South Africa's exchange controls, inherited from the apartheid era and never fully dismantled, restrict how much money residents can move offshore. That bottled up local demand for crypto, which meant Bitcoin consistently traded at a premium on SA exchanges compared to the international price.

The play was simple. Use your annual R1 million Single Discretionary Allowance to buy stablecoins cheaply on an offshore exchange, transfer them back to a local platform, sell at the local premium and pocket the difference. At peak, spreads exceeded 20%. As Currency Hub co-founder David Farelo put it: "If South Africa did not have a restricted currency, this arbitrage would not exist."

By the early 2020s, it had become a fully corporatised industry. Companies like Shiftly, Kastelo, Currency Hub, Future Forex, FiveWest, and Ovex built software that monitored markets around the clock and executed trades automatically. Currency Hub was running 500 transactions a day. Kastelo went further, letting people without sufficient capital participate by renting their SDAs for between R2,000 and R10,000 a year.

At its peak, clients trading their full R10 million Foreign Investment Allowance were averaging around R150,000 in net profit. Households using an interspousal loan to double their allowance to R20 million were clearing R300,000. For a while, it was money that required process rather than skill.

More participants meant tighter spreads. The spread compressed from around 20% in 2016 to roughly 2% by the mid-2020s. The fees didn't compress with it. Swift fees, forex fees, exchange fees, and service provider costs could consume 30% to 50% of annual earnings.

Then SARB started tightening. A circular prohibited residents from funding international trading accounts using SA credit, debit, and virtual cards. Banks began terminating accounts of arbitrage-focused clients.

In May 2025, a legal twist briefly reopened the question. The Pretoria High Court ruled that cryptocurrencies do not constitute "capital" under SA's Exchange Control Regulations, in a case involving a company that had shipped 4,405 Bitcoin worth approximately R556 million to a Seychelles-based exchange. SARB filed an appeal within two weeks. The loophole closed as fast as it opened.

In November 2025, SARB imposed a blocking order on Kastelo's Access Bank account. The allegation: Kastelo had been renting SDAs from people who couldn't afford to arbitrage and lending them money to bridge the gap. Kastelo's urgent application to have the order set aside was dismissed. Shiftly had already closed its arbitrage service in October. Kastelo shut down in December.

With both major platforms gone, the spread should have widened. It didn't. "Crypto arbitrage spread is correlated to appetite for crypto generally, which has dropped significantly in the last few months," said Carel de Jager, CEO of analytics firm Silver Sixpence. 

A strong US dollar, falling local crypto sentiment, and deeper market infrastructure were all compressing the premium simultaneously. By early 2026, the spread sat at approximately 1% before costs. After fees, effectively zero.

The February 2026 Budget delivered the formal end. Finance Minister Godongwana announced that crypto assets would be brought within South Africa's capital flow management regime for the first time. In April 2026, National Treasury published the Draft Capital Flow Management Regulations 2026, proposing to replace the 1961 Exchange Control Regulations entirely.

The draft goes further than extending the existing allowance regime. Authorities would gain powers to search individuals, demand declarations, and seize assets. Crypto holders facing forfeiture would be required to furnish passwords and access codes. Contravention: a fine of R1 million and five years in prison.

The harder question is whether this was a legitimate financial innovation that regulatory overreach killed, or an inevitable arbitrage play that was always going to end when the state caught up.

The case for the industry: The arbitrage existed only because South Africa maintains exchange controls that most comparable economies dismantled decades ago. Practitioners were using legal allowances through FSCA-regulated companies. Farzam Ehsani, CEO of VALR, has argued that the new regulations rely on "outdated principles that fail to account for the decentralised nature of cryptocurrencies."

The case for SARB: Kastelo lending money to people so they could rent their SDAs and route capital offshore was always going to draw attention. The exchange control regime exists to prevent unmonitored capital flight. Crypto provided new rails for that flight.

The deeper concern is whether the incoming framework leaves room for legitimate cross-border infrastructure. BVNK, the SA-founded stablecoin payments company acquired by Mastercard for R30 billion, built a significant business on the same stablecoin rails that arbitrageurs were using informally, but legally, transparently, and at scale. The arbitrage industry exploited a gap the government was always going to close. What replaces it will determine whether South Africa's business reform agenda extends to the capital flow rules that shape its cross-border payments ambitions, or stops short of them.

This news first appeared in our 29 April ‘26 edition, featuring the Launch Oracle pre-launch platform.

We covered how BVNK built and sold its stablecoin business to Mastercard for R30 billion. Read our piece on institutional blockchain in SA for context on where the stablecoin rails are heading. Our analysis of SA's small business reform agenda covers where exchange controls fit into the broader picture.

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