Bitcoin broke $19 000 last week, and now seems primed for a rush at the all-time high of $20 000 reached in December 2017.
Hardly a week has gone by without a headline screaming ‘New high for bitcoin’.
What explains this phenomenal sprint over the last few weeks?
Jon Ovadia, CEO of crypto company Ovex, sees stark similarities with the run-up in price in late 2017, but also some notable differences: “The difference this time is that we have seen far greater institutional support for cryptocurrencies such as bitcoin from the likes of PayPal, Square [Twitter founder Jack Dorsey’s company] and MicroStrategy. In 2017 it was largely retail investors behind the surge in price. This time around the entire dynamics of the crypto market have changed and we see it entering the mainstream.”
Ovex’s business model is built around two primary offerings:
- An Over-The-Counter (OTC) desk where large buyers of crypto can get fast execution at good prices (not all exchanges have the liquidity to fulfil large orders at speed).
- An arbitrage service where investors can purchase a ‘stable coin’ known as True USD (fully backed by the US dollar) on the overseas market and sell it the same day in SA (usually) at a higher price. Arbitrage is the exploitation of price differences in the same asset on different markets, rather like buying oranges in Limpopo for R1 000 a ton and selling them in Johannesburg for R1 100 a ton. Bitcoin traditionally trades at 3-5% higher on SA exchanges than overseas ones. The same is true of True USD, which means South Africans can profit from this price difference at very low risk. South Africans can use their annual R1 million discretionary allowance and R10 million investment allowance to arbitrage cryptos such as True USD, which is issued by Trust Token, a San Francisco-based ‘stable coin’ platform with a market cap of nearly $500 million.
Ovadia says 2020 has been an outstanding year for Ovex, driven in part by the surge in bitcoin and other altcoins (an altcoin is any cryptocurrency other than bitcoin).
“The incredible price rise in bitcoin has brought greater attention to cryptos in general, and I think we are getting past the point of having to explain to the doubters that this is all going to end in tears. That was a discussion we had a year or two ago. Now we find hundreds of thousands of people have done some research of their own and decided cryptos have an exciting future, and we are just at the beginning of something massive.”
A common criticism of bitcoin is that it is highly speculative and its claim to be the new money is based on hot air. That, too, is based on a misunderstanding of money – which is essentially a means of exchange in which people have confidence.
“Fiat currencies such as the rand and the US dollar are rapidly losing confidence among the people who use them because there is no limit on the amount of currencies that can be issued by central banks and governments. Bitcoin will never issue more than 21 million coins, and there are 18 million in issue as we speak. That is a crucial difference between fiat currencies such as the rand and cryptocurrencies.”
Arbitrage is Ovex’s bread and butter. Volumes shot up during the Covid-19 crisis, and now exceed R2 billion a month, reaching as high as R120 million a day.
How to start
All customers have to go through Ovex’s Know Your Customer (KYC) and Anti-Money Laundering checks. This comprises basically three steps:
- Upload a copy of your ID to the Ovex website
- Upload proof of address
- Provide proof of funds (a Reserve Bank requirement). This means the money you are using for arbitrage trading is your own and not someone else’s (though funds borrowed from a registered financial institution are accepted).
Brought to you by Ovex.