If we were to sum up the current condition of the cryptocurrency market in just a few words, we can simply say it has seen better days. The crypto winter of 2022 has left a deep mark on the industry and caused bigger waves than anyone could have imagined, triggering a chain of scandals, bankruptcies and collapses in its wake. The prices of all major coins dropped sharply, causing the market to lose a total of $3.9 billion.
Despite both Bitcoin and the Ethereum price USDperforming fairly well in 2023, there’s still a huge discrepancy between their present values and their former highs. Bitcoin took a 60% plunge from its all-time high of $ 68,789, trading at $27,974 at the time of writing, while Ethereum fell 65%, going from a record $4,891 to $1,644 at press time.
But even though the overall picture is looking pretty bleak for digital assets lately, what’s been happening at a global scale doesn’t necessarily reflect crypto’s potential and evolution in all parts of the world, and Africa’s case provides the best example in this respect.
The bearish trends that have been dominating the crypto market for a while now have hampered its evolution in most parts of the world, but for reasons we’re going to elaborate on later in the article, things have unfolded differently on the African continent. Neither the extreme price volatility nor the scandals that have erupted in the crypto space lately have managed to slow down crypto adoption in Africa.
According to a report published by blockchain analysis firm Chainalysis, compared to other regions, the crypto market in sub-Saharan Africa is relatively small but it’s growing at an impressive rate. It appears that digital assets have spread across many different sectors and areas of activity, with crypto becoming an increasingly popular financial tool in the local communities.
For example, in the digital assets market in Nigeria, the number of users is expected to amount to 6,263.00k users by 2027. The country currently occupies the second position in grassroots crypto adoption, and many other African nations such as Kenya, Ghana, and South Africa also boast high rates of crypto adoption. And let’s not forget that the Central African Republic is the second country in the world after El Salvador to accept Bitcoin as an official currency. This begs the question why is interest in cryptocurrency surging in Africa when the rest of the world seems to be so skeptical about embracing this new asset class?
The rapid development of cryptocurrency in Africa can be explained by the purpose they serve here. In most parts of the world, digital currencies are mainly regarded as an investment venue that can offer diversification from traditional assets and potentially lead to higher returns. In Africa, crypto is used to address many of the issues plaguing the local economy such as high inflation, high transaction fees, limited access to financial services and so on.
Despite their vast economic potential, many African nations have been struggling under the weight of numerous financial challenges, including weak currencies and low investment growth that create a state of constant uncertainty for the locals.
If we look at Nigeria’s case, we can see that the country has experienced not one but two recessions since 2016, driven by a combination of inadequate economic policies, the collapse in oil prices and the COVID-19 pandemic. To make matters worse, unemployment rates have climbed to an all-time high in recent years, prompting many of its residents to relocate to different countries.
Against the current economic background, crypto has emerged as a viable solution for many of the challenges faced by these countries. Digital currencies can boost financial inclusion by providing easy and quick access to financial services and products for the unbanked and underbanked whose number amounts to over 350 million in Africa. These assets can also ensure faster and cheaper cross-border transactions compared to fiat money, and offer a great alternative to currencies such as the Nigerian naira, Kenyan shilling Zambia's kwacha whose value has been declining and is expected to slide further in the future.
As a result, an increasing number of African citizens are choosing to store their wealth in cryptorather than rely on national currencies. Moreover, many small African businesses are also turning to crypto to pay their suppliers via peer-to-peer transactions.
All these real-life use cases are making digital currencies a very appealing option for African citizens, and therefore fueling the growth of the local crypto market.
Given the increasing popularity of digital currencies on the African continent, regulation is most likely going to be the next step in the market’s evolution. With more individuals, businesses and organizations willing to embrace crypto, local lawmakers will have to think about creating a regulatory framework for the management of this novel asset class and figure out how they are going to integrate it into the existing financial system.
Although there’s still a long way to go for digital currencies to become mainstream, the first steps towards crypto regulation in Africa have already been taken, with the Digital Assets Tax (DAT) in the Finance Act in Kenya and regulatory proposals in Namibia and Mauritius being rolled out.
The introduction of clear regulations in the cryptocurrency space can help boost the assets’ legitimacy, provide greater market stability and ensure increased protection for crypto users, opening up more opportunities for all stakeholders.
At the moment, digital currencies remain highly controversial assets due to their exacerbated volatility and instability. This is something that all consumers should keep in mind before choosing to use crypto. However, the widespread acceptance of cryptocurrency in Africa shows great potential in this area. With the crypto market still in a nascent stage, we’re certainly going to see a lot of progress in the future, in Africa and beyond.