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Stick with credible operators, say crypto providers in response to FSCA health warning

FSCA says it has over 170 open investigations on the go, many related to possible crypto scams.
Image: Shutterstock

The Financial Sector Conduct Authority’s (FSCA’s) latest health warning on cryptos comes amid a flood of complaints from investors who lost money or were scammed, says head of enforcement at the regulatory body, Brandon Topham.

“We have more than 170 open investigations, not all of them involving crypto,” he told Moneyweb.

SA has become an international hub for crypto scams, many of them like the now collapsed Mirror Trading International (MTI), promising returns of up to 10% a month.

Ironically, investing in cryptos like Bitcoin would have yielded gains of more than 300% over the last year without having to invest in what purports to be guaranteed get-rich-quick schemes. Bitcoin, like most cryptos, is extremely volatile, with 30% to 50% drawdowns not uncommon.

Some crypto operators took umbrage at the generalised health warning from the FSCA and its blanket warning against cryptos. Others welcomed it.

The FSCA’s notice, published on Thursday, reads: “Recently, following the high volumes of complaints to the FSCA and regular media reports of consumers losing some if not all of their savings in high-risk crypto investments as well as crypto-adjacent scams, a crypto health warning was published to the public, highlighting the risky nature of these crypto assets/products, services and scams.

Crypto exchange iCE3x suspends trading after discovering account discrepancies
MTI placed in provisional liquidation and damage could be huge
Finalmente Global placed in final liquidation as MTI dominoes start falling 

“The FSCA would like to emphasise, crypto-related investments are not regulated by the authority or any other body in South Africa. As a result, if something goes wrong, you are not likely to get your money back and will have no recourse against anyone.

“The high risks already inherent in crypto assets is further being compounded by scam activity, as well as unregulated firms targeting consumers with marketing material that highlights the rewards, but not the potential downside, of investing in crypto.”

Moneyweb asked for reaction to the FSCA warning from several crypto executives:

Dean Joffe, director at crypto investment company BitFund, says it’s clear that the FSCA is seeking to regulate crypto assets in South Africa after the collapse of MTI in December 2020. “We welcome this and are very much in favour of controlled and well governed market participants, particularly those that interact with consumers who are potentially vulnerable or incompletely informed.

“While regulators are highlighting the risks associated with crypto assets to consumers, it is imperative to educate consumers and provide effective regulatory frameworks to protect stakeholders, without stifling innovation.

“Unfortunately, scammers are using the disguise of crypto assets to exploit people, and it is therefore important that regulators and stakeholders educate consumers, to look out for potential scams.”

Joffe says BitFund, which allows investors to invest in unit trust-type portfolios of cryptos, or their own, aims to mitigate the risks associated with acquiring and owning crypto assets. “Buying, selling, rebalancing and storing crypto assets requires technical knowledge, know-how, access to multiple exchanges for best execution, and an understanding of the price risks, which many consumers are not aware of. As a result, consumers are often susceptible to losses when buying, selling or attempting to store their crypto assets. Companies like BitFund help consumers invest in a wide variety of crypto assets, on a single platform as opposed to multiple exchanges, to safely store the underlying crypto assets so as to avoid certain risks.”

This gives investors a way to gain exposure to the assets without the various ancillary, and avoidable, risks.

Joffe says while BitFund welcomes any proposed regulations – which provide even more legitimacy to crypto assets – it is important to ensure that the regulations do not stifle innovation, create regulatory arbitrage, or lead to innovative start-ups leaving South Africa.

With the move of companies such as MicroStrategy, Tesla, Square and LSD Information Technology into adding crypto assets to their balance sheet, the FSCA has many stakeholders to engage with, before appropriately regulating this asset class, adds Joffe. “We remain open to any regulations which drive the legitimacy of crypto assets forward, allowing for innovative companies to build out their technology, in order to provide consumers with greater access to financial markets.”

Jon Ovadia, founder of crypto arbitrage and investment company Ovex, says the FSCA warning is “fair and in good spirit. Unfortunately, there are very bad actors in the space, and the issue with cryptocurrency is that once the transaction is done it is almost impossible to undo.

“For these reasons consumers need to make sure they know exactly what they are doing, and be sure that what they are doing is safe.

“At Ovex, we can’t wait for regulation to come out, to weed out the bad actors and allow for institutional money to move in. We’re working hard to figure out how to create a regulated cryptocurrency product that will please the regulators and institutions.

