Crypto Users In Africa Have Increased By 2500% As Governments Mull Over Regulations

A new report has shown that the number of crypto users in Africa has increased significantly in 2022. The report by crypto exchange firm KuCoin shows that despite the economic restrictions and global pandemic effect on the economy, crypto adoption is on the rise.

KuCoin’s report indicates that cryptocurrency transactions in the African continent are on an upward trend and rose by 2670% in 2022. Crypto adoption has been on the rise in Africa outperforming other regions across the globe. The faster adoption rate is witnessed in 2021 as within one year, the rate soared by 1200%, as more people became aware of the potential benefits of crypto.

Following the increase experienced from June 2020 to June 2021, many investments and startups came up to facilitate the use of cryptocurrencies in payments, trade, and foreign exchange.Governments within the region also started recognizing the potential of cryptocurrency and blockchain as a force for positive economic recovery and change.

Crypto literacy has also improved as more Africans especially the young population adopt emerging digital technologies to fill the gaps left by traditional financial systems in their countries.The young are more adept to embracing new technology and Africa’s population consist of more young people than the rest of the world, with the median age in the continent being 19.2%. Although the crypto transactions by volume remain low at only 2.8% in the region compared to other regions globally, the rapid adoption and infrastructure capability will see the volume rise by 2050.

Here are some of the reasons for the rapid growth rate

• Digitization/ Adoption of new technology

Technology is remodeling the lives of ordinary Africans who have embraced the promise of new and emerging technologies in their day-to-day lives. The buildup of smartphone use in the continent has also afforded many Africans new opportunities for socio-economic growth.The uptake of mobile devices in the region has also seen tremendous change in communication, education, and financial industries. 

According to a recent report on mobile penetration in Sub-Sahara Africa by GSMA, there are around 495 million people subscribed to mobile services, which represents about 46% of the population in the region. Covid-19 pandemic has also disrupted many economies in Africa and around the world. This has led individuals and businesses to switch to a mobile technology as their primary source of services.

Businesses in the region are striving to get their services and products online so as to cater for the needs of the population who could not access them physically.Even as restrictions are lifted and economies recover after the effect of Covid, mobile technology will continue to be an integral part of the African econmic ecosystem.

Africa has already embraced mobile money and is used widely in the region as an indispensable aspect of the economy. Services such as Mpesa allow people to send money, purchase items and also receive payments. The introduction of smartphone has provided an avenue for the young population to explore the unending possibilities of internet connectivity. Internet has made it possible for people in rural areas to access information, get an education and also job creation.

A report by Pew shows that about 41% of the population in Sub-Sahara Africa, access internet on their smartphones occasionally. This number can only be expected to rise as more countries are adopting digital solutions to provide essential services to the masses.

Crypto: With a population that has already adopted mobile money and can access internet, cryptocurrency adoption is an easy leap.

To trade or even use cryptocurrency what you need is only a phone and access to the internet.

• Inflation and Devaluation of National Currencies

Inflation has been persistent in Africa for many years, with huge consequences to the economic stability of the region. With a median inflation rate of 15% per year, the region’s financial sector has suffered significantly.

The onset of Covid-19 has worsened the situation with some countries projected to experiencing higher inflation rates in 2022. Countries like Sudan and Zimbabwe inflation rate has been projected to reach 41.8% and 30.7% respectively.High inflation rates affect consumption, investments, savings and also foreign exchange. Currently, Inflation is being propelled by external pressure such as increase in oil and food prices globally.

Due to high inflation rates many people in hard hit countries such as Zimbabwe and South Sudan are discarding their local currency and opting for the US dollar.The high inflation rates and depreciation in the value of the local currency is viewed as a one of the major reasons why Africa is adopting cryptocurrency at a high rate.

Although cryptocurrency also have high fluctuation rates where they increase or fall in value rapidly, more people are in the region are beginning to switch to crypto as a better means of storing value and their wealth.A positive development for crypto is that as other fiat currencies are losing value during the pandemic and global price increases of commodities, currencies such as Bitcoin are gaining value. 

• Crypto Literacy

The need for better solutions to problems facing the continent such as financial inclusion have led many Africans especially the youth to gain interest in cryptocurrency and the opportunities they bring.This interest and the high penetration of smartphone and internet use by the youth has provided an avenue for them to get informed and learn about the potential benefits of crypto.

Crypto exchange platforms are also doing their part educating the African population on the use of crypto and the opportunities they can unlock.For example crypto exchange firm Binance has held education programs (Binance Masterclass) in Africa since 2020 providing free education to crypto enthusiasts in the continent.

Other exchanges such as FTX.com and KuCoin are also holding education tours in select universities across Africa to reach out and educate the young population on the use of cryptocurrency.The increase in awareness of cryptocurrency and its potential benefits for the local population in financial freedom has driven up the use and adoption of crypto across Africa. As more people learn about the potential benefits, the number of users can only be expected to keep rising.

• Remittance Costs

Sending money across borders is very costly, with Sub-Sahara Africa having one of the highest remittance costs. The region is estimated to have an average remittance cost of about 8%.Remittances are notable source of financing in many African countries. In 2019, the total amount of money recorded as sent to Sub-Saharan Africa was $48 billion. 

The high costs and the long process of wire transfers has led people to look for alternative ways to send remittance payments. Cryptocurrency is viewed as an easier and more viable solution to cross-border money transfers.The cost of using cryptocurrency is very low and payments are processed rapidly compared to wire transfers that may take days. Crypto platforms also offer solutions to many Africans who remain unbanked or are in the rural areas and cannot access traditional banking systems.Of the $48 billion in remittances to Sub-Sahara Africa in 2019, $562 million was made via cryptocurrencies.

• Lack of Employment & Emergence of Remote Jobs

Unemployment in Africa is very rampant, with a lot of young people unable to get any meaningful employment to sustain their livelihoods.The lack of opportunities in traditional job markets has made many young people in the region look for alternative ways to make money. Crypto trading is viewed as one of the solutions for joblessness.

The promise of high returns on investment has driven many young people to turn to cryptocurrency trades to earn a decent living.The rise of remote jobs has also led to the rise in crypto use in Africa as many young people get jobs online doing remote tasks they get paid using crypto via P2P platforms. Crypto payments have eliminated the high costs of international money transfer as employees can send money to their remote/freelance workers at low costs and the charges for receiving payments in crypto wallets is also very low.Therefore crypto helps employers get workers demanding relatively low salaries, and the youth earn a living through remote work.

• Changing Policies And Regulation 

Although many