Crypto Arbitrage South Africa

Cryptocurrency arbitrage presents a unique opportunity for South African investors to profit from the premium at which crypto trades at in South Africa. International supply and demand factors, in combination with local exchange controls, create price discrepancies between crypto in local and foreign markets - presenting an opportunity for savvy investors.

Crypto arbitrage presents a low-risk investment opportunity for South African investors, however, it is important for prospective investors to remain aware of several factors.

Breakdown of allowances

Each South African is granted a Foreign Investment Allowance (FIA) of R11m to spend and send abroad per annum. This FIA amount comprises a Single Discretionary Allowance (SDA) and an Approved International Transfer (AIT), valued at R1m and R10m respectively. South Africans can access their SDA with limited administrative requirements, while accessing allowances from one’s AIT requires additional steps.

When investing in crypto arbitrage, a portion of your FIA is used to execute each trade. Most service providers have a minimum investment amount of R100 000. At the minimum investment amount, investors can trade 10 cycles through their SDA, after which they will be required to apply for further allowance from their AIT to continue trading.

Understanding the pricing mismatch

The price discrepancies between crypto in South Africa and abroad is largely attributed to growing demand and limited supply. In the USA, there is a greater demand for crypto which realises more competitive prices than those in South Africa. Globally, there is a greater demand for crypto trading in USD. This means there is more crypto available to those who have USD - resulting in lower prices for these assets. With a lower supply of crypto for Rand, there is less crypto being sold which realises higher prices in the South African market.

Selecting service providers

It is important to be prepared before deciding on which arbitrage service provider to employ. The first consideration would be that of compliance. Prospective investors should only employ the services of fully licensed and authorised Financial Service Providers, such as FiveWest. Working with unlicensed entities may leave investors vulnerable to legal exposure or financial losses. Second, investors must consider the fee structure of various service providers. Some service providers build their fees into the returns of their clients, at FiveWest, we only charge a R550 swift fee to execute the transfer.

Tax implications

In South Africa, profits obtained through crypto arbitrage are classified as income tax. These earnings should be disclosed in your annual income tax returns and filed as part of your provisional tax returns.

Requirements for arbitrage

There are several prerequisites to arbitrage in South Africa. First, prospective investors must be at least 18 years of age. The minimum investment amount, as found throughout the industry, is R100 000. In terms of compliance, arbitrage service providers will require several items of documentation to complete the KYC process and AML protocols. First, investors will be required to submit a copy of their South African ID or passport. Second, investors must submit proof of address documentation.

Once these requirements have been met, investors can fund their account and initiate arbitrage with their SDA.

In Conclusion

Crypto arbitrage offers South Africans a low-risk investment opportunity. Before investing, it is important for South Africans to understand what contributes to this opportunity, their allowances, the tax implications, requirements to arbitrage, and what to consider when selecting a service provider. Developing a sound knowledge of the process will enable prospective investors to optimise their investments by making informed decisions.