Crypto: The hype, the profits, the fundamental challenge

Recent headlines around cryptocurrency have steered away from its mesmerising mystery and shed light on the inevitable risks surrounding an unregulated financial asset.

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From Ponzi schemes to hacking teams, cryptocurrencies have made the news for all the wrong reasons over the past few months, begging us to ask the question: Where is our beloved bitcoin heading?

Looking at other groundbreaking innovations for reference, there will always be two sides to the coin. An innovation like the internet gave us access to a world of knowledge, but opened up a gateway for the dark web. Similarly, the downfall of artificial intelligence (AI) is that it infringes on our privacy, yet it has the potential to significantly improve our lives.


Most technology isn’t inherently good or bad, but both. The important thing is to identify, recognise and address its risks in order to manage its impact on society. In the case of cryptocurrencies, it’s fortunately quite clear that all the major risks associated with it can be addressed through one key point of action: regulation.

Cryptocurrencies and those who provide advice on these digital assets need to be regulated by the Financial Sector Conduct Authority (FSCA) as soon as possible. The issue that we currently have in this unregulated industry is that anyone who wants to invest in cryptocurrencies needs to do extensive and vigorous research before they are able to do so.

In April, the Intergovernmental Fintech Working Group released a position paper on crypto assets to provide specific recommendations for the development of a regulatory framework for crypto assets in South Africa. One of the objectives outlined in this paper was that a regulatory framework for cryptocurrencies should also ensure consumer and investor protection, which includes financial consumer education.

Unfortunately, anything that links cryptocurrencies to something sinister decreases the momentum on the mass adoption of the technology.

We want to ideally move into a space where cryptocurrencies are regulated, so that people are able to embrace the technology for investment or practical use without being afraid of fraudsters.

Once cryptocurrencies and virtual asset service providers (Vasps) are regulated, the regulations will require businesses that operate in the industry to be audited. This will add to the credibility of the industry and build the required trust.

From an investment perspective, trust is everything.

Clients trust their asset managers to know the difference between a good investment and a scam. The first and lowest hurdle to clear when considering an investment opportunity is whether that investment is regulated. 

The requirements of most businesses and individuals operating in this industry that I have spoken to rest on two specific goals:

  • Regulation of the environment, and
  • Education of the general public.

While experts work on drawing up a regulatory framework for crypto assets, education on good practices by Vasps is vital.

Cryptocurrency, like any technological advancement, comes with both highs and lows. Its potential is endless, but its current pitfalls are unavoidable.

Red flags

If you are new to cryptocurrencies, here are 10 red flags to look out for:

  1. White papers or investment methodologies that are extremely difficult to understand and follow.
  2. Complex and vague explanations of the investment opportunities.
  3. Promises of guaranteed returns that seem unrealistic.
  4. A countdown clock with a deadline not to miss a once-in-a-lifetime opportunity.
  5. Phrases that link wealth generation to short timelines, such as ‘Your money should work for you’.
  6. Attractive pictures of luxury cars, beaches and so on.
  7. Poorly-built presentations asking you not to contact the company involved, but rather the person you received the presentation from.
  8. Bogus testimonials on websites that create the illusion of credibility.
  9. Fictitious teams or employees who cannot be found on LinkedIn.
  10. Income that is not predominantly generated by the growth of your investment, but from a referral fee.

Five tips when investing

If you are familiar with cryptocurrencies or are planning to invest through a Vasp, here are five tips to take note of:

  1. Never give out your password.
  2. Beware of phishing emails that require you to update information or log into bogus sites that look like your Vasp’s site.
  3. Do your homework and look for a reputable service provider with a proven track record that can be trusted, such as Luno or Revix.
  4. Do a Google search – as easy as that!
  5. If you manage your own public and private key, follow best practice in ensuring that your private key is stored safely.

Read: SA crypto pioneer Luno finds a US buyer

Security is everything, whether you safeguard your own crypto or make use of a Vasp.

Wiehann Olivier CA (SA) is a partner at Mazars South Africa.