Cryptocurrency asset prices remain far from the record prices achieved during the 2021 bull market.
Bitcoin, the world's most prominent cryptocurrency, is currently down about 60% from its peak, and Ethereum is down about 65% from its all-time high.
Meanwhile, arrests and indictments of high-profile cryptocurrency executives around the world, including the ongoing trial of FTX mogul Sam Bankman Fried, have further worsened the mood this year.
Despite the overall gloomy outlook, the situation is different in Africa, where the adoption of digital assets continues despite price fluctuations, the researchers say. According to a study conducted by Chainalysis, a global cryptocurrency consultancy, “Sub-Saharan Africa has always been one of the smallest crypto markets, but a more detailed analysis shows that crypto has penetrated major markets.” , it has become clear that it has become an important part of the daily life of many residents' – daily life. ”
According to Chainalies, Nigeria is the world's second-largest market for digital assets in terms of grassroots adoption, with high adoption rates also seen in other African countries such as Kenya, Ghana, and South Africa. What explains the appeal of cryptocurrencies despite market volatility and sharp declines in asset prices?
Different roles in Africa
Oluwatobi Ajayi, co-founder and CEO of Lagos-based crypto payments company IvoryPay, argues that cryptocurrencies play a different role in Africa than in other regions.
“These address the many financial challenges prevalent in the region, namely high transaction fees for cross-border payments, limited access to traditional banking, and the ability to preserve wealth amid fluctuating national currencies. “It serves as a solution to things like that,” he says.
Proponents like Ajayi argue that cryptocurrencies offer consumers the ability to transfer funds across borders quickly and cheaply compared to domestic currencies, or “fiat currencies.”
Moreover, despite the volatility in the cryptocurrency market this year, digital assets remain a more attractive option for some consumers than currencies such as the Nigerian Naira and Kenyan Shilling, whose value has been eroded by depreciation. It is claimed that it is recognized as
“Given the high rate of depreciation of most African currencies, cryptocurrencies are being used more for cross-border transactions and as a store of value,” said Daniel Alok, South Sudan representative of the African Blockchain Council. “There is,” he said.
“It is also used in trade finance when small businesses make peer-to-peer payments to suppliers. [P2P] It’s a deal,” he added.
Alok believes this commercialization means cryptocurrencies will remain an attractive option for many consumers and businesses in Africa, despite price fluctuations.
burden of scandal
Still, there are major challenges.Alok says african business Skepticism towards digital assets is said to be increasing as crypto currency-related scandals have gained international attention. In October, the trial of crypto tycoon Sam Bankman Freed began in New York on charges of wire fraud related to the collapse of cryptocurrency exchange FTX in November 2022.
“For example, the collapse of FTX had a huge impact on the crypto and fintech ecosystem in Africa,” Alok says.
But Alok says educational programs and demonstrations are helping to provide a counter-narrative.
“There are a lot of scams going on in the name of cryptocurrencies in Africa, which is why people in Africa are skeptical about cryptocurrencies, which has been further heightened by the controversy. It is being solved through grassroots education efforts.”
The results are also visible in the adoption of crypto assets, which are considered to be less volatile.
The Chainalysis report notes that some market participants in Africa have “recently turned their attention away from Bitcoin and towards stablecoins, as stablecoins are generally associated with Bitcoin, where prices are far away from all-time highs. This is because we believe that there are fewer price fluctuations than coins.”
Stablecoins are a type of digital asset that purports to be backed by an underlying asset. For example, some advertise that he is backed 1:1 by US dollar reserves. As such, it is designed to remain pegged to the US dollar. In August, US financial technology giant PayPal launched a US dollar-backed stablecoin known as PayPal USD, which is “100% backed by US dollar deposits, short-term US Treasuries, and similar cash equivalents. ” the company said.
Ajayi said stablecoins are seen by some as an alternative way to hold the US dollar and are attractive for this reason.
“Stablecoins are increasingly being looked at as a hedge against currency depreciation and inflation, as they provide a more stable store of value and medium of exchange for both individuals and businesses,” he says.
Given that some stablecoins are pegged to the U.S. dollar, they “help preserve the value of people's money without being subject to the same inflationary pressures as local currencies,” he argues.
He also pointed out that in countries with poor foreign exchange reserves and a real US dollar shortage, including Nigeria, “foreign currency scarcity and regulation also play a major role in the adoption of cryptocurrencies.”
“People are always trying to find dollars to facilitate international trade, but this can be difficult. In situations like this, stablecoins could become even more attractive,” Ajay said. To tell.
Alok similarly points out that many consumers are looking to “diversify away from Bitcoin” and that stablecoin adoption is increasing for these reasons. “Pan-African exchange Yellowcard oversees $1.7 billion worth of transactions, primarily through stablecoins, and stablecoin trading is also on the rise on P2P platforms such as Binance,” he said. did.
Regulation is coming
The continued use of digital assets is likely to cause regulators across the continent to think more carefully about how to govern the nascent industry.
“Africa is poised for increased regulation as governments begin to focus on this emerging technology and how it disrupts traditional financial systems,” said David Otieno, head of blockchain research at Chaintum Research in Nairobi. I am preparing myself.''
“Government legislation, such as the Digital Asset Tax (DAT) proposed in Kenya’s Finance Act and progressive regulatory proposals in Namibia and Mauritius, will legalize and authenticate digital assets, allowing more people to own them. But most African governments don't know how to do it.”
To overcome this, Otieno believes that Africa needs “dialogue and cooperation between legislators and blockchain technology stakeholders.” In his opinion, such discussions could help ensure that laws support the development of the local crypto industry while allowing governments to effectively protect consumers.
Regardless of whether regulatory developments are planned, for now, the trajectory of cryptocurrency adoption in Africa is positive. While the turmoil of the past 12 months has proven that the use of cryptocurrencies is risk-free, Ajayi said that while the turmoil of the past 12 months has proven that the use of cryptocurrencies is risk-free, “the trend of crypto adoption is I believe that it will continue to be strong.”
