Bitcoin was created in 2009 and its popularity led to the creation of more than six thousand additional cryptocurrencies. Cryptocurrency exploded in value and trade volume in 2020, but it has been growing much faster than expected in Africa. This might be a surprise to those who held stereotypical views about Africa and the adoption of new technologies, but not to those who have been monitoring economic activity on the continent. Let’s take a look at the hard data on the growth of cryptocurrency in Africa before discussing the reasons why it is growing so fast.
The Hard Data on Africa’s Cryptocurrency Market
African countries like Nigeria, South Africa, Uganda and Kenya are among the top ten countries when it comes to Google searches about Bitcoin. In 2019, Kenyan businesses started accepting Bitcoin. By the end of the year, transactions estimated to be worth more than 1.5 million dollars were completed. Their use exploded when Nigeria and other African nations were hit with a severe shortage of foreign exchange in 2020. Small scale importers had to adopt Bitcoin to pay for items. In Kenya, cryptocurrency exchange volume quadrupled over the course of 2020.
The Factors Driving These Trends
One of the factors behind the rise of cryptocurrency in Africa is the lax regulatory environment. This has led to a decentralised use of both Bitcoin and blockchain based products, and eventually, widespread adoption. This is partially because cryptocurrency ties into the mobile money revolution in Africa driven by the difficulty of access to traditional financial institutions.
Furthermore, African countries share economic problems due to volatile currencies and high inflation rates. Cryptocurrencies are a potential solution to that. In fact, this is why Nigeria has already seen several local platforms arise that support the purchase and sale of cryptocurrencies as well as exchanging them with the national currency.
Predictions for the Future
Many people on the continent are working in the cities and sending money to relatives in the countryside, or they’re working abroad and sending money home. Payment processors take nearly 7% of every international remittance, but the fees can be as high as 9% if you’re sending less than $200 USD in certain countries. The growing adoption of cryptocurrency allows people to securely send remittances at a relatively low cost.
This is why the largest cryptocurrency platform in Nigeria already allows businesses to receive payment in cryptocurrency as well as supporting cryptocurrency remittances. We can expect cryptocurrency use to take off as the ability to receive and spend cryptocurrency expands. Furthermore, African nations will reap the rewards as recipients receive a larger share of the money to spend and invest. This is because remittances account for a large share of the GDP of many African nations.
You also have countries like the Seychelles positioning themselves as cryptocurrency hubs. Their goal is to grow to rival other financial hubs like Malta and Switzerland. All they have to do is have positive regulatory frameworks for cryptocurrencies and a neutral tax system. Then they’ll benefit as a growing number of countries ban or severely restrict cryptocurrencies.
You also have online platforms such as Easymarkets that make trading easy and contribute to the increase in crypto trading. They allow the trading of cryptocurrency prices against the US dollar via contracts for difference (CFDs), which enable speculation on upwards or downwards price movements without needing to own the underlying coin. This makes crypto trading more accessible to many investors across the continent.
Africa is often seen as being on the fringes of the global financial system. However, cryptocurrency could help fill some of the institutional and infrastructural gaps that have plagued the continent for so many years.