South Africans are prohibited from investing in “digital assets” via their pension funds. Explicit definition of “digital assets” in new Regulation 28 amendment Previously, South Africans could invest in cryptocurrency under their pension fund’s “other assets” category.
The Trust Project is a global partnership of news organizations dedicated to developing transparency standards. South African Finance Minister Enoch Godongwana has submitted a draft bill that specifies how pension fund member monies may be invested in accordance with Regulation 28.
Previously, portfolio managers were permitted to invest up to 2.5 percent of member money in a wide category of “other assets,” which included cryptocurrency. Now, the new Government Gazette expressly prohibits the use of cryptocurrency. Due to the absence of investor protection, South African authorities have expressed persistent concerns about the speculative character of cryptocurrencies while also examining potential use applications for distributed ledger technology. Regulation 28 is the law that uses the Pension Funds Act’s authority to regulate how funds may invest. Regulation 28 is intended to safeguard investors from investing excessively in a single asset type.
What is the definition of a digital asset?
The South African government defines digital assets as “a digital representation of value that is not issued by a central bank but may be exchanged, transferred, or kept electronically by natural or legal persons using cryptographic methods and distributed ledger technology.”
Fairfax County Police Officers Retirement System in Fairfax, Virginia was one of the first pension plans in the United States to enable crypto assets to make up a percentage of members’ money. They began with a 0.5 percent stake in a fund investing in blockchain-related businesses in 2018 and gradually raised their stake. The fund now invests 7% of its assets in crypto-related assets. Is cryptocurrency a suitable asset class for a pension fund?
Simeon Ellis of XPS Pensions Group proposes four criteria for determining if cryptocurrency, primarily bitcoin, is a viable investment prospect for pension funds:
- Is bitcoin a de facto medium of exchange? 2. Is it a source of fascination? 3. Is it a source of anticipated capital growt 4. Is bitcoin a risk-hedging instrument?
Due to bitcoin’s volatility, Ellis believes it cannot be used as a trustworthy store of value. While interest is made by lending money and certain sites may give returns of 8-12 percent per year, Ellis warns that the volatility of bitcoin may outweigh the benefits.
Bitcoin’s value will be influenced by the growth in daily transaction volume. As a result, more transaction-driven users are required to compensate for transitory speculators who may exit the market. Comparisons to commodities markets are appropriate since their major job is to drive supply chains, rather than to generate long-term gains. One may argue that, although seasoned investors may be able to produce long-term gains via commodities derivatives trading, the ordinary bitcoin investor may not.
Due to the fact that several variables drive inflation, bitcoin may operate as a hedge against local currency devaluation. If inflation occurs as a consequence of increasing raw material costs or an expansionary policy that results in an increase in demand, prices in all currencies may rise.
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