Most people associate Africa with labels such as poverty, famine, and underdevelopment. You would be surprised to find that, when it comes to cryptocurrencies, Africa is ahead of most countries, including more developed economies. Since 2020, the African crypto market has surged, according to a report by Chainalysis, a company specialized in digital analysis. The region has contributed 7% of all retail crypto trades, which is higher than the global average (5%).
Apart from this, the Chainalysis report also showed: During the 12 months between July 2020 to June 2021, the African crypto market attracted $105.6 billion worth of cryptocurrencies, a twelve-fold increase year on year. From these numbers, we can tell that this smallest crypto economy has a great passion for cryptocurrencies. Furthermore, the rate of crypto adoption in Africa is also rising sharply. Of the top 20 countries ranked by crypto adoption, five are African countries: Kenya (ranking 5th), Nigeria (6th), Togo (9th), South Africa (16th), and Tanzania (19th).
There are two reasons behind the high crypto adoption in these African countries.
The first reason lies in the soaring domestic inflation. In June 2021, Nigeria’s inflation rate was 17.8%, according to the latest data from the National Bureau of Statistics in Nigeria. In March this year, the country’s inflation rate hit a four-year high, reaching 18.2%. Other African countries with double-digit inflation rates include Ghana, Zambia, and Zimbabwe. Suffering from poor economic policies and administrative incompetence, citizens of these countries have been desperate to escape from the national central bank and thus shifted their focus to cryptocurrencies such as Bitcoin that are far more appealing.
The other reason is that the financial sector in most African countries remains underdeveloped. In such countries, cross-border remittances are difficult and come with staggering service fees. For example, if a Nigerian working in the United States remits $100 to someone living in the home country through the traditional means, the various service fees can add up to almost 10%, and it takes about 3–5 days for the money to reach the account. However, using Bitcoin, the transaction fee is only 2%-3%, and the transfer is much faster than traditional remittances. It is fair to say that the emergence of cryptocurrencies such as Bitcoin has undoubtedly provided people in these countries with a better choice.
Most of the citizens living in African countries do not have a bank account. As a matter of fact, only 9% of the total African population (less than 100 million people) have a bank account. However, most people living on this continent hold smartphones. For instance, in South Africa, 76% of citizens own a smartphone. Compared to entering the bank as well as dealing with tellers dressed in suits and fully armed security guards, South Africans prefer to have their funds transferred through a crypto wallet registered with smartphones on mobile networks that cost less.
Throughout the African continent, crypto adoption has become an unstoppable trend. For instance, Nigeria has become the country with the highest proportion of crypto holders in the world. According to an online survey conducted by the statistics platform Statista in 2020, 32% of Nigerians have owned or used cryptocurrency, higher than all the other countries. This shocking data alarmed the Nigerian government.
In fact, as early as 2017, the government prohibited domestic financial institutions from holding and trading cryptocurrencies; however, the ban was never strictly enforced. This year, the Central Bank of Nigeria (CBN) restated this decree and demanded domestic banks, non-bank financial institutions, and other financial institutions to immediately close all accounts involving crypto transactions. These entities were also banned from buying/selling cryptocurrencies or providing payment facilities for such transactions. CBN warned that “breaches of this directive will attract severe regulatory sanctions.”
The letter on these two decrees sent a clear message: Cryptocurrency shall be excluded from financial institutions in Nigeria. On the other hand, the authorities seemed to have neglected the adoption and trade of cryptocurrencies among its citizens. In a speech on February 26, Nigeria’s Vice President Yemi Osinbajo noted that Nigeria’s central bank and securities regulator need to find ways to regulate cryptocurrencies rather than prohibiting their use, which is the only way to drive economic growth and institutional innovation.
Indeed, by curbing the strong market sentiment, a sweeping approach is often counterproductive. Sound government regulation will provide an enabling environment for cryptocurrency to integrate with the traditional financial system, which will lead to a more prosperous financial market backed by sensible legislation.