The Ethereum bubble popped in 2018, but 2020 was the year it came back to life. From Moneyweb.
Bitcoin may have grabbed the headlines in 2020 with a price gain of 160% for the year to date, but this pales alongside its smaller brother, Ethereum, which clocked up a gain of 344% so far this year.
Bitcoin’s market cap of $355 billion is more than five times that of Ethereum’s $67 billion, showing the huge gap between the crypto market leader and the number two.
Ethereum price in USD
While bitcoin’s impressive rally in 2020 was driven by Covid-related fears of monetary debasement and growing institutional adoption, ether’s rise came from steady development of the type of ‘smart contracts’ on which its value depends.
A blizzard of summonses has hit consumers who fell into arrears during lockdown. The advice from consumer advocates: defend these and tell your side of the story to the court. From Moneyweb.
There won’t be much Christmas cheer for thousands of South Africans who fell into arrears on their mortgages and vehicle payments through no fault of their own.
The banks extended a three-month repayment holiday at the start of the lockdown, but started cranking out the summonses as soon as it was over. Household incomes across the board have been hammered by the lockdowns and there’s little prospect of catching up on these arrears.
Government appears to have little concern for the plight of South Africans now at risk of losing their houses and cars.
It was disclosed in Transaction Capital’s recent year-end results that as at June 2020, 23% of vehicle and mortgage accounts were in arrears, as were 77% of unsecured lending accounts.
“This is a humanitarian crisis and yet we continue like it’s business as usual, as if consumers fell into arrears out of their own neglect,” says King Sibiya, CEO of Lungelo Ditokelo Human Rights Foundation, which provides legal defence against unlawful evictions by the banks.
Sibiya says the foundation has seen a spike in attempts to repossess homes in the last few months.
“People have lost their jobs, or suffered a drop in income, and now they are supposed to be able to catch up on arrears or face eviction. Where is the justice in all this?”
Sibiya is lobbying to prevent any South African facing foreclosure from having their cases heard without legal representation.
The debt will follow you, according to the Supreme Court. From Moneyweb.
Converting a close corporation (CC) to a company might seem like a clever way of dodging a suretyship, but it won’t work.
That was the finding of the Supreme Court of Appeal (SCA), which last month ruled against Masibuyisane Services (Pty) Ltd, which in 2006 had converted from a CC and in doing so argued that a suretyship signed in the name of the CC was not enforceable.
Masibuyisane could never quite make up its mind whether it wanted to be a company or CC. In 2009, it re-converted to a CC and then in 2013 went back to being a company.
The CC had signed surety for a leasing agreement between Maze Products and Eqstra Corporation, which in 2014 sued Masibuyisane Services as surety for the debt owed by Maze.
“The controversy, in this case, is one that only lawyers could appreciate. It concerns the consequences of a close corporation (CC) converting itself into a company,” reads the judgment.
“What happens if after that conversion a contract is concluded by the directors of the company in which contract the company is described as a close corporation? Can the company repudiate it on the grounds that it was concluded with an entity, ie the CC, that ‘no longer exists’?”
Judgment was originally granted in 2014 against Masibuyisane CC as one of four defendants that had signed surety for the debt. The sheriff serving the writ of execution to recover the owed money found nothing of value and was told the business had changed to Masibuyisane (Pty) Ltd.
AltCoinTrader CEO and founder Richard de Sousa on a new way to get out of debt and transact, but in the crypto sphere. From Moneyweb Crypto.
AltCoinTrader CEO and founder Richard de Sousa explains how he discovered an entirely new way to get out of debt, transact and do everything you would normally do with a bank, but in the crypto sphere. De Sousa also breaks down how he bought a R650 000 property in the west of Johannesburg and ended up paying just R200 000 for it – using a novel crypto financing method.
Institutional backers have now jumped on board in numbers. From Moneyweb.
It was the year of the bitcoin bubble, 2017. Over the following year it lost 84% of its value, falling from $20 000 to $3 200, but is now back within shouting distance of its all-time high.
What’s different this time is the shift in institutional sentiment, something that was largely absent in 2017.
