take the initial risk was handsomely rewarded – Mpho Dagada, is perhaps one of the better known local crypto success stories. Dagada’s initial investment in cryptocurrency in 2014 was R2 780, which grew and made him a millionaire.
Independent research shows that cryptocurrency cannot and should not be dismissed as an investment opportunity, Smith points out.
In a 2017 global cryptocurrency benchmark study compiled by Cambridge University, researchers noted that cryptocurrencies “…have been seen by some as merely a passing fad or insignificant, but that view is increasingly at odds with the data we are observing”.
Smith says that the diversity of products now available also mean that Bitcoin’s dominance is being challenged by the likes of Ethereum and Ripple, which offer a different proposition for investors. Bitcoin, unlike these two, sees itself primarily as an alternative to fiat currency.”
“Ethereum should do well in 2018 as (its) blockchain technology can be applied to other industries and is not only limited to cryptocurrencies,” he adds.
What sets Ripple apart is that it does not have a blockchain but instead uses a ‘global consensus ledger’, which is increasingly used by major global banks and finance houses.
The Cambridge University study also found that as of April 2017, the combined market value of all cryptocurrencies was $27 billion, which represents “a level of value creation on the order of Silicon Valley success stories like AirBnB”.
The current number of unique active users of cryptocurrency wallets is estimated to be between 2.9 million and 5.8 million.
Between 5.8 million and 11.5 million wallets are estimated to be currently ‘active’.
Smith says independent research gives credence to the conviction of the crypto-converts that it will almost certainly play a bigger role in financial systems the world over as well as how societies view money in future. “With this in mind, it is important that investors consider the potential opportunities and the benefit to their own portfolios.”
Recognising the impact of digital currency on individuals and markets, financial regulators and governments are starting to respond, says Smith.
To clarify the tax implications for a crypto-investor, the South African Revenue Service said in April that it would “continue to apply normal income tax rules to cryptocurrencies and will expect affected taxpayers to declare gains or losses as part of their taxable income”.
The taxman further pointed out that the onus was on the “taxpayers to declare all cryptocurrency-related taxable income in the tax year in which it is received or accrued”.
Smith says that with regulation becoming more likely – indeed, the Head of the IMF said it was now “inevitable” — the sector is to mature relatively quickly, offering further levels of protection, and will be viewed by even more investors as a valuable investment proposition.
“Research proves what sentiment cannot: data doesn’t lie. Cryptocurrency will continue to gain traction and should not be ignored when deciding on diversifying one’s investment portfolio,” Smith concludes.
Edited by Daniëlle Kruger
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