New South African Law Seeks to Ban Crypto From Pension Funds

South African Finance Minister Enoch Godongwana has unveiled a draft law outlining the rules on how under Regulation 28.

While under the old law, portfolio managers could invest 2.5% of members’ funds in a broader category called “other assets”, which was used to incorporate crypto assets. Now, the new rules completely exclude cryptocurrencies in the new government gazette. South African regulators have expressed doubts about the speculative nature of cryptocurrencies due to a lack of protection for investors, while at the same time exploring possible utility cases for distributed ledger technology.

Regulation 28 is the law influenced by the Pension Fund Act to enforce how funds are invested. A part of Regulation 28 is to protect investors from investing too much in a particular asset class.

The South African government defines digital assets as digital representations of value that do originate from the central bank but can be traded, transferred, or stored electronically by natural and legal entities using cryptographic methods and distributed ledger technology.

In the US, Fairfax, the Fairfax County Police Officers Retirement System in Virginia, has been one of the first pension funds to allocate a portion of members’ money to crypto assets. In 20A18, they launched a 0.5% stake in the fund that invests in blockchain-related ventures, which are steadily increasing. Currently, the fund allocates 7% to crypto-related assets.

Ellis argues that because bitcoin is so volatile, it may not set a reliable value. Some platforms offer 8-12% p.a. Interest is obtained by lending. However, the volatility of bitcoin again promises to outperform earnings, Ellis points out.

The increasing number of daily transactions involving bitcoin becomes the driver for its value. Therefore, more and more transactions are driven by consumers to offset the fleeting speculators that are leaving the market. Instead of providing long-term returns, the primary function is to run supply chains so that comparisons can be made to commodity markets. Although experienced investors can derive long-term returns from trading commodity derivatives, it can also be argued that the average bitcoin investor may not be able to generate long-term returns.

Since many factors affect inflation, bitcoin provides some protection against the devaluation of the local currency. If high raw material prices or expansionary policies drive up demand, inflation will push up prices in all currencies.

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