Coindesk provides a list of crypto-related developments in just the last few weeks that demonstrate this shift.
Billionaire hedge fund manager Paul Tudor Jones told Yahoo Finance that bitcoin reminded him of the internet in 1999, when no one knew how to value internet stocks because of the world of possibilities that lay ahead.
He sees only one direction for bitcoin, and that’s up: “I’m going to assume that it’s the wrong price for the possibilities that it has. And I’m going to assume that the path forward from here is north.”
There was much argument as to the meaning of the word ‘towards’, as Nedbank attempted to claim more than the amount agreed with and paid by the liquidated branch of the restaurant chain. From Moneyweb.
The Polokwane High Court didn’t buy Nedbank’s attempt to claim more than the R800 000 it agreed to in terms of a settlement agreement with the liquidated Cape Town Fish Market Polokwane.
The case originally went the way of the bank, but was overturned last month on appeal.
When the Cape Town Fish Market (CTFM) in Polokwane was placed in liquidation in 2017, it ended up owing Nedbank nearly R1.5 million under a term loan and a current account.
Three parties signed sureties for the loans – Charles and Amanda Stopforth and Busesi Investment 183, the defendants in the case. They signed a deed of settlement with the bank to make payment of R800 000 on or before September 30, 2017, in which case Nedbank would forego any legal action against them for the debt.
Thanks largely to a robust campaign by participative democracy group DearSA, the government has decided to ditch two clauses in the Electoral Laws Amendment Bill – which would have allowed a change in voting methods.
These clauses would have allowed a switch from the current paper ballots to electronic voting – potentially sparking the kind of controversy and allegations of fraud now surrounding the recent US Presidential election.
Cybersecurity experts and lawyers have warned of the potential for hacking such electronic systems, and many have cautioned against adopting systems prone to abuse by malign actors.
On Wednesday, 2 December 2020, the Portfolio Committee on Home Affairs approved the Electoral Laws Amendment Bill and said will recommend to the National Assembly to adopt it – but without the disputed clauses 14 and 21 which would have empowered the Electoral Commission of South Africa (IEC) to prescribe a different voting method.
“The committee agreed that voting method is a policy matter that cannot be left to the IEC alone to decide, even though the IEC had mentioned that the intention was to only allow for testing of such alternatives,” says a press release issued by Parliament this week.
Parliament acknowledges the role played by DearSA in having these clauses removed from the Bill. It notes the concerns raised by members of the public in the 12,305 submissions received.
The Electoral Laws Amendment Bill seeks to amend three pieces of legislation: · the Electoral Commission Act, 1996; · the Electoral Act, 1998; and, · the Local Government: Municipal Electoral Act, 2000.
These amendments were deemed necessary to prepare for the forthcoming general local government elections in 2021.
DearSA director Rob Hutchinson says removal of the concerning clauses is as a direct result of the work done by DearSA and the IRR – who brought attention to potentially disruptive changes that could lead to future disputes in election outcomes.
“The last thing we want in SA is to have election results disputed, such as we are currently seeing in the US. There are grave concerns over electronic voting methods”.
While all voting methods have potential for fraud and error, the comments on the DearSA platform around this campaign suggest the existing paper ballot method is the most reliable method we have, since it leaves a paper trail and auditing the results is therefore easier.
“This is a great victory for participative democracy in SA, and we want to thank the thousands of people who took the time to understand and comment on the proposed changes to the law.”
Using a smart contract, with no ID, email or customer information required. From Moneyweb.
Richard de Sousa founded crypto exchange AltCoin Trader in 2015 and has been a pioneer in bringing crypto to the broader South African market.
He lives, eats and breathes crypto. He decided to start exiting the traditional financial system several years ago – going off the grid, if you will, though says he still has several trusts and bank accounts.
He started buying bitcoin when it was $6 (around R91); today it is close to $20 000 (R303 805).
When bitcoin reached R10 000, he figured it was a good time to convert some of his gains to property.
He purchased a R4.3 million property for 420 bitcoin, which at today’s valuations is close to R128 million. He sold more than 90% of his bitcoin – something he regrets to this day.
“We all made mistakes when it came to crypto. When bitcoin hit R10 000 I thought I had done well out of it and I wasn’t sure where it would go next, so I decided to pour some of my profits into property. In retrospect it was a mistake, but I’m okay with it.”
A story to shake the banks
De Sousa has another story to tell that should have the banks very worried indeed.
He recently spotted another property for sale on the West Rand with an asking price of R650 000.
He jumped onto the Oasis.app website, which offers crypto-based financial services, including loans.
He decided to borrow the money for this house using his Ethereum crypto coins as collateral.
He then applied for a loan from Oasis, without having to go through the Know Your Customer (KYC) routine, nor did he have to provide an ID or an email address.
Here’s where it gets interesting: there are no monthly repayments.
In fact, you can choose to defer any payments for 20 years, or 40 years, if you so wish. When De Sousa took out the loan, the interest was 0%. Today it is 2%.
This is a mortgage lending model that could smash the banks’ hold on this market over the next few years.
He goes over the loan process in this Youtube video:
De Sousa’s loan was based on a smart contract, which is a type of contract linked to the blockchain, where certain conditions must be fulfilled before the collateral is called in. In this case, he had to provide roughly R1 million Ethereum as collateral to cover a loan valued at R650 000 to buy the property.
Should the Ethereum price drop below R650 000, the “smart contract” would automatically liquidate his Ethereum, deduct a 13% liquidation fee (or penalty) plus the loan amount, and refund him the balance.
It took De Sousa less than 10 minutes to apply for the loan and place his collateral in the form of Ethereum coins into a vault at Oasis. He retained custody of the coins for the duration of the loan. Only the smart contract had the right to call on his collateral, and only under the conditions outlined earlier.
He wrote to the home seller’s attorneys and told them he would make full payment in cash into their trust account within seven days. “I gave myself seven days to do this, but in reality I only needed a couple of days.”
The loan for R650 000 was made in a crypto currency called Dai, which is backed 1:1 by the US dollar. He moved the Dai to the AltCoin Trader platform, sold it for rands (and made an extra 4-5% on this leg of the transaction because US dollar-linked cryptos typically sell for a higher price in SA due to local exchange controls, making it more expensive to acquire hard currencies).
With the Dai now converted into rands, Da Sousa transferred R650 000 to the house seller’s attorneys, and the deal was concluded.
The seller had no idea of the novel funding structure that took place in the background.
At this point, De Sousa was under no obligation to make monthly instalments on the loan.
He could ignore this for the next 20 years, or longer – the only risk he faced was that Ethereum’s price would drop below 66% of his collateral requirement, at which point his crypto would be liquidated under the terms of the smart contract.
One way to avoid your collateral being compromised in this way is to top it up with more Ethereum should there be a severe price drop.
De Sousa was under no obligations to make any monthly repayments on the loan, so he left it for several months. Seven months later, the Ethereum price had gone up three times, so he was now sitting with R3 million in collateral instead of the original R1 million.
At this point he decided to settle the loan in full. In effect, he paid about one third (or R200 000) of the house’s asking price by simply waiting for his Ethereum to increase in value. The house is now tenanted and earns a monthly income.
“I did all of this completely outside of the banking system, which is fraught with risks,” he says.
“You miss two payments under a mortgage contract and the banks have their lawyers all over you. This way I avoided the banks altogether, and that makes me extremely happy.”
It’s the ability to take out loans like this that should encourage mass adoption of cryptos. Smart contracts are backed by cryptos such as bitcoin and Ethereum. Rands and US dollars (unless in the form of Dai or any other so-called ‘stable coin’ backed by actual fiat currencies) won’t get you far in this world.
You have to exit the matrix and enter the crypto universe. Then all sorts of possibilities appear, says De Sousa.
Last month the Johannesburg High Court placed Firmanox in liquidation after finding it owed the bank R24 million and was unable to pay its debts. This was for the 2016 purchase of six vehicles and an overdraft facility.
Firmanox, a brand communication, media and advisory services company, had argued that it was not indebted to the bank, and pointed to agreements signed with the bank to enter into a business deals whereby the bank would be required to make financial contributions.
VBS curator Anoosh Rooplal presented evidence to the court that in March 2017, VBS’s then chair Tshifhiwa Matodzi had generated a list of overdrawn bank accounts which were to be “cleared” or removed from the bank’s balance sheet before the financial year-end on March 31, 2017.
One of these accounts was that of Firmanox. Two days before the financial year-end, a fictitious entry was created in Firmanox’s overdrawn bank account in the amount of R15.5 million to clear the overdrawn account.
“It is undisputed that there was no actual deposit of R15.5 million made into Firmanox’s bank account. Instead, according to the liquidator, it was made to appear as if a deposit had been made, whereas in reality Firmanox remained indebted to VBS in the amount to which its account was overdrawn,” reads the judgment.
VBS and Firmanox had entered into an agreement to form a company, Shembe Unyazi Bank of South Africa (Subsa), which would be 60% owned by the bank and 10% by Firmanox, with the aim of providing financial services across the country.
The agreement stipulated that VBS would pay R5 million towards the implementation phase of the company roll out.
It would also pay two monthly amounts of R666 000 to Firmanox as sponsorship towards a new TV channel called Shembe Unyazi TV, which was to be broadcast across SA and the world.
Firmanox also relied on a memorandum of understanding which required VBS to make other payments to it in terms of the business arrangements between them.
On this basis Firmanox denied it owed anything to the bank.
“The agreements on which Firmanox relies do not explain the overdraft debt,” says the judgment. The only contractual obligation on VBS was to provide initial funding of R5 million and monthly payments of R660 000 commencing on April 25, 2016.
Firmanox did not deny the existence of the fraudulent scheme at VBS, only that it was not a beneficiary of or participant in the scheme. It also did not deny the credit entry of R15.5 million in its account in March 2017.
The court was perplexed by Firmanox’s denial of the existence of vehicle finance agreements, when the company had paid eight monthly instalments on the six vehicles, but stopped suddenly when its overdrawn account was credited with an amount of R15.5 million .
The court also found it peculiar that two other companies whose VBS accounts received fictitious deposits just prior to the 2017 financial year-end, BLT and Sabicorp, were also parties to the agreement with Firmanox.
Rooplal claimed that the debt owed by Firmanox to VBS forms part of a larger fraudulent scheme perpetrated on VBS which resulted in a loss to it of more than R1 billion, “which scheme led to its ultimate liquidation”.
The court found Firmanox’s story “patently far-fetched and implausible” and “beset with contradictions and difficulties” and ordered its final winding up.
An astonishing array of high-yielding alternative investments were on display at the Alternative Investment Conference last week. From Moneyweb.
Given the flaccid returns from JSE stocks over the last decade, it’s little wonder that yield-hungry investors are scouting an incredibly rich landscape of alternative investments yielding 20% or more a year.
There were some astonishing products on display at the Alternative Investment Conference last week. They included private equity, hedge funds, cryptos, structured products, venture capital and 12J investment funds.
One of the problems with traditional private equity – investing in the non-listed space – is lack of liquidity. Investors only get a return once the investment is exited after five or seven years.
Sasfin’s new venture Scott Street One has solved this by creating a secondary market for pre-existing private equity investments, and is currently raising R750 million with a target return of more than 15%.
Developments like this could unlock huge amounts of capital for otherwise neglected though promising companies.
There has been some criticism of 12J investment funds for delivering below-par returns, but that’s certainly not the case for Infinity Anchor Fund, whose Infinity Performance Fund was the top performing fund in its class for the last year with an annual return of 15%. “We invest in asset rental businesses that have asset backing and regular rentals. The risk is low and this allows a clear exit strategy,” said Gaurav Nair, the company’s CEO.
Reka Borole and Ross Tasker of Khulisa Investment Partners pointed to the yield-rich opportunities lurking in 12J and structured finance products (sometimes wrapped in options to protect capital or sweeten returns) offering internal rates of return of up to 25%.
It is returns like these that that are capturing the attention of serious investors around the world.
“SMEs [small and medium-sized enterprises] in SA lag those in Europe due to lack of funding, and the effect is to lower employment and contribution to GDP,” said Tasker. “With strategic advice, the economy can have an entirely different trajectory.”
SMEs finally get some love from investors
There’s a swarm of companies now pouring money into SMEs, perhaps the most neglected segment of the SA economy.
“SMEs are the engine room of the economy and generate the most GDP, but only thrive when investors make liquidity available,” said Stephen Greenwood of Valloop Management. “Alternatives [investment] will dominate the investment space, and it will drive the need for product with a blending of risk and return.”
Valloop has solved the SME funding drought by providing a single portal for the types of debt typically required to grow a business: asset finance, working capital, private equity and vanilla debt.
Traditional sources of funding can cripple an SME with interest costs. They may pay 10% on private debt, 7.5% on asset finance, and 6.5% on real estate finance. Valloop starts generating a return on its various financing products as soon as the deal is concluded. This means it earns fixed annual income of about 3.5% and annual capital growth on about 16% – a total annual return of close to 20%.
This investment approach also eliminates the need to exit an investment after five years. As long as the returns are coming in, the fund can elect to stay invested for the long term. Workers are given a share in the business to align corporate goals with that of management and owners.
It’s a similar story at Aurik Capital, which has found a way to connect investors with SMEs in search of growth capital. It targets SMEs with turnover ranging from R12 million to R300 million, a good growth story and seasoned entrepreneurs.
“We have a pipeline of about 338 SMEs that have grown 28.9% annually in revenue, though this will likely drop to 25% post-Covid,” said Pavlo Phitidis of Aurik Capital. “Most of our businesses are not start-ups. They have a history of more than 17 years and are growing. SMEs have trouble accessing capital for growth, and investors are unable to tap into this market.”
Businesses can sign up online with Aurik and load up business information for assessment. If successful, they are put on a growth programme to make them investment-ready.
Targeting bigger SMEs
Caleo Private Equity takes a slightly different approach, targeting companies with turnover of between R20 million and R200 million. The fund looks for growing companies capable of either dominating their sector or being purchased by another player.
“Our investor base is made up people who built their own businesses and have good networks to other opportunities,” said Caleo director Glen Scorgie. “We have an aversion to funds which have a finite life – this means you’re selling because the fund is coming to the end of its life. This may not be the best time to sell.”
All private equity fund managers take an active role in the development of the investee companies, and bring their networks and capital to bear to get the best out of their investments.
The rise of hedge funds
Some hedge funds have delivered returns of 100% and even 200% during the year of Covid, and while these are exceptional, fund managers have found a ready ear from investors on the hunt for yield at a time of extraordinary volatility.
According to Jacques Conradie, MD of Peregrine Capital, the ability of hedge funds to adopt a bi-directional approach (profiting from rising as well as falling stock values) has helped these funds withstand the whiplash of the last few months. “A bi-directional investment strategy means we can back expected winners and bet against losers. In this year it was especially important to protect capital,” he said.
Long short list
“When did you last see a short list this long?” asked 36One fund manager Cy Jacobs, pointing to the trove of opportunities for hedge fund managers to profit from JSE companies that have tanked over the last five years, such as Steinhoff, Brait and Nampak. Previously only available to institutions and the wealthy, retail investors can now get involved through unit trust-type funds offered by 36One and others.
“We delivered a positive return when the rest of the market was falling, through the strategies we can apply; R1 million invested with us in 2005 would have given you R8 million today,” said Jacobs.
Source: Bloomberg via 36One Asset Management
Hedge funds cover a broad range of investment appetites. Some are very low risk, others quite aggressive. Some are highly geared, others have no gearing at all.
Given erratic returns on the JSE and declining bond yields, competition for investment capital will inevitably circle around to alternatives that can protect capital, outperform benchmarks and beat inflation. And there were plenty of those on display last week at the Alternative Investment Conference.