The Ultimate Guide: Investing Bitcoin In South Africa

Bitcoin is a decentralised digital currency that has been steadily rising in value over the years. In South Africa, the cryptocurrency is regulated by the Financial Sector Conduct Authority (FSCA) and taxed by the South African Revenue Service (SARS). There are several ways to buy Bitcoin in South Africa, including through a Bitcoin exchange, a credit or debit card, or a Bitcoin ATM. When choosing a Bitcoin exchange, it is important to consider security, support assets, payment methods, fees, and customer service. Some popular Bitcoin exchanges in South Africa include Luno, Binance, Coinbase, and Yellow Card. It is also important to store Bitcoin securely in a wallet, such as a desktop wallet, mobile wallet app, web-based wallet, hardware wallet, or paper wallet.

Bitcoin exchanges in South Africa

A bitcoin exchange is a website that facilitates the process of exchanging your Rand for bitcoin with other users. If you want to invest in bitcoin, the best place to do that is at a bitcoin exchange.

On a bitcoin exchange, you are not actually buying the bitcoin from the exchange itself. Instead, you are trading with other users who are putting their bitcoin up for sale. The exchange acts as a middleman, ensuring that sellers get their Rand, and buyers receive their bitcoin.

Some of the most popular bitcoin exchanges in South Africa include:

• Luno: Luno is a leading crypto investment application that allows users to buy and store crypto securely. Luno has a global presence, including South Africa, the United Kingdom, and Malaysia. With Luno, security is a priority, offering access to cryptographically secure Multi-Factor Authentication. The minimum deposit to open a Luno account is USD 10 / R188 ZAR.
• Binance: Binance is a popular global cryptocurrency exchange, trusted by millions of users. Binance offers access to Research, an open-access learning hub, and is highly committed to user protection. The minimum deposit to open a Binance account is USD 10 / R188 ZAR.
• Coinbase: Coinbase is a trusted crypto exchange that is used by millions of users worldwide. Coinbase users are allowed to engage with crypto assets, including trading and staking. Coinbase does not require a minimum deposit to open an account.

It is also possible to transfer funds from any of the major financial institutions in South Africa to a Bitcoin exchange and to start trading as soon as the funds are cleared.

Bitcoin wallets

A Bitcoin wallet is an application that functions as a wallet for your cryptocurrency. It is similar to a physical wallet that holds cash and cards, but instead, it stores the passkeys you use to sign for your cryptocurrency transactions and provides an interface that lets you access your crypto.

There are several different types of Bitcoin wallets, each with its own features and levels of security. The main categories are:

• Hot wallets: These remain connected to the internet. They are generally easy to use and convenient, but this also makes them more vulnerable to hacking. Examples include web wallets, desktop wallets, and mobile wallets.
• Cold wallets: These function primarily offline and are considered highly secure and virtually impervious to hacking. They tend to require more technical know-how and are suited for more experienced users or those with large amounts of assets. Examples include hardware wallets and paper wallets.
• Custodial wallets: These require users to safeguard their private keys.
• Non-custodial/self-custody wallets: These entrust the security of private keys to a third party, usually a crypto exchange.
• Luno: A leading crypto investment application that allows users to buy and store crypto securely. Luno offers cryptographically secure Multi-Factor Authentication.
• Binance: A popular global cryptocurrency exchange, trusted by millions of users. Binance offers access to research and an open-access learning hub.
• Coinbase: A trusted crypto exchange used by millions worldwide. Coinbase allows users to engage with crypto assets, including trading and staking.
• Best Wallet: Tops the list due to its ability to store coins and tokens from various blockchains and seamlessly swap them. It comes with multiple unique features, including a cutting-edge experience while supporting several blockchain networks.
• Zengo: A popular crypto wallet in South Africa thanks to its focus on user security. Users can buy, sell, and trade over 120 cryptocurrencies seamlessly.
• Ledger: Known for its high-security hardware crypto wallets, Ledger is compatible with over 5500 cryptocurrencies. Security features include PIN-protected transactions and a 25-word passphrase.
• Trezor: A well-known hardware wallet.

It is recommended to research all crypto wallet options and read reviews to find one that fits your needs and provides a high level of security to protect your digital assets.

Bitcoin as an investment

Bitcoin is a risky and volatile asset, but many investors in South Africa are attracted by the potential for high returns. The price of Bitcoin has been rising steadily over the years, and as it becomes more mainstream, more and more people are eager to invest.

How to Invest in Bitcoin in South Africa

The simplest way to invest in Bitcoin is to buy some on a Bitcoin exchange. You can also buy bitcoins in South Africa by doing face-to-face trades with sellers who prefer to meet in person.

