Sub-Saharan Africa calls for cryptocurrency adoption

Translation: Asia, Africa and Latin America Web3 Research Institute

Compiled by: vand

Typesetting: Xiaolu

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Similar to previous years, Sub-Saharan Africa is the smallest crypto economy, accounting for 2.3% of global trading volume from July 2022 to June 2023. During this period, the region gained an estimated $117.1 billion in cumulative on-chain value.

When investigating cumulative transaction value, centralized exchanges were the most commonly used platform type, contributing more than half of the transaction volume. The sub-Saharan cryptocurrency market also sees more small orders than most regions. Compared to other regions, there is a greater share of deals with transaction values below $1 million.

Although cryptocurrency trading volumes are not high in sub-Saharan Africa. But careful analysis shows that cryptocurrency penetration is quite high and has become an important part of the daily life of many residents. No country exemplifies this better than Nigeria, which ranks second in the global cryptocurrency adoption index.

Citizens flock to Bitcoin and USD stablecoins to protect against inflation and debt crisis

No region is more dominated by BTC than sub-Saharan Africa. Because the share of BTC trading volume is higher than any other region.

Residents of sub-Saharan Africa may be turning to so-called digital gold (BTC) as an alternative monetary store of value.

Rising inflation and debt crises in many countries in the region make cryptocurrencies an attractive store of value for purposes such as preserving savings and enabling greater financial freedom.

In Ghana, for example, inflation has risen for 13 consecutive months, reaching its highest level in 20 years in June 2022: 29.8%. With relatively few financial opportunities, many Ghanaians have adopted Bitcoin. Nigeria, Kenya and South Africa have all faced similar issues in recent years and have seen massive adoption of cryptocurrencies,** which is not a coincidence of market developments. **

Local experts tell us that some market participants have already switched from Bitcoin to the use of stablecoins. Because the price volatility of stablecoins is much smaller than that of BTC, and the price of Bitcoin is far lower than its historical high.

Moyo Sodipo, co-founder and CPO of Nigeria-based cryptocurrency exchange Busha, said: “When Busha was growing rapidly in 2019, Bitcoin was pursued by many people. Many people did not accept stablecoins initially. But now it has entered a bear market, People want more choices between Bitcoin and stablecoins. But market changes have not dampened economic activity. People continue to look for opportunities to hedge against the depreciation of the naira and the ongoing economic recession since COVID.”

Spotlight: Nigeria is Africa’s largest crypto economy

Nigeria has the largest population and largest economy in sub-Saharan Africa, as well as the largest cryptocurrency economy in the region. Despite entering a bear market, Nigeria’s crypto economy continues to grow. Its cryptocurrency trading volume continues to see positive year-over-year growth. The 9.0% growth rate ranks third among the six countries.

Cryptocurrency is one of the solutions to Nigeria’s economic problems. Since 2016, Nigeria has experienced two major economic recessions, political instability, COVID-19 and plummeting oil prices. As a result, Nigerians of all ages face high unemployment, with more than 20 million people looking for work in 2021 and many migrating to other countries.

The recent naira crisis has exacerbated these problems. In 2022, the Central Bank of Nigeria announced its intention to redesign the naira currency and issue new banknotes to combat inflation and counterfeit currency and control the amount of currency in circulation.

The resulting cash shortage has caused problems for the unbanked and caused uncertainty about the value of old banknotes. The unstable economic environment has encouraged many citizens to seek financial alternatives, giving cryptocurrencies an opportunity to expand their markets.

These changes are reflected in the data, with interest in Crypto generally rising as the value of the naira drops. Peaks around May and November 2022 may be users seeking to trade on the volatility triggered by the TerraLuna and FTX crashes respectively, rather than local economic conditions.

At the same time, interest in altcoins has been growing in the region.

Moyo Sodipo explained: “During market black swans, we see currency buying frenzy. When there is a new memecoin like Dogecoin or Shiba, it triggers a buying frenzy. There is always someone interested in a memecoin that seems to make you thousands of dollars. tokens of interest.” The chart below shows the increase in altcoin activity, as well as the proportion of monthly stablecoin value.

Improvement of regulatory policies paves the way for large-scale adoption

Improvements in regulatory policies have brought new developments to exchanges in sub-Saharan Africa. At the end of 2022, the Financial Conduct Authority (FSCA) announced a licensing regime for cryptocurrency businesses and declared crypto-assets to be financial products, giving them higher legal backing and enabling financial investigators to better combat fraud in the sector. illegal activities.

The country’s positive attitude reduces unregulated uncertainty and encourages the trading of digital tokens. In fact, the country’s citizens have traded billions of dollars worth of digital currencies in recent years.

According to Marius, General Manager for Africa at South African exchange Luno, “Currently, the main use case for South African cryptocurrencies revolves around investing. The number of customers holding cryptocurrencies on Luno has increased by almost 50% in the past 3 years. He Adding: “In a well-regulated market, we tend to be responsible for the development of Crypto’s industry because the market develops on the bright side. Interactions between regulators and exchanges are more transparent. But with or without regulation, the crypto industry will continue to grow. It’s in everyone’s interest to have regulations in place to protect consumers and create a safer operating environment for everyone. "

The Central Bank of Kenya (CBK) has also been exploring cryptocurrencies, issuing statements on potential volatility risks as leaders consider implementing a CBDC. The government introduced a bill in early 2023 advocating for a consistent definition of securities for digital currencies and record-keeping by licensed crypto traders. At the same time, the Nigerian government approved a national blockchain policy to help blockchain enter the legal framework, emphasizing that blockchain adoption can benefit the country.

In Mauritius, which lags behind Kenya in cryptocurrency trading volume, the Virtual Assets and Initial Coin Offering Services Act 2021 provides comprehensive legislative support for token issuance. The country is committed to protecting consumers, promoting cryptocurrency adoption and attracting traders, while other countries in the region have issued explicit bans on certain cryptocurrency-related activities.

A series of recent policies have been enacted to help the development of the local cryptocurrency industry in Africa. As mentioned above, the largest African country will enact many of the most important crypto regulations in early 2023. The chart below compares the use of local, homegrown cryptocurrency exchanges in Sub-Saharan Africa.

Supportive policy attitudes that bring confidence to consumers, as well as a safe environment for local crypto businesses to comply with regulations, are part of the reason why local African exchanges have grown faster than international competitors in the region since the beginning of 2023.

What’s next for the crypto-economy in sub-Saharan Africa?

The future of cryptocurrency is bright. A large country like Nigeria has become a global leader in cryptocurrency adoption, with increased local transparency driving growth and crypto operators taking advantage of this to enter the market. Years of studying emerging markets tell us this: While residents of rich countries may trade more cryptocurrencies than residents of emerging markets, the latter have greater daily demand for cryptocurrencies, which is inconsistent with the original vision for Bitcoin and the industry as a whole. Very consistent.