CRYPTOCURRENCY REGULATION IS ESSENTIAL
REGULATING cryptocurrencies is the next logical step as the asset class gains popularity and consumer protection become necessary. I recall some years ago in the UK seeing people tap their bank cards at coffee shops to pay – quite mind-blowing at the time. Today, I do the same to buy some plugs for my office.
The world is different in how we are able to operate, and digital currency is changing the game even more and will soon become the norm. For some, it already is.
With a recent Luno survey quoting 74 percent of South African respondents as saying they’d like the option to pay for goods with cryptocurrency, the days of an entirely unregulated system are numbered.
There will be a unanimous favouring of regulation. It will allow for cryptocurrencies to be used in the financial system properly, and fairly.
This is in strong contrast to the current scenario where there is no guarantee as to the origin of funds, and the situation is a gift for anyone who wants to transact without attracting the attention of the authorities. Legislation will hopefully discourage those buying illegal or secret goods, and the like.
The first phase of the proposals – to get everyone on the book and registered if offering crypto-asset services – is a good start, and I believe new regulations will align well with the current overhaul by the Financial Services Conduct Authority that is reshaping how financial services will be going forward. Crypto-assets should have a place in the future portfolio asset mix.
Regulation is highly unlikely to affect the value of cryptocurrencies. With the value of an instrument based on supply and demand, as well as the intrinsic value given by an investor, the regulations could actually have a stabilising effect on the currently volatile cryptocurrency market space.
In terms of taxation, the crypto space will eventually fall under the watch of the SA Revenue Service (Sars). The reality is that almost all countries are struggling to find money for their fiscus.
There is already a lot of upset about cross-border taxation, with multinational companies moving profits into countries that are lowtax jurisdictions. Understandably, global tax authorities are looking to clamp down on this, to make sure companies pay their portion of tax.
It is therefore again almost certain that cryptocurrencies will be taxed in the future. There is no way the government can afford to lose a potentially significant taxable flow.
It is likely that if you transact in a cryptocurrency in South Africa, you will be taxed locally, but you will have to transact in a regulated, or authorised currency, or you could be going against current Sars rules.
When cryptocurrencies are regulated, they will be seen as the same as any other asset, and in the case of divorce or death, for example, would be a mess to sort out without some legal framework in place, so regulation can only improve realities.
I agree with the phased approach motivated by the regulator to applying regulation to cryptocurrencies, keeping an eye on how other jurisdictions are dealing with the process. There will be challenges, and while it will take time, it’s clear that cryptocurrencies will be regulated sooner or later, and it will be interesting to see how the regulator determines the best way.