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With a market cap of over $2 trillion*, Bitcoin, along with other crypto assets, can no longer be ignored as an asset in a diversified investment portfolio. As client interest grows, financial advisers need to be ready. We spoke to 1Life Insurance’s Kobus Wentzel and Luno’s Tarris Arnold to explore how advisers can guide clients through the opportunities and risks of crypto investing.
The regulatory position on crypto assets in South Africa
Crypto assets, also known as cryptocurrencies, were declared a financial product in 2022 by the FSCA, under the FAIS Act. The FSCA has licensed 256 crypto asset service providers (CASPS) offering services in South Africa that are “subject to robust regulatory oversight, requiring them to adhere to fit-and-proper requirements, implement robust risk management protocols and comply with disclosure obligations.” CASPS include exchanges where investors buy and sell cryptocurrency as well as advisers and other FSPs who provide intermediary services in respect of crypto assets.
“Advisers can add crypto to their licence so that they can formally advise on these products, and complete the necessary CPD requirements,” says Arnold, Business Development Lead at Luno South Africa.
The FSCA has stated that over the next three years they will refine their approach to crypto assets, which likely means more regulation lies ahead!
How to help your clients invest in crypto assets
We unpack how you can help clients evaluate crypto as an investment asset so that they can make informed decisions and invest, if appropriate, in this asset class.
Ensure clients have an appropriate and risk profile dependent asset allocation to cryptocurrencies
Diversification is essential in most portfolios, but will depend on needs and life stage and may or may not include an allocation to crypto assets, which must be regarded as high risk. An investor’s time horizon must also be taken into account and aligned with their risk profile. Experts advocate, in general, a crypto holding of between 2% and 10% in a portfolio, which gives investors exposure to the asset class, but limits the downside of the volatility these assets exhibit. The phrase most often used when it comes to investing in crypto is: “Invest only money that clients can afford to lose.”
Encourage clients to only use regulated CASPS
Financial advisers need to make sure clients are aware of their licencing with regards to crypto assets.
If you are a CASP, you can assist clients in accordance with your accreditations and licence, as well as relevant regulations and good financial planning and investment practices. These include following the FAIS Code of Conduct and TCF principles, as well as completing an FNA and conducting regular reviews.
If you are not a CASP, you can only offer general personal financial advice and encourage your clients to evaluate the CASPS they use for investments, for example online exchanges or crypto licensed advisers, as they would evaluate any financial services provider.
For example, “exchanges should have a financial service provider licence that should be verified with the FSCA to ensure the exchange is legitimate,” says Arnold. Clients should also ask about products offered by the exchange, how to invest and disinvest, as well as what online services and statements are available.
In addition, you and your clients should read online reviews when selecting exchanges or ask tools like ChatGPT but remember to fact check these before taking them as the whole truth as there is a lot of hype in crypto asset markets!
Make sure clients are aware of fees, admin charges, transaction charges and any other charges. These must be disclosed by exchanges and clients must understand them and the impact they can have on investments. You and your clients can compare the fees charged by different CASPS to ensure they choose a service provider that offers the service they need at a reasonable price.
Help clients evaluate the investment case for crypto and different crypto assets
Whether you are a CASP or not, encourage your clients to investigate and learn more about the world of crypto assets so they have a better idea of how, and how much, they can make or lose.
For example, clients (and CASPS) should research whether or not the market for crypto is growing. Drivers of crypto performance need to be analysed, including demand, supply and sentiment, which can be key in determining price and price moves. Volatility needs to be considered, as does correlation to other asset classes, to ensure appropriate portfolio diversification.
Luno suggests starting small when first investing in crypto, allocating a small percentage of investable funds to the asset class. “Clients should look to well-known crypto assets, such as Bitcoin and Ethereum, as a first investment,” says Arnold.
Ensure your clients keep their crypto assets secure
Crypto can be stored by an exchange, known as custodial storage, or in non-custodial ‘hot’ or ‘cold’ personal wallets. In custodial storage the exchange or other provider takes charge of storing it and implements security measures, whereas in non-custodial storage the client is in control of the storage.
When using an exchange Arnold says you must enable 2-factor authentication for security purposes. You should also investigate how the exchange protects itself from hackers and other cybercrimes.
If you store your crypto privately in a wallet, you can choose a hot wallet that is connected to the internet or a cold wallet that is completely offline. There are pros and cons for both.
A hot wallet can be used for transactions, such as buying goods at Pick n Pay, but as it is online there is a risk that your crypto can be accessed by a criminal. Cold wallets are where crypto is held offline and securely, but cannot be used for transactions.
Cold wallets have to be purchased, for around a few thousand rand. They secure the crypto with a passkey, which is the only way the crypto can be accessed. The passkey cannot be restored if forgotten, so if it is lost so is all the crypto stored on the cold wallet. For pure investment purposes, cold wallets are usually recommended, with the proviso that the passkey is written and stored safely should it be forgotten.
You can help your clients do the necessary research to decide the most appropriate storage option for their crypto assets.
Help clients understand the tax implications of investing in crypto assets
According to SARS, “normal income tax rules apply to crypto assets and affected taxpayers need to declare crypto assets’ gains or losses as part of their taxable income.” Crypto investors need to be aware of these rules and keep up to date with any changes from SARS.
Keep learning
Crypto- licensed exchanges and FSPs’ websites are good sources of information where you can learn more about crypto assets. Arnold also suggests following South African and global crypto news sites like Coindesk as well as general news and business news websites.
“It's important to ensure you get news from legitimate, credible sources,” she says, “so be very discerning. Take online courses about blockchain technology and cryptocurrency fundamentals and use crypto CPD point providers, such as Moonstone and Masthead, as credible information sources.”
Eyes wide open
Financial advisers can help clients make informed decisions about their crypto asset investments. This includes encouraging clients to learn about the risks of investing in the assets, investing with regulated and professional CASPS and monitoring their crypto investments as part of their overall investment portfolio. Investors can make money in crypto and they can lose money in crypto. Informed investors, with the help of a financial adviser, will have a better chance of being the former.
*As at 12 May 2025