Choosing a Bitcoin Exchange

When choosing a Bitcoin exchange, consider the following:

• Security and regulation
• Available support assets and payment methods
• Fees and customer service

Some popular Bitcoin exchanges in South Africa include:

• Luno
• Binance
• Coinbase
• Yellow Card

Choosing a Bitcoin Wallet

Once you have bought your Bitcoin on an exchange, it is wise to withdraw it from the exchange and store it securely offline. There are several types of Bitcoin wallets to choose from:

• Desktop wallet
• Mobile wallet app
• Web-based wallet
• Physical hardware wallet
• Secure paper wallet

How Much to Invest

There is no minimum investment amount for Bitcoin, but to see any real return on your investment, you should invest enough to make it worth your while. Since the price of Bitcoin is volatile, it is not recommended to invest money that you will need in the foreseeable future. Most people agree that to see the best benefits, a Bitcoin investment should be considered a long-term investment.

Dollar-Cost Averaging

Investors in Bitcoin often use a technique known as Dollar-Cost Averaging (DCA) to protect themselves against fluctuations and downside risk. They do this by buying fixed amounts of Bitcoin on a regular schedule, regardless of the price. For example, you might buy R5000 worth of Bitcoin on the first day of every month. This would mean that you would purchase more Bitcoin when the price is lower and less Bitcoin when the price is high, but always the same fixed currency amount.

Bitcoin is sometimes referred to as 'digital gold' and, like gold, it is seen as a store of value due to its usefulness and scarcity. For centuries, gold has been considered a valuable investment, and now Bitcoin is starting to be seen in a similar light.

However, it is important to remember that no one can predict the future, and since Bitcoin trades like a commodity, it is possible to make a great profit or a huge loss, depending on when you buy and sell.

Bitcoin and taxes in South Africa

The South African Revenue Service (SARS) considers Bitcoin and other cryptocurrencies as "assets of an intangible nature" rather than currency or property. This classification influences the taxation of crypto transactions, although comprehensive guidance on crypto taxation is yet to be released. SARS has increased scrutiny of crypto transactions as part of its effort to establish a more robust regulatory framework for fintech.

If you have capital gains from your investments, you may exclude the first R40,000. After this exclusion, 40% of any remaining gain is taxable for individuals who are taxpayers. SARS considers crypto-to-crypto trades and payments for goods or services as barter transactions, taxing any resulting profit as capital gains at a rate of 18%.

SARS has been granted a wide range of collection powers in terms of the Income Tax Act. This includes the requirement for third-party service providers to submit financial data if called upon, both locally and abroad. Therefore, if you have an account with a South African cryptocurrency exchange, SARS will likely be able to access your data.

The onus is on taxpayers to declare all crypto-related taxable income in the tax year in which it is received or accrued. Failure to do so could result in interest and penalties. Income received or accrued from crypto transactions can be taxed on revenue account under "gross income". Alternatively, such gains may be regarded as capital in nature and taxed under the Capital Gains Tax (CGT) paradigm.

SARS also provides guidance on acceptable crypto accounting methods, recommending a First In, First Out (FIFO) approach. The agency has expanded its cryptocurrency audit and detection services, warning taxpayers of potential penalties for treating crypto transactions inconsistently with South African tax laws.

Bitcoin's legality in South Africa

Bitcoin and other cryptocurrencies are legal in South Africa, and the country already recognises them as an investment and taxable asset. However, the South African Reserve Bank (SARB) does not consider them legal tender, and they are not regulated by the country's financial authorities.

The SARB issued a white paper in 2014 outlining its position on cryptocurrencies, which it called "virtual currencies" (VCs) and "decentralised convertible virtual currencies" (DCVCs). The white paper states that cryptocurrencies are not legal tender and that the SARB does not regulate them. It also notes that the use of Bitcoin and other cryptocurrencies to make payments is not recognised by law, and merchants are allowed to refuse payment in Bitcoin.

Despite the lack of specific regulation, the South African government has indicated that it will start testing several regulations relating to Bitcoin and cryptocurrency. The South African Financial Sector Conduct Authority (FSCA) has also proposed that crypto assets be considered "financial products" and has published a draft declaration to that effect. This would mean that financial advisory and intermediary services relating to crypto assets would need to be provided by licensed financial services providers who comply with relevant FSCA requirements.

In addition, the SARB is considering introducing a state-backed cryptocurrency, also known as a "central bank digital currency" (CBDC). It has allowed private companies to experiment with cryptocurrency use cases under regulatory supervision.

While it is legal to buy, sell, and trade Bitcoin in South Africa, there are some risks associated with the lack of regulation. There is currently no investor protection or recourse available for those who lose money due to fraud or other criminal activities.

Frequently asked questions