Picture: ISTOCK
Picture: ISTOCK

Naspers-backed cryptocurrency exchange Luno expects institutions to start dipping their toes into the digital money market in 2019, despite a blistering sell-off of bitcoin and other flagship coins over the past 13 months.

According to data from Luno’s South African exchange, the price of bitcoin slumped from a high of R264,825 in December 2017 to R52,582 on Wednesday.

The global sell-off was sparked by panic selling, tighter regulations and several high-profile hacks, which caused trading volumes to slow significantly through 2018, though volatility has remained high.

South African banks have taken a cautious approach to the fledgling cryptocurrency market, but have also been considering their options, including the establishment of dedicated trading desks.

“Early adopters are institutions like Fidelity and Bakkt – that will get the momentum started,” said Marius Reitz, Luno’s country manager for SA.

US-based financial services group Fidelity said in October 2018 it would launch a new company to handle custodial and trading services for cryptocurrencies.

Bakkt, meanwhile, is a start-up bitcoin futures exchange backed by Naspers and Microsoft’s venture capital arm, among other early-stage investors.

Bakkt, which says it aims to drive institutional access to digital assets, raised $182.5m (R2.5bn) in late 2018.

“We also predict that smaller fintech and other tech companies will enter the space via partnerships with existing cryptocurrency companies like Luno,” Reitz said.

“As one of the early market leaders in the business-to-business cryptocurrency space, we have launched our ‘Luno for business’ team to help connect all of these businesses and their customers to cryptocurrency.”

Luno said in a statement on Wednesday that regulators around the world were “providing clarity” for cryptocurrency companies and this would help increase trust, weed out “bad apples”, and ultimately “form the foundation for large-scale institutional money to move into the crypto ecosystem”.

The SA Reserve Bank announced plans last week to regulate cryptocurrencies. At the same time, it said it did not consider crypto assets to be legal tender.

Luno said it was working with the Reserve Bank and other central banks “to drive regulation”.

Meanwhile, the exchange said it expected “the mass abandoning” of initial coin offerings — alternative means of raising capital — and projects based on blockchain technology, which underpins digital money, throughout 2019.

Attention and money would shift back to decentralised cryptocurrencies, it said.

Reitz also said he expected “a major transition in the way the world thinks about and uses money in the next five to 10 years”.

“Cryptocurrency will be the same or better than the existing financial system —a good store of value, allowing for faster and cheaper transactions, bringing down the cost of remittances and be global, while being open and completely secure,” he said.

hedleyn@businesslive.co.za