“I agree when an opportunity seems too good to be true it probably is. Ironically the cryptocurrency arbitrage at face value seems too good to be true. However, the opportunity is easily verifiable. I’d suggest anyone investing money should make sure they understand the mechanics of their investment.”

In the case of crypto arbitrage, the potential returns are limited by the foreign exchange control laws which limit the upside potential, adds Ovadia.

Farzam Ehsani, co-founder of crypto exchange VALR, says the FSCA health warning emphasises the need for crypto investors to engage with reputable platforms, and understand the risks in this volatile asset class.

“Unfortunately, there are those in society who prey on the uninformed, whether the illicit schemes happen to be in FX, crypto or otherwise. The danger doesn’t lie in crypto itself – the asset class has had a stellar performance in the past year – but rather in the individuals that defraud unsuspecting investors in the name of crypto. As the FSCA statement says, ‘if it sounds too good to be true, it usually is.’

“We are working closely with the regulators to ensure that the right protections for the crypto asset industry are in place to safeguard the interests of the public and to ensure that the potential for crypto assets to serve humanity is realised.”

Marius Reitz, Africa manager for Luno, says the company is noticing a rise in fake investment schemes of all kinds, especially those that reach out to victims on social media promising outsize returns.

“If you want to get started and learn more about cryptocurrency, do so on a credible platform like Luno and not via an agent on a Telegram group.

“Avoid brokers, account managers, traders, sponsors, agents and other people that offer to trade cryptocurrency on your behalf. If you have done your research and are ready to get started, buy directly using your own account.

Start small and do not share your details with anyone.”

Richard de Sousa, founder and CEO of crypto exchange AltCoinTrader, says the FSCA’s “poorly-worded press release” is of little use to the public. “Cryptocurrency and the alternative financial system is an extremely lucrative business for people who know what they are doing. This (press release) doesn’t highlight where to invest or where not to invest. It doesn’t make any mention of the fact that there are extremely credible players in the industry. This kind of statement does not get people to advance themselves financially.”

“It is my opinion that anyone that is not invested in crypto is irresponsible with their financial health and their financial portfolio,” says De Sousa.

“Cyrptos, and specifically bitcoin, has been the best-performing asset in the last 10 years. Our government is now advising people to stay away from the best-performing asset in the world,” says da Sousa, adding that there appears to be little protection in SA from either regulated or unregulated financial service providers.

“They (the FSCA) could go a lot further and warn customers of Ponzi and multi-level marketing schemes where cryptos are being used, rather than advising people to stay away from cryptos. In my opinion this is poor financial advice (from the FSCA).”



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I am if full agreement with Richard de Sousa.

The “warning” is poor in composition and 2 questions come to mind.

1.) Does the FSCA really know what they are dealing with here? They seem to think (or it comes across as though they think) Crypto should be avoided as it is to risky to invest in?? They also seem to think all players in the space are the same.
2.) It also looks as though our caring anc government might be using the FSCA to scare people away from Crypto as they are not in control and don’t understand the asset either.

This is the same people (your caring anc government) that forces your pension fund manager the invest most of your future pension in SA through their “REGULATION 28” Yes read it again. REGULATION!!!
Another article this morning highlighted how the JSE returned 33% (in USD terms) over the past 10 years and the S&P500 over 200%. They do this to ensure investors are not overexposed to risk. Clever hey???

So we think regulation by this lot will be a good thing????? Come on man!!

We might have to get some articles soon on what offshore destinations are available to South Africans to move their Crypto assets to.

Regulation by this lot will not turn out good for anyone.

It is NOT the ANC that is responsible for reg 28. The regulation is the work of local fund managers that was given to treasury from lobby group ASISA. Do some digging into who they are. Your pension fund manager loves reg 28 cause it keeps assets in their mandates. Stop spreading misinformation, not everything is ANC fault.

No doubt the vultures are complicit and the probable authors of the original.

As far as I have it Regulations in SA are published in the Regulations Gazette. In this case probably by the minister of finance. He is the responsible person. He is an anc cadre and responsible for amendments as well.

Its the anc nobody else. Not that they take responsibility for anything that goes wrong.

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Agree with Richard De Sousa.Is this Regulator not biased in favour of “big money?” Are they not using scare tactics to try and discredit an entire industry, instead of just come up with regulations that can benefit the people? Are they able to control the Derivatives markets in the old financial industry? They’ve had more than 5 years to learn the extent of and the good that the Crypto, and now the Defi industry, is doing for everyone worldwide?
Lastly, why quote stats that are not relevant to the specific industry you are commenting on?

End of comments.



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