A Beginner's Guide To Investing In Crypto In South Africa

Investing in cryptocurrency in South Africa is a relatively simple process, and with over 47% of South African adults using cryptocurrency, it is a popular way to diversify your portfolio. The South African government does not consider cryptocurrency to be a legal tender, but it is still possible to buy and sell it, and any profits from these trades are taxed. There are several platforms that allow you to buy, sell, and store cryptocurrencies, such as Luno, EasyEquities, and Yellow Card. These platforms offer low fees, security, and user-friendly interfaces, making it easy for anyone to get started with investing in cryptocurrency in South Africa.

Choose a secure platform

When choosing a secure platform to invest in cryptocurrency in South Africa, there are several factors to consider. Firstly, look for a platform with a strong reputation for security. This includes implementing measures such as two-factor authentication, cold storage of assets, and encryption to protect user funds. Additionally, consider the regulatory compliance of the platform. Ensure that the platform is registered with the Financial Sector Conduct Authority (FSCA) and complies with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.

Secondly, prioritise platforms with a user-friendly interface, especially if you are a beginner. A straightforward and intuitive platform will make it easier to navigate and execute trades. Also, look for platforms that offer educational resources and tutorials to enhance your understanding of cryptocurrency and the trading process. This is particularly useful if you are new to the space.

Thirdly, evaluate the range of cryptocurrencies offered by the platform. Consider whether they provide a diverse selection of well-known coins like Bitcoin and Ethereum, as well as emerging altcoins. The more extensive the selection, the more investment opportunities you will have.

Lastly, consider the fees associated with the platform. Compare transaction fees, deposit and withdrawal fees, and account inactivity fees across different platforms. Some platforms may also charge higher fees for credit card purchases or offer discounts for using their native tokens. Choose a platform with competitive and transparent fee structures to maximise your returns.

Register and fund your account

To register and fund your account, you will need to follow these steps:

Step 1: Choose a Cryptocurrency Exchange

Select a reputable and secure cryptocurrency exchange that operates in South Africa, such as Luno, Binance, or Coinbase. These platforms typically offer an easy and secure way to buy, sell, and store cryptocurrencies.

Step 2: Sign Up and Create an Account

Visit the website of your chosen exchange and sign up by providing your personal information, such as your name, email address, and password. You may also need to set up two-factor authentication for added security.

Step 3: Verify Your Account

Most exchanges will require you to verify your account before you can start trading. This usually involves providing proof of identity and proof of residence, such as uploading copies of your ID document and a utility bill.

Step 4: Deposit Funds into Your Account

Once your account is verified, you can deposit funds into your account using a supported payment method. Common payment methods include bank transfers, credit cards, and debit cards. The time it takes for the funds to appear in your account may vary depending on the exchange and payment method.

Step 5: Buy Cryptocurrency

After your funds have cleared, you can start purchasing cryptocurrencies, such as Bitcoin, Ethereum, XRP, or Litecoin. You can do this by placing a buy order on the exchange, specifying the amount of cryptocurrency you want to buy, and reviewing the total cost, including any fees.

Step 6: Store Your Cryptocurrency Securely (Optional)

If you plan to hold your cryptocurrency for the long term, consider transferring it to a secure crypto wallet. This could be a hot wallet, which is connected to the internet, or a cold wallet, which is offline and often considered more secure. Regularly withdrawing your cryptocurrency from the exchange can help protect your investment.

Remember to review the fees associated with each step, as they may vary depending on the exchange and your chosen payment methods. Additionally, always prioritise the security of your personal and financial information when engaging in any online transactions.

Choose your cryptocurrency

With thousands of cryptocurrencies to choose from, it can be challenging to decide which one to invest in. Here are some factors to consider when choosing the best cryptocurrency for your investment portfolio:

• Market Capitalisation: Ranking cryptocurrencies based on market capitalisation is one way to select your crypto investments. Market capitalisation indicates the total value of all the coins currently in circulation. As of September 3, 2024, Bitcoin and Ethereum were the top two cryptocurrencies by market capitalisation, contributing 39.6% and 17.2%, respectively, to the total market cap.
• Total Supply and Current Supply: Consider whether there is a limited supply of a particular cryptocurrency. For example, Bitcoin has a limited overall supply, and as of September 2022, there were only around 1.8 million coins left to be mined. The demand for Bitcoin is increasing, and the limited supply leads to an increase in price.
• White Paper: Every cryptocurrency has a white paper that outlines the details of the coin, such as its purpose, technology, and vision. The white paper can help you evaluate the fundamentals of the coin and determine if the project is realistic and worth investing in.
• Use Cases: The white paper will also mention the coin's use cases, which are essential for driving acceptance among users and investors. The more use cases a cryptocurrency has, the wider its acceptance and the potential for an increase in its value. For example, Ethereum has one of the best use cases due to its smart contracts and non-fungible tokens (NFTs).
• Leadership and Team: The success of a cryptocurrency depends on its leadership team, who make the critical decisions and carry out the vision. Research the team's expertise, track record, and reputation in the industry. Are they personally invested in the project, and do they have relevant experience?
• Community and Following: A cryptocurrency's success is also influenced by its community and following. Look for cryptocurrencies with strong communities and loyal followers, as this indicates a genuine interest and belief in the project. Check out related subreddits, YouTube channels, and feedback from the communities to gauge the sentiment around your potential investment.
• Technology: Understand the underlying technology of the cryptocurrency and how it compares to its competitors. Look for cryptocurrencies with innovative technologies that can disrupt their industry. For example, Ethereum's smart contracts and blockchain technology have made it one of the best cryptocurrencies.
• Credibility and Reputation: Research the credibility and reputation of the cryptocurrency online. Check crypto communities and forums to see what other people in the industry are saying about the coin. Avoid projects that seem like scams or pyramid schemes.
• Volatility: Understand that the crypto market is highly volatile, and prices can fluctuate due to various factors, including world events and tweets from influential people like Elon Musk. Consider your risk tolerance when investing in volatile assets.
• Regulations: Keep an eye on new regulations that could impact the use cases and legitimacy of various cryptocurrencies.

Remember to do your due diligence and research multiple factors before investing in any cryptocurrency. Diversifying your investments across various cryptocurrencies can also help reduce risk.

Store your cryptocurrency in a wallet

Once you have decided to start investing in cryptocurrency, you will need to get a unique address or wallet to store your coins. Your cryptocurrency wallet address is similar to an email address, and people will send cryptocurrency to your wallet address. You can share or publish your wallet address so that people can send you money at that address.

There are several types of cryptocurrency wallets to choose from, each with its own advantages and disadvantages. Here are some of the most common types:

Mobile Wallets

Mobile wallets are applications that you can download on your mobile device, such as a phone or tablet. They are convenient and allow you to access your cryptocurrency on the go. Many mobile wallets also support features such as QR code scanning or NFC "tap to pay", making it easy to use your cryptocurrency for everyday transactions. Examples of mobile wallets include the Luno Wallet, Samourai Wallet, and Edge Crypto Wallet.

Desktop Wallets

Desktop wallets are applications that you download and install on your computer or laptop. They are often more secure than mobile wallets, as they are less susceptible to hackers or malware. Desktop wallets also tend to offer more features and customisation options. Examples of desktop wallets include Bitcoin Core Wallet, Electrum, and Armory.

Web Wallets

Web wallets are online wallets that are hosted by a third-party service provider. They are convenient because you can access them from any device with an internet connection. However, they are also less secure than other types of wallets because they are constantly connected to the internet and may be more vulnerable to hackers. Examples of web wallets include Green Address and BitGo.

Hardware Wallets

Hardware wallets are physical devices that store your cryptocurrency offline, providing an extra layer of security. They are often considered to be the most secure type of wallet because they are not connected to the internet and are therefore not vulnerable to online attacks. Examples of hardware wallets include Trezor and Ledger.

When choosing a cryptocurrency wallet, it is important to consider your needs and preferences. Some factors to consider include security, convenience, supported cryptocurrencies, and additional features such as the ability to buy, sell, or trade tokens. It is also essential to remember that, regardless of the type of wallet you choose, you should always enable two-factor authentication and back up your wallet regularly to protect your investment.

Track your investments

Tracking your investments is an important part of investing in cryptocurrencies. Here are some ways to do this effectively in South Africa:

Use a Portfolio Tracker

Use a portfolio tracker to monitor the growth of your investments and the market. Easy Crypto, for example, offers a portfolio tracker that allows users to make more informed decisions with a detailed overview of their assets' performance. CoinMarketCap also offers a free crypto portfolio tracker.

Disclose to SARS

The South African Revenue Service (SARS) has announced that it is investing in technical expertise to track cryptocurrency transactions. All cryptocurrency transactions must be declared to SARS, including mining activities. SARS does not view cryptocurrency as a currency but rather as an asset, and it will be taxed accordingly. Disclosures are required regardless of whether you hold cryptocurrency on a capital or income account.

Keep Records

Ensure that you keep detailed records of your cryptocurrency transactions, including purchases, sales, and any other relevant information. This will help you when it comes to tax reporting and will also give you a clear overview of your investment portfolio.

Use a Crypto Exchange with Tracking Features

Some crypto exchanges offer features that allow you to track your investments. For example, Easy Crypto offers a platform that allows users to buy, sell, and exchange cryptocurrencies, with the added benefit of being able to track their investments.

Use a Crypto Tax Calculator

A crypto tax calculator can help you track your holdings across multiple exchanges and calculate your tax liability. Koinly, for example, is a cryptocurrency tax calculator that allows users to connect their exchanges and automatically track their holdings.

Frequently asked questions