Young South Africans fuel the blockchain tech investment boom

Johannesburg - The worldwide blockchain 'investment boom' is taking root locally, with an increasing number of South African investors expressing interest in blockchain-powered asset classes such as cryptocurrency and non-fungible tokens (NFTs).

Several findings from Schroders' flagship Global Investor Study (GIS) for 2022 suggest blockchain technology is gaining traction as the local investment landscape evolves.

The Schroders GIS surveyed over 23,000 investors from 33 worldwide locations, including South Africa, segmenting respondents into several demographic categories.

So-called 'digital natives' are leading the pack when it comes to investing in these emerging technologies, with the Schroders GIS showing that interest in investing in digital assets decreases with age. Gen Z, generally defined as those born between the late 1990s and the early 2010s, shows the highest amount of enthusiasm.

For Kondi Nkosi, Country Head of Schroders in South Africa, this finding is intuitive given that younger generations do not know a world without digital technology. "Digital natives will provide the industry with the stimulus it needs to evolve and expand both locally and abroad," he says.

Investment in crypto remains a worthwhile pursuit for South Africans

According to the Schroders GIS, cryptocurrencies such as Bitcoin, Ethereum and Litecoin have become 60% more attractive to South African investors in the last 6 months. Digital assets such as NFT art have garnered 47% more interest over this same period. These technological innovations make up two of the four most attractive asset classes in South Africa, alongside private assets and mutual funds. 

Nkosi believes this finding points to an important shift in the investment landscape. "South African investors, particularly the risk-averse, have been somewhat sceptical about the innovations that blockchain technology has introduced to the market. Now, with investment in digital assets entering the mainstream and taking its place amongst traditional asset classes, we expect more local investors to join their global counterparts in contributing to the growth of this emerging industry."

The pre-pandemic crypto boom led many analysts to conclude that digital currency was a 'bubble' rather than a 'boom' – one that would culminate in a market crash and the gradual petering out of investor interest. With the onset of Covid-19 and spurred on by the sentiments of prominent public figures such as Elon Musk, South African interest in the potential of the crypto market has been on the increase.

While elsewhere in the world, investors' level of interest seems to be on the decline following a few years of hyper-optimism, the interest among South African investors is still on the rise. A recent study placed South Africa as the second-largest bitcoin-investing population in the world, ahead of the United States (US) and Japan. Supporting this claim is crypto exchange Luno's estimation that 15% of South Africans own cryptocurrency.

Nkosi expands: "In the local landscape, we're seeing existing crypto investors expressing high levels of confidence, as well as an influx of newcomers to the asset class. According to the Schroders GIS, investment into cryptocurrencies represented the second largest new investment made by South Africans in the past six months (43%), with only a marginally higher investment into stocks and shares (45%)."

Macro influences drive crypto asset interest

In addition, the country's current economic position is arguably fertile ground for the development of the crypto industry. The South African Reserve Bank raised the repo rate by 75 basis points to 5.5% during mid-2022, leading to a dramatic interest rate hike. These developments, exacerbated by the geopolitical impact of the Russia-Ukraine conflict have placed the rand under increasing pressure. For many South African investors, cryptocurrency provides a welcomed reprieve.

As part of the GIS survey, South African investors were asked about their response to the interest rate hike. 57% of respondents stated that they would opt to invest in cryptocurrencies – the second most likely response, following closely on the decision to "save more and spend less" (66%).

NFTs on the rise

Cryptocurrency however, is not the only innovation to emerge from the proliferation of blockchain technology. The most recent development in the arena is the emergence of NFTs – tokenised digital assets, of which ownership is recorded in a publicly-distributed global ledger. NFT art in particular, has captured the attention of the investment world.

The global rise in the uptake of these kinds of digital assets is mirrored in South Africa, with over half of Schroders GIS respondents claiming that they are interested in investing in digital assets such as NFT art. Interestingly, South Africans are only 6% more interested in investing in physical assets, such as art and wine.

Beware the allure of 'digital gold'

Cryptoassets, often dubbed 'digital gold', are still a very new asset class, just 13 years old, and Nkosi cautions that more time might be needed to really understand their return dispersions and characteristics – particularly how they behave in different market cycles and in response to certain events.

"As with all investments, it comes down to risk appetite and the risk-reward trade-off. Tried principles of seeking good financial advice, remaining diversified and not making hasty investment decisions will remain worth their weight in gold," concludes Nkosi.