By Andre van den Berg, Director, Banking & Finance at CMS South Africa

The transformative power of Artificial Intelligence is no longer simply a hypothetical concept as the significant benefits of this technology are being realised across every facet of business, industry, and our daily lives. It is no surprise then, that AI has just as many significant implications for the cryptocurrency market in that widespread adoption could lead to greater efficiencies, enhance trading strategies, reduce fraud and minimise risk, and ultimately drive greater innovation in the space.

In South Africa, in particular, a more innovative AI-powered cryptocurrency market holds immense potential to further drive financial inclusion by democratising access to crypto assets and offering secure and efficient financial services and investment opportunities to a more diverse population. This is especially the case since there is a growing appetite for cryptocurrency in the country, with nearly 10% of the population already owning crypto assets while the country claims the second largest chunk of Sub-Saharan Africa’s 2.3% share of the global crypto market. In addition to this, the number of first time crypto buyers rose by 43% in March 2024 according to Luno’s latest State of Crypto in Africa report.

But, to truly unlock this substantial potential, the country needs to adopt and implement a regulatory environment that is conducive to enabling such innovation while also ensuring greater consumer protection.

AI’s positive impact on crypto

AI and cryptocurrency are a great match. As an enhancer to cryptocurrency, AI has the power to reshape South Africa’s financial landscape by pioneering new innovations while also helping to solve complex issues with ease.

AI’s ability to collate, sift through and extract insights from large datasets can not only help traders to make more informed decisions in real-time in an environment that is dynamic and constantly in a state of flux, helping to capitalise on opportunities quickly, but also boost performance, improve efficiencies in the blockchain to reduce or eliminate down time and offer insight into fraud detection, risk protection and automation. The technology can also be used to gauge market trends and predict where the market will move to next and to optimise trading outcomes.

Additionally, innovative solutions enabled by AI across sentiment analysis, decentralised autonomous agents, elevated customer experience, and compliance and security could position South Africa as a powerhouse in the global crypto market, fostering economic growth, development and competitiveness.

A look at South Africa’s current AI and crypto regulatory landscape

Both AI and the cryptocurrency market are rapidly evolving at the same time that adoption continues to become more widespread. And yet, as things stand, South Africa continues to lag behind in regards to regulation around these two key emerging technologies.

Oxford University’s AI Readiness Index ranks South Africa 77th out of 193 countries across the world, while government has only this year taken its first step in creating a Planning Discussion Document to initiate discussion between the public and private sector on facilitating AI innovation and developing a national AI policy. Meanwhile, the Intergovernmental Fintech Working Group (IFWG) - established to gain a better understanding of the regulatory and policy implications of cryptocurrency on the financial sector and economy, and to facilitate the creation an enabling regulatory environment - noted that crypto assets would be brought into the South African regulatory purview as recently as 2021.  

While some elements of existing legal frameworks will provide some protections on the crypto market, such as POPIA as it relates to processing and protecting personal information, there are few,  regulations specifically targeted at these two technologies. Two recent and important developments in the South African legal framework have been the regulation of crypto assets as ‘financial products’ for the purposes of the Financial Advisory and Intermediary Services Act and the Financial Intelligence Centre Act. Both are significant in signifying positive steps towards the regulation of crypto assets and crypto asset service providers in SA. 

Although low levels of policy in these areas can, in theory, facilitate greater (and ease of) innovation as there is no “red tape” to navigate, it also opens the landscape up to greater vulnerabilities. That is because, like any other financial product, it is an attractive target for exploitation by criminals to either commit fraud or use the technology to further their illegal activities. 

Establishing the right, clear and balanced policies for both AI and cryptocurrency can not only mitigate these risks, but also foster an ecosystem where AI-driven innovation thrives and investors feel more confident in the market, driving up adoption of crypto assets as a whole within the country. Additionally, because of the inherently cross-border nature of digital assets, collaboration with international bodies is vital to establishing and adhering to global standards.

From a South African perspective, with AI in its infancy, and cryptocurrency moving slowly towards wider regulation, they must both be used carefully and ethically. However, if we want to achieve the true potential for financial independence and investment that cryptocurrency offers, we must prioritise regulatory frameworks that enhance AI-driven advancements while building trust and confidence.