It’s been over a decade since the birth of the crypto industry, but governments around the world are still not sure where they stand in this regard, oscillating between reluctance and feeble attempts at creating regulatory frameworks for this new asset class that has developed into a global phenomenon they can no longer ignore. While countries like China, Bolivia and Bangladesh are decisively against crypto adoption and have gone as far as banning the use of digital currencies on their territory, the African continent has adopted a completely different stance.
It’s safe to say that the cryptocurrency industry didn’t have the best year. The crypto winter affected a large number of investors and traders and weakened people’s trust in digital currencies. And yet, neither the bear market nor the fluctuations in Bitcoin price seem to have discouraged African countries from advancing their pro-crypto policies. On the contrary, over the past few years, cryptocurrencies have become an extremely popular tool in Africa, especially in the retail sector, and continue to gain ground in many countries on the continent, pushing their way further into the local financial system.
Crypto has expanded across many African markets, with countries like Kenya, Nigeria, South Africa, and Tanzania being at the forefront of crypto adoption. The Central African Republic is the first country in Africa, and the second country in the world, after El Salvador, to adopt Bitcoin as a legal tender. What’s more, several African governments have already started initiatives to create their own state-controlled digital currencies, also known as central bank digital currencies (CBDC).
So, while the world still debates whether digital assets are the future of finance or not, this might actually become a reality for the African continent.
Crypto retail transfers dominate the market
While cryptocurrencies were initially designed as an alternative means of payment, they rose to prominence as a speculative trading instrument or as a store of value, given their inherent volatility. At least, that’s the trend in European and American markets, where people either speculate on crypto price movements for quick financial gains or use digital currencies as an investment option that can help them diversify their portfolio, buying and holding different assets for the long term, in hopes their value will appreciate.
However, in Africa, things look a bit different when it comes to crypto usage, both in terms of trading volume and purpose. According to a recent report conducted by Chainalysis, it appears that crypto has gone back to its primary use in the African region, serving mostly as a payment method in the retail industry.
The study shows that sub-Saharan Africa has a low crypto transaction volume compared to other regions like North America or Western Europe. However, this is not telling of the level of crypto adoption in the African markets, which far surpasses those of other markets in more developed parts of the world.
The aspect that stands out the most when analyzing the current state of the cryptocurrency market in Africa is the high volume of individual retail transfers that take place on informal peer-to-peer (P2P) networks. It’s therefore challenging to determine which countries in Africa are most inclined to use crypto as a payment mechanism, but chances are this phenomenon is present across the entire continent.
The difference between crypto’s use cases in Africa and other regions stems from the fact that African citizens have lower purchasing power than people in Europe and America, for example. This means they don’t have the possibility to speculate on the sudden price swings that characterize the crypto market in order to generate gains. Instead, they turn to crypto to find solutions for the real-world issues that have been plaguing them for decades – limited access to banking services or expensive cross-border transactions.
Addressing longstanding issues
Although African economies are the fastest-growing in the world, the financial systems in many countries are inherently broken due to poor governance, which leaves citizens struggling with all sorts of money-related issues that have a direct impact on their quality of life.
One of the biggest problems that people in Africa deal with is the high costs of cross-border transactions. Whether we’re talking about sending or receiving money in the region or to and from other parts of the world, Africa has the most expensive remittances in the world. That explains why such a large number of people are now using cryptocurrencies to move money across borders. Apart from the lower fees, people also enjoy faster transactions as transfers are concluded almost instantly.
The African economy is also greatly affected by the constant volatility of the local currencies, which has led to numerous financial crises over the years. In this context, cryptocurrencies act as a hedge against these fluctuations, despite being extremely volatile themselves. Since people only rely on digital assets to conduct quick transactions, they are not affected by the sudden price swings that take place in the crypto market. African citizens required a vehicle that would allow them to transfer money safely and quickly from one party to another, and that’s exactly what the crypto market delivered. That’s also why the current bear market, which some pundits predict is finally coming to an end, didn’t have a significant impact on the rate of crypto adoption in Africa.
There are certainly many gaps in the traditional financial systems in Africa that cryptocurrencies might be able to fill, with rampant inflation, financial exclusion, high transfer fees and poor money management being the most notable issues in the African market. It’s also true that digital currencies don’t provide a perfect solution, especially considering that crypto transfers require access to the internet, which many African citizens don’t benefit from.
However, for the time being, cryptocurrencies have managed to make life easier for many people across Africa from a financial standpoint, and that’s something that none of the governments has been able to do so far. So, we can only hope that as the crypto industry matures, crypto users in Africa will be able to enjoy further perks.
