The dark side of Bitcoin in South Africa

Bitcoin, a decentralized digital currency which was launched in 2009, is making headlines as its value hit a record high of $34,792 at the beginning of the year.

Bitcoin, and more broadly cryptocurrencies, is seen by many as the future of the financial world because they are operated by a decentralized authority.

Unlike government-issued currencies, Bitcoin is created, distributed, traded, and stored using a decentralized ledger system called a blockchain.

While many Bitcoin enthusiasts are supporters of the technology, others see it as a store of value and investment opportunity.

The Winklevoss twins, for example, are so bullish on Bitcoin that they predict it will be the best performing asset of the current decade and will disrupt gold as a value store.

With a market cap of just over $500 billion, it has a long way to go to challenge gold, and many well-known investors remain sceptical about Bitcoin’s future.

Billionaire Mark Cuban said Bitcoin has no chance of becoming a reliable currency and that it “it’s a store of value like gold that is more religion than solution to any problem”.

Warren Buffett is also a sceptic, saying Bitcoin basically has no value and “you can’t do anything with it except sell it to somebody else”.

Bitcoin bulls like Twitter CEO Jack Dorsey, investor Peter Thiel, and Fidelity Investments CEO Abigail Johnson are not swayed by the sceptics and believe it offers an alternative to the current financial system.

With the price of Bitcoin increasing by nearly 300% in 2020, interest in cryptocurrencies is increasing and the list of bulls are growing.

South Africans lost millions in Bitcoin investment schemes

The hype around Bitcoin has created the impression of easy financial returns, and many scammers have used this perception to steal people’s money.

The latest example is Mirror Trading International (MTI), where its CEO Johann Steynberg disappeared and left thousands of investors out of pocket.

MTI promised members returns of up to 10% a month, but many observers warned that it was a pyramid scheme and that people will lose money.

The Financial Sector Conduct Authority (FSCA), for example, said the returns on the investments of 10% per month claimed by MTI seem far-fetched and unrealistic.

Despite these warnings, millions continued to flow into MTI until pay-outs started to dwindle and Steynberg disappeared.

Some investors were successful in obtaining a provisional liquidation order against the company, but many people believe MTI members’ Bitcoin is gone.

This is not the first time South Africans have lost money through schemes which promise great returns through Bitcoin investments.

BTC Global, which promised 14% weekly returns if you sent them your Bitcoin, collapsed in early 2018.

Just like with MTI, BTC Global’s alleged founder, Steven Twain, disappeared when the scheme collapsed. He was blamed for the downfall.

The Hawks’s serious commercial crimes unit has launched an investigation into BTC global, but to date not much has come of this.

Vaultage Solutions, a company which was run by CEO Willie Breedt, is accused of stealing millions from investors through a cryptocurrency scam.

According to media reports, Vaultage Solutions received R227 million from an estimated 2,000 investors.

Irate investors were successful in getting Breedt’s bank accounts frozen and having him declared bankrupt, but to date, they have not been able to recover their losses.

Warning from the FSCA

Bitcoin and cryptocurrency scams have become so widespread that the FSCA’s head of investigations and enforcement Brandon Topham issued a warning to South Africans.

“Every crook is using cryptocurrency, so people must be very careful when dealing with anything crypto-related,” said Topham.

He said there are good developments and technologies coming from the crypto world, but because it has limited traceability it is the method of choice for crooks to get away.

He told Business Insider “anything to do with a crypto is highly suspect and nobody should be invested in anything form of cryptocurrency or any of the products that go with it”.

Last month the FSCA published a draft declaration of crypto assets as a financial product under the Financial Advisory and Intermediary Services Act (FAIS).

What this means is that cryptocurrency exchanges, advisors, and brokers will have to become registered financial services providers (FSPs) when the declaration comes into effect.

“Not all players in the field are crooks, hence the need to regulate the advisors and intermediary players in this field,” said Topham.

“Then if people are going to choose to ‘invest’, at least they are using legitimate suppliers.”

It is envisaged that the implementation of the draft declaration will result in improved disclosures about the high risks involved in investing in crypto assets.

It should also ensure that a more robust advice process is adopted when intermediaries decide to advise customers to purchase crypto assets.

Statement in support of the draft declaration of crypto assets as a financial product under the Financial Advisory and Intermediary Services Act.

FSCA’s investigation on Mirror Trading International statement

Now read: Warning to Mirror Trading International members

Leave a Reply

Your email address will not be published. Required fields are marked *