Although the sector has been in for somewhat of a wild ride this year, with scandals relating to the collapse of FTX and plunging prices shaking the confidence of crypto-enthusiasts, the industry has been experiencing remarkably positive growth signals across the African continent.
Small retail payments across Africa are helping to drive crypto adoption and usage, with African countries posting the world’s highest proportion of crypto retail payments.
According to a recent report by Chainalysis, a crypto data analytics firm, although Sub-Saharan Africa accounts for the lowest transaction volume of any region at just 2% of global activity, the continent contains some of the most mature and well-developed crypto markets of any region.
This is thanks to the widespread penetration of cryptocurrencies across the continent, which have achieved surprisingly high levels of integration into everyday financial transactions. As evidence of this, Nigeria and Kenya rank 11th and 19th in Chainalysis’ ‘Global Crypto Adoption Index’.
Unlike many other parts of the world where cryptocurrencies are viewed primarily as a form of speculative investment, the spread of cryptocurrencies across Africa has been driven by small retail transactions. Peer-to-Peer (or P2P) exchanges have been essential to this, which provide millions across the country with access to the best crypto South Africa has to offer.
Opportunities for entrepreneurs
Given that cryptocurrencies have become so well integrated into the economy, Africa presents a uniquely prosperous environment for entrepreneurs in the sector.
As retail usage is already so high and looks set to continue this upward trajectory, there are a huge number of opportunities for start-ups and other technology companies to develop solutions that facilitate retail, commercial and peer-to-peer transactions.
These opportunities are amplified by the fact that Africa — and Sub-Saharan Africa in particular — doesn’t have the same level of institutional-level traders in comparison to its northern neighbors. Crypto growth is primarily driven by organic, retail level usage. This has created a uniquely prosperous environment for the crypto sector on the continent.
The need for regulation
While the adoption of cryptocurrencies across the continent is clearly on a positive trajectory, there is an urgent need for regulators to respond to this new technology, particularly as it becomes more prevalent.
Currently, only around one-quarter of the countries in Sub-Saharan Africa formally regulate cryptocurrencies. At the same time, however, two-thirds of countries have implemented some restrictions, with six countries having banned them completely. Additionally, two other countries — Zimbabwe and Liberia — have implemented implicit bans by directing local banks to stop processing crypto transactions.
The need for regulation is even greater given how volatile and decentralized cryptocurrencies are, which poses challenges for regulators and policymakers alike. This tension has become even more evident in the wake of the collapse of FTX, which was formerly the world’s third largest crypto exchange.
If cryptocurrency hopes to have a future in Africa, it is clear that regulators and policy makers across the continent urgently need to respond. As the volume of transactions is constantly increasing, this need has never been more pressing.
The future of crypto in Africa
Despite these regulatory challenges, which are admittedly similar to those faced by governments and policy makers in other regions of the world, the future looks very bright for the crypto sector in Africa.
Retail data continues to be strong, with adoption increasing yearly. Additionally, African governments are clearly beginning to take note. In recent months, the Central African Republic has adopted Bitcoin as a legal tender, while Nigeria has recognized the need for a central bank issued digital currency.
While some African countries have recognized the economic and financial potential of cryptocurrencies, others have taken a more aggressive stance against them. This wide-ranging difference in approach speaks to the need to develop a continent-wide framework for the regulation of this new technology.
A consistent, continent-wide approach to regulating cryptocurrencies will not only allow more Africans to take advantage of this revolutionary technology, it will also help to offer better, more consistent consumer protections, regardless of where you live.
The current fragmented approach to regulation on the continent is far from ideal. If a continent-wide policy is not developed, Africans could miss out on the crypto revolution.
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