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Preventing South Africa’s next bitcoin Ponzi scheme

get.Africa
Preventing South Africa’s next bitcoin Ponzi scheme
By get.Africa Weekly • Issue #54 • View online
Goeie môre,
That’s “good morning” in Afrikaans
On Friday 29 January, Tesla chief Elon Musk changed his Twitter bio to “#bitcoin”. And almost immediately, the world’s most popular cryptocurrency jumped by as much as 14%.
This latest bull run coincided with events in Musk’s native South Africa that, in contrast, are likely to make local investors and crypto enthusiasts significantly more bearish.
The previous day (28 January) was the deadline set by the authorities to receive comments on a draft proposal that would increase their oversight of not only bitcoin but of all cryptocurrencies.
Tightened grip
One of the biggest misconceptions about businesses in the crypto space is that they are unregulated. 
But in a recent interview, Marius Reitz, head of Luno, the largest bitcoin exchange in South Africa, tries to correct this impression. According to Reitz, Luno is currently registered with the Financial Intelligence Centre (FIC). 
However, it’s the Financial Sector Conduct Authority (FCSA) that wants more control. Their proposal includes:
  • Increasing the barrier to entry: All crypto service providers, including exchanges, advisors, and brokers must be authorised as financial services providers.
  • Recognition: Cryptocurrencies will be recognized as a financial product.
Although, what kind of financial product — whether a currency, security, a commodity, or something new — will become clearer in the coming months.
Narrow scope
One thing that is clear right now, however, is that the FCSA wants to clamp down on crypto scams, like the one involving Mirror Trading International (MTI).
MTI was a multi-level marketing (MLM) investment scheme that used bitcoin as its base currency. The company traded on its member’s behalf and distributed profits on a fixed basis.
By November 2020, they had amassed over 280,000 members and were controlling up to 17,000 BTC (approximately $403.8 million).
Then in December, something happened. The company’s CEO went AWOL, along with the funds of MTI’s members.
He hasn’t been seen anywhere since. (Full story)
Unsurprisingly, the calls for bitcoin regulation have grown louder since that incident. 
But there’s a note of caution: The proposal in its current form is more likely to make it harder for the next Luno to grow than it is to stop the next MTI scam from taking place.
That’s because a significant number of crypto companies operate in regulatory grey areas not by chance but by design. Case in point, as big as MTI got, they were never fully registered under the existing regulatory framework. 
The onus, therefore, remains on the consumer to separate the Lunos of this world from the MTIs. 
As a rule of thumb, any provider that’s either building multi-level marketing (MLM) systems backed by crypto or is offering fixed returns on crypto investments is suspect. 
Bitcoin is a speculative investment, whose value can change with something as unpredictable as a billionaire changing their Twitter bio.
It’s, therefore, improbable that anyone can build a successful MLM business or consistently offer fixed returns on an asset that’s that unstable.

get.Africa is a weekly roundup of the most interesting stories in African tech. To support, follow us on Twitter, subscribe to our YouTube channel, share this issue or send us an email. You can also check our archives.
Credit: Chris J. Davis (@chrisjdavis)
Credit: Chris J. Davis (@chrisjdavis)
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