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After trading under the psychological barrier of R18, the Rand has returned to trading above R18 again due to a stronger dollar after Donald Trump was elected US president, while Bitcoin shot up to an all-time high before settling slightly lower on Wednesday.
The Rand’s woes are due to the US dollar reaching a four-month high that saw the Rand breaching R18 on Tuesday morning after losing almost 3% of its value over the past week. On Wednesday afternoon, the Rand was trading at R18.14 to the US dollar. In September the Rand reached its best level since February last year, trading at R17.10.
However, prof. Bonke Dumisa, an independent economic analyst, says South Africans should not be too concerned about the recent weakness of the Rand, as it does not reflect anything negative about South Africa.
“The weakness of the Rand is simply a reflection of the strengthening of the US dollar, which is also linked to the strengthening of the UK pound sterling and the European Union’s Euro.
“The developing countries’ currencies took a knock for the time being as the global markets are currently focusing only on the US dollar and currencies of other advanced currencies after Trump’s unquestionable firm win, especially based on his inward-looking Make America Great Again (MAGA), with promises of deregulation and less taxes.”
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Prof. Jannie Rossouw, visiting professor at the Wits Business Schol, also points out that the weaker Rand has more to do with a stronger US dollar. “Investors expect that the US economy will strengthen and that inflation can increase, which will cause higher interest rates for longer.”
However, he warns that a weaker Rand could cause higher fuel prices, which would have a knock-on effect on the South African economy.
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Trump’s victory also spurred an all-time high for Bitcoin thanks to his close relationship with Elon Musk, with Bitcoin smashing through R1.6 million, exceeding the all-time high on Luno, a global cryptocurrency investment app, although crypto markets saw some sharp pullbacks this morning.
Responding to crypto cooling off after last week’s rapid price gains, Christo de Wit, Luno’s country manager for South Africa, points out that analysts warned of potential turbulence after the Fear and Greed Index flirted with Extreme Greed, signalling overbought conditions across much of the crypto landscape.
However, Bitcoin remains relatively resilient, trading just above $87,500, down only 2% over 24 hours, while Ethereum dipped by 6% overnight, with deeper declines in altcoins, with The Graph and Cardano among those facing double-digit drops.
“While these corrections may seem steep, it is worth looking at 7-day and 30-day performance charts to understand the full extent of the rally, which started gaining momentum after Trump’s election win.”
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Bitcoin smashed through its previous all-time high of R1 321 541 recorded on 3 June 2024 and was trading on Luno at R1 618 339 on Tuesday morning. The milestone followed an extraordinary rally that saw Bitcoin jump by a remarkable 10% over 24 hours.
After the US election, Bitcoin reached a new all-time high in dollar terms, trading at $89 214 on Luno on Tuesday morning. The surge was also linked to increased institutional interest, with BlackRock’s BTC ETF also recording record inflows of over $1 billion.
De Wit says many analysts attribute Bitcoin’s recent rally to expectations of a more crypto-friendly regulatory environment in the US under Donald Trump’s administration, which they believe could ease restrictions and boost investor confidence in digital assets.
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Not to be outdone, he says, Dogecoin surged by 40% overnight, doubling its price in just seven days. Major coins across the market likewise posted impressive gains, with the total crypto market cap crossing the $3 trillion mark.
Luno, South Africa’s largest crypto investment app and a licensed financial services provider, says that its active transacting customer base has reached a multi-month high, with notable growth from the previous month.
De Wit says the recent price surge also spurred a significant increase in weekly trading volumes on the platform in South Africa.
“When prices reach all-time highs, many Bitcoin holders who have hodled (crypto-speak for held) through the price slumps feel validated for staying focused on its longer-term prospects. But Bitcoin has had many dips and rebounds.
“After hitting a trough in 2019, prices bounced back during Covid and then plummeted again in 2021. There was another rebound later in 2022, but the market experienced another downturn. While Bitcoin has been volatile throughout the various cycles, when taking a broader view on the market, it has achieved growth momentum.”
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He says the 2024 rally began in earnest after Bitcoin exchange-traded funds (ETFs) were approved by the US Securities and Exchange Commission on 10 January 2024. Spot ETFs are designed to track the price of Bitcoin but don’t require investors to hold the token themselves.
“The influx of institutional capital via ETFs is evidence of a positive shift in how cryptocurrencies are viewed by traditional investment institutions.”
But De Wit points out that volatility remains a characteristic of the crypto market, which is a relatively new asset class. “Volatility is still driven by the classic principle of supply and demand. Therefore, depending on its impact on your overall portfolio, volatility should be a factor in your decision to enter the market.”
He also warns that the crypto market is unpredictable. “For most investors, the safest option is to buy assets with good utility and hold them for years. That strategy is slow and boring for some, but it is often the most profitable.”
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De Wit has these tips to avoid crypto investing pitfalls:
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