The use of crypto assets has gained massive popularity over the last few years after the notorious Bitcoin made its first appearance in 2008. Since then, different forms of crypto assets have appeared and the use of crypto assets in shopping, trading and investment has become a rising phenomenon worldwide. 

Yet, despite this growing prevalence, there is still huge uncertainty about crypto assets and what their true nature is – especially after the use of the term cryptocurrency was replaced with crypto assets. Are crypto assets really money, or is it something else?

In 2021, the Crypto Assets Regulatory Working Group of the Intergovernmental Fintech Working Group (IFWG) whose membership comprises of, among others, the South African Reserve Bank, the Financial Sector Conduct Authority, the South African Revenue Service and the Financial Intelligence Centre, tackled the question of what crypto assets are. 

First, was the question of whether crypto assets are money or legal tender. Here the IFWG found that despite performing similar functions to money, the answer is ‘no’. Money in South Africa must be legal tender which in turn is limited to banknotes and coin issued by the South African Reserve Bank. This also aligns with the general worldwide consensus that crypto assets are not legal tender but should rather be regarded as assets, leading to a general realignment of terminology to refer to crypto assets rather than currency. 

The IFWG then went on to define crypto assets as a digital representation of value that is not issued by a central bank, but is traded, transferred and stored electronically by natural and legal persons for purposes of payment, investments and other forms of utility, and applies cryptographic techniques and uses distributed ledger technology. 

But does this make crypto assets property in the normal sense of the word, like a house or cash in your wallet? Well, no, but they do hold tangible economic value for the owner thereof and can be traded, undoubtedly allowing crypto assets to be accepted as a form of property, even though intangible in nature.

The South African Revenue Service has also indicated that crypto assets are subject to normal tax rules, furthering the view that crypto assets have economic value and in this sense qualify as property on which gains or losses can be made. Should gains or losses from holding or trading in crypto assets be seen as capital or income in nature for tax purposes? Well, watch this space, as our tax advisory team will soon be tackling this issue!


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