Marius Reitz, General Manager for Africa and Europe at Luno.
The cryptocurrency market has historically followed a pattern, largely dictated by Bitcoin’s halving schedule. While not perfectly predictable, these cycles formed a recognizable rhythm. However, recent developments suggest this rhythm may be shifting, driven by increased acceptance of Bitcoin and other cryptocurrencies by institutional investors.
Understanding Bitcoin halving requires a basic grasp of mining. Bitcoin mining involves using powerful computers to solve complex mathematical problems, validating transactions and maintaining the integrity of the Bitcoin network’s decentralized ledger. Miners are rewarded for their efforts with newly minted Bitcoins.
Halving is a fundamental element of Bitcoin’s economic design, occurring approximately every four years. This process reduces the reward for mining new Bitcoins by half. The purpose is to control the supply of Bitcoin, promoting scarcity and mitigating inflation. The most recent halving event took place in April 2024, decreasing the block reward to 3.125 BTC.
Historically, the cryptocurrency market cycle unfolded as follows: Typically, six to nine months following a halving, Bitcoin’s price would experience a significant increase due to the reduced supply. Because Bitcoin has a very limited supply reaction to price increases. Supply rarely increases when prices rise.
This price surge was often followed by a period of instability as investors capitalized on their Bitcoin gains and diversified into alternative cryptocurrencies. This led to an increase in the value of these other coins. Profit-taking then persisted for about 12 to 18 months. Eventually, market disruptions would arise, typically from excessive leverage, causing a market correction and beginning the cycle anew.
The distinction between traditional financial systems and the cryptocurrency world is becoming less defined.
This established pattern has shaped the cryptocurrency landscape for over a decade and a half. However, circumstances are changing. The era of boom-and-bust cycles driven primarily by retail investors might be drawing to a close, potentially replaced by a more stable, institutionally-supported market performance.
For the first time, Bitcoin reached an all-time high pricebefore a halving event in March of the previous year. This was attributed to the introduction of Bitcoin Exchange-Traded Funds (ETFs). Bitcoin ETFs are investment vehicles that hold Bitcoin-related assets and are traded on conventional stock exchanges, thus unlocking considerable capital from prominent asset management entities.
This represented a significant acceptance by institutions. Post-halving volatility has not materialized as initially expected, particularly for Bitcoin. While the US election cycle, including Trump’s expressed support for cryptocurrency, briefly pushed prices higher, Bitcoin has remained relatively stable since January.
A notable trend is emerging. Long-term Bitcoin holders (“hodlers”) are now strategically selling their holdings, securing profits as prices reach $100,000 and beyond.
Importantly, this supply is being absorbed by a new class of sophisticated investors, including firms like BlackRock, Fidelity, Bitcoin Treasury Companies, corporations establishing long-term strategic positions, and even government entities holding Bitcoin reserves.
These institutions are not focused on short-term speculative gains. They are acquiring Bitcoin as a fundamental store of value and making multi-year allocations rather than engaging in speculative trading. They see Bitcoin as a maturing asset with distinct advantages. The large-scale purchasing activity of institutions is underpinned by a long-term value proposition.
This doesn’t imply that cryptocurrencies are now conventional investments. They are still tradeable 24/7, react to global events differently than traditional assets, and continue to undergo rapid innovation.
Regulatory clarity surrounding cryptocurrencies is not just catalyzing this major shift; it’s also increasing broader institutional acceptance of digital assets. Regulations are progressing swiftly worldwide, spanning from the United States to emerging markets like Malaysia.
South Africa lags in regulatory advancements. ETFs, which helped establish Bitcoin as a mature asset, are significantly restricted due to the ambiguous designation of cryptocurrencies under South African law.
Digital assets are neither clearly categorized as “onshore” or “offshore,” hindering institutional investment because the applicable exchange controls are unclear.
Even in a recent High Court ruling, the need for regulatory clarity was emphasized. The court noted the Reserve Bank’s awareness of this issue for many years, negating any claims of inaction.
While institutional investors, including pension funds and insurance companies, are utilizing Bitcoin and other cryptocurrencies to optimize their investment portfolios for the benefit of their clients, South Africa risks being left behind.
The initial step toward fostering real institutional adoption in South Africa is to correctly classify cryptocurrencies held on locally licensed platforms as “onshore” assets, as technically and widely understood. This will begin unlocking the domestic advantages of Bitcoin as a mature asset.
The distinction between traditional financial systems and the cryptocurrency world is becoming less defined. From payment solutions using stablecoins to intricate investment approaches that leverage tokenization, digital assets are increasingly interwoven with the global financial ecosystem.
This integration, propelled by institutional acceptance and regulatory frameworks, suggests a future where the volatile, retail-dominated market cycles of the past give way to a more reliable and undoubtedly credible digital economy. The unpredictable volatility is being replaced by a more steady increase in long-term value creation.
However, South African investors won’t reap these benefits if our regulators are still stuck at the first stage: determining what a cryptocurrency actually is.