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Interest in Cryptocurrency, a digital currency based on a revolutionary technology called blockchain, is growing steadily in Africa. Its adopters range from businesses using it for payments, fintech startups using it for making new innovative products as well as individuals using it to transfer money cross border and storing value.

The idea of Cryptocurrency was conceptualized in 2008 by Satoshi Nakamoto in the post-recession era to make global payments easier and secure without any central control or bank. Satoshi believed that traditional banking and financial system were not transparent and secure enough, were designed to fail and ordinary people don’t need to rely on them for payments. By adopting autonomous and decentralized currency, one could avoid the effects of future market downfall. 

Since then cryptocurrencies like Bitcoin (BTC) and its clones, also known as altcoins, have been growing in popularity and in use globally with various applications including banking, payments and investing/speculation. Such that the total daily trading volume of BTC, the most popular cryptocurrency, is around US$46 billion and market cap touching US$115.482 billion on 23rd March 2020.

Cryptocurrency adoption and demand in Africa has been growing steadily, based on trading volume data from popular exchanges in the region. According to popular exchange LocalBitcoins, its daily volume in South Africa, Nigeria, Kenya, and Tanzania was around US$615,370 (R10.9 million ZAR), US$1.3 million (N498 million Naira), US$3,57,394 (38 million KES), US$55,341.80 (126 Million TZS) respectively on 21st March 2020. 

Another popular exchange Luno reported volume of 2550 BTC and 13655 BTC in March month for Nigeria and South Africa respectively. 

Africans mainly use cryptocurrencies like Bitcoin, Litecoin & Ethereum for applications in Money Transfers, Banking, Fintech & Investing.

Reasons for adoption of Cryptocurrency in Africa

There are many reasons for the growth of crypto usage in Africa, but unstable local currencies could be a major contributing factor among other reasons.

Rahul Sharma, forex market analyst from Forex Brokers South Africa suggested that “hyper Inflation in most African countries is making their local currencies unstable and very volatile, so the users prefer the digital currencies that are much stable and widely accepted across the world.”

“Instability of economies in most of Africa makes digital currency viable medium for investments and, also for storing the value in some cases,” he added.

For consumers and business, it is a better medium to pay and get paid from anyone in the world for shopping, paying suppliers and remittance to and from relatives abroad – as it has low fees than traditional banks in Africa which charge higher fees in volatile currency markets and unstable political & economic environment.

Easily available Internet access and Mobile Penetration and growth have made the adoption of digital currency accessible to everyone via mobile apps. United Nation’s Africa Renewal magazine reported that cryptocurrency-based remittance services and exchanges are opening in every corner of Africa to meet this demand.

Cryptocurrency adoption is increasing among African Businesses, Fintech Sector & Investors

New technologies and applications based on Blockchain are being discovered on a daily basis by African entrepreneurs and innovators that can be implemented in other countries for their benefit. Some economists believe that Blockchain will empower innovation and blossom on the continent.

Fintech sector which is very disruptive in Africa in adopting new technologies like mobile money. They are also experimenting with Cryptocurrency and Blockchain in streamlining their operations across African borders and worldwide. Many fintech startups have built money remittance services, crypto exchanges and blockchain apps catering to various applications.

Many African Businesses and Startups are now accepting and paying in Cryptocurrency to reach global suppliers and buyers. This has been made possible by a growing number of disruptive payment gateways and exchanges in Africa and globally namely – Luno, Payfast, Paychant, Bitpay (global gateway), CoinGate, Coinbase, Binance (global exchange with presence in Africa), etc.

About 15+ cryptocurrency-related operations began in Africa in the recent 2-3 years which include main names like – VALR, Luno, Abra, Geopay, Bitmari, etc. 

South Africa–based Luno Exchange, the leading crypto exchange in Africa was established in 2013. It now has 1.5 million customers in over 40 countries worldwide and is the first crypto exchange to be based in Africa with a presence in SA and Nigeria. They also offer ZAR/BTC, NGN/BTC crypto trading pairs.

VALR is the second-largest crypto exchange in Africa, like Luno it is also based in South Africa. It has 1000s of customers in Africa and recently crossed the daily volume of 500 BTC on 11th December 2019.

Investing and trading in Bitcoin and other cryptos are also growing in African countries with services like Crypto Exchanges and Crypto CFD brokers growing in popularity among African traders. Like in South Africa, many brokers are offering bitcoin as a CFD trading instrument to SA traders. 

There are 4 major crypto exchanges in Africa namely – Luno, VALR, iceCUBED (ice3x) and BitPesa and dozens of CFD brokers under FSCA are also offering BTC and Crypto trading.

Meanwhile, there are also many cryptocurrency-based remittance services that are opening in various countries. These services include Abra working in Malawi and Morocco, GeoPay in South Africa, BitMari in Zimbabwe and London-based Kobocoin working in Nigeria.

Kenya’s BitPesa allows virtual remittances and money transfers to and from African and international locations competing with banks and services like Moneygram and Western Union with their competitive rates, using Cryptocurrency as a transfer medium. Individuals can use their mobile wallets like MPesa to easily send and receive money using a global cryptocurrency network. 

Innovative applications like Plaas are using BTC and blockchain to enable farmers to manage their stock, help them in price and market discovery by listing the stock on commodities and futures contracts market.

Regional Governments also don’t want to be left out in this crypto and blockchain growth as many governments like – Tunisia, Senegal have recently issued their own digital currencies.

Risky medium to hold currency value and investing

Many experts and pioneers in this field argue and warn that Cryptocurrencies are risky medium to hold monetary value and can’t be considered a viable currency, some even go ahead in comparing it with Ponzi scheme in which the last entrant loses the most. 

Many Central Banks have warned against the use of cryptocurrency labeling crypto-assets like digital currencies as not legal tender and advised to apply own discretion while using them.

Cryptocurrencies like – Bitcoin were designed in the post-2008 recession period with a motive of a decentralized currency with transparency and control to masses advocating its low fees, security and easy accessibility over the internet.

But they have become merely a tool for speculation – as they are being promoted to the masses as investment and speculative instruments, and this is undermining its base principle of autonomous currency with low fees and banking the unbanked. 

Some reports even suggest that most demand for BTC is speculative in nature in major African countries like South Africa and Nigeria where investors are using it more for speculation than in other applications as demand has a direct correlation to Google Searches denoting rising demand with rising BTC value. And all the trading is done on unregulated exchanges, which are not governed by local jurisdictions, making the legal redress very difficult for the users.

Cryptos are not safe for investors as they don’t hold value like commodities i.e: gold or oil and It is difficult to predict their movement using market technical and fundamental analysis as their price movements are purely based on demand, human sentiment and unknown factors, unlike other instruments that are based on economic and geopolitical factors.

BTC is very volatile – it fell sharply in 2018, 2019 and recently in March 2020 (during coronavirus crisis) where it lost almost 60-70 percent of its value in a single month making it a risky medium for value holding and investing.

Crypto Regulations in Africa are slow-paced

Crypto Regulations in most of Africa are yet in development and slow-paced and are not catching up with the fast adoption rate. Some countries have moved forward in regulating the crypto industry with draft rules. While some countries have entirely banned virtual currencies. But in most of Africa, it remains a grey area, so cryptocurrency user safety is a big concern. 

In Southern Africa – South Africa, which is the largest crypto trading market in Africa is moving towards regulating the cryptos and imposing strict restrictions. But for now, the market remains largely unregulated, and SA’s market regulator FSCA warned public “cryptocurrencies are not regulated in South Africa. Anybody trading in cryptocurrencies in South Africa should do so at their own risk.”

At the end of 2019, it was reported that the South Africa Reserve Bank (SARB), was planning on introducing regulations on the use of cryptocurrencies for currency control. Many South Africans use Cryptocurrency as a method to send money out of the country higher than the allowed annual foreign investment limits. This move is said to be in an effort to control this unregulated currency exchange.

Also, some big banks in SA – like the First National Bank (FNB) started to restrict companies that deal in cryptocurrencies by closing bank accounts of such businesses. South African Revenue Service classifies Bitcoin as an intangible asset, that is subject to income tax.

In East Africa – Bank of Tanzania (BoT) has banned the use of cryptocurrencies. So, it is illegal to trade or hold cryptocurrencies in Tanzania. 

Also, the Central Bank of Kenya (CBK) released public notice highlighting the risks of cryptocurrencies under their public release title ‘Caution to the Public on Virtual Currencies such as bitcoin’. Virtual currencies are not legal tender and remain unregulated in Kenya, so there is no investor/user protection in case the exchange goes under.

In West Africa – Nigeria is the largest crypto hub, but its use and trading are still unregulated. The Central Bank of Nigeria has declared cryptocurrencies as being non-legal tender.

But the use of cryptocurrencies has not been banned entirely. It was reported that Nigeria’s Securities and Exchange Commission (SEC) set up a committee in 2019 to create a framework for the regulation of virtual assets (VFAs) and local exchanges in Nigeria. So, there could be some new framework in the future for a regulated environment for Cryptos.

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