International Finance
Currency Featured

IF Insights: Analysing the ‘Silent Revolution’ in African crypto sector

IFM_Crypto
Nigeria is leading the 'Crypto Revolution' in Sub-Saharan Africa, by securing the second position on the Global Crypto Adoption Index, up from 11th in 2022

The media spotlight is right now on the trial of the FTX founder and CEO Sam Bankman-Fried, whose venture’s bankruptcy in 2022 created ripple effects in the cryptocurrency sector. Far away from this mess, Sub-Saharan Africa is quietly witnessing a noteworthy surge in its blockchain activity.

According to the latest Chainalysis report, the region contributed 2.3% of the global cryptocurrency transactions in 2023, with the virtual currency’s adoption ratio rising steadily.

“With USD 100 billion in total transactions, the adoption of cryptocurrencies has persistently penetrated pivotal markets within the region,” the report noted.

Understanding The Full Picture

Nigeria is leading the ‘Crypto Revolution’ in Sub-Saharan Africa, by securing the second position on the Global Crypto Adoption Index, up from 11th in 2022. Kenya, Ghana, and South Africa occupied the 21st, 29th, and 31st rankings respectively.

Inflation and currency restructuring have forced Nigerians to explore crypto as a viable investment alternative. The country, in 2023, has witnessed a 9% surge in cryptocurrency transactions.

Sub-Saharan Africa may be the smallest crypto economy, as it accounted for 2.3% of global transaction volume between July 2022 and June 2023, but the digital currency market is becoming more retail-driven, with a larger share of transaction volume coming in transactions under USD 1 million in value compared to most other regions.

Chainalysis also found the emergence of stablecoins off late, as the latter goes through less price volatility than Bitcoin. Moyo Sodipo, co-founder and CPO of Nigeria-based cryptocurrency exchange Busha, told Chainalysis, “Around 2019 and 2020, there was a big frenzy for Bitcoin. Now that Bitcoin has lost a lot of its value, there is a desire for diversification between Bitcoin and stablecoins.

However, market shifts aren’t dampening activity. People are constantly looking for opportunities to hedge against the devaluation of the Naira and the persistent economic decline since COVID.”

Bitcoin As A Hedge Against Inflation

Due to its decentralized architecture, Bitcoin’s value cannot be diluted through inflation, as against the traditional currencies.

However, Bitcoin has one disadvantage against traditional investments like gold as the digital currency’s value is primarily driven by market demand and supply, with no tangible asset backing it up. So, the Bitcoin price can see dramatic rises and falls over short periods.

Also, the lack of a universal regulatory landscape for cryptocurrencies is another factor which is casting a shadow over Bitcoin’s feasibility as an inflation hedge.

Knowing the complexities surrounding Bitcoin’s investment potential, experts are advising Bitcoin to be used as a hedge against inflation, but as a part of a diversified portfolio.

In inflation and debt-affected Sub-Saharan Africa, cryptocurrency now has emerged as an attractive means of storing value, preserving savings, and attaining greater financial freedom.

Take Nigeria for example, where the inflation increased to 25.8% in August 2023. The central bank’s decision to float the national currency against the US dollar has also resulted in a depreciation of the naira.

Also, the lack of access to traditional forms of finance is making the overall population incline towards less conventional transaction formats.

“A young and tech-savvy society, paired with the falling prices of smartphones, is making cryptocurrency-related transactions more accessible. A recent study from KuCoin found that 35% of Nigerians aged between 18 and 60 are investing or trading bitcoin or other cryptocurrencies,” remarked an article from The Banker.

“To open a bank account, most Nigerians have to physically go to the bank, while, to access cryptocurrencies and make transactions, you only need to have internet access on your mobile phone. Now there is more information and knowledge about cryptocurrency and, because of the recent devaluation of the naira, educated people are actually using it as a tool against high inflation,” remarked Yomi Bilewomo, growth marketing manager at bitcoin exchange Nairaex.

In 2022, Binance stated that 38% of the 41.9 million world’s crypto-holding gamers were between 21 and 38, and the country may become a blockchain gaming hub.

“It was reported by Binance that 80% of gamers with blockchain wallets are willing to purchase gaming tokens with their digital currencies. With an estimated 5.9 million gamers with cryptocurrencies across Africa and the Middle East, Africa’s numbers could increase, considering the predictions that the continent will have the biggest youth population by 2050,” stated Technext, while adding, “By developing games with blockchain elements, Africa might add to the industry’s market cap in the coming years. The excitement is here. The future might belong to Africans who swiftly adapt and ride on trendy trends.”

However, Bumps Are There

While the global crypto sector witnessed a bloodbath in 2022, the African blockchain community defied the odds by registering a yearly five-fold funding increase.

Blockchain venture funding in Africa amounted to USD 89.6 million in 2021, only to soar to USD 474 million in 2022, as the continent became the only region to record a triple-digit percentage increase in its share of the total global blockchain venture dollars raised.

However, in 2023, venture capital funding in the African crypto sector fell by 50%. Some USD 1.19 billion was raised in the first half of 2023, a ratio which was down by more than half on the total from the corresponding period in 2022.

In June 2023, Egypt’s crypto sector recorded the most disclosed deals (USD 442.55 million), followed by Kenya (USD 344.30 million), South Africa (USD 329.55 million) and Nigeria (USD 166.45 million).

So going by the data, it seems that Nigeria, which has the opportunity of becoming a global crypto hub, is not performing well on the funding front.

Conclusion

South Africa has announced a deadline of 30 November 2023 for all crypto exchanges operating in the country to obtain licenses, with the country’s Financial Sector Conduct Authority receiving approximately 20 license applications and expecting more before the deadline.

Nigeria has approved its National Blockchain Policy, which, apart from creating a legal framework for the sector, will also help the nation to revolutionise industries like finance, healthcare, transportation, governance and supply chain management through crypto.

Mauritius too has brought a comprehensive regulatory crypto framework recently, with the country’s central bank eyeing to launch a pilot CBDC (Central Bank Digital Currency) project by 2023 end.

So Africa’s plan is pretty clear here, to form a safe operational environment for the crypto sector. While the region possesses the promise of becoming a huge blockchain market in the coming years, the only roadblock is the uncertain funding environment.

What's New

IF Insights: Will BoE react to plummeting UK inflation with rate cuts?

IFM Correspondent

Stellantis to establish new factory in South Africa soon through ‘Greenfield Project’

IFM Correspondent

Leading the way: Regency’s award-winning plans now available to individual investors

IFM Correspondent

Leave a Comment

* By using this form you agree with the storage and handling of your data by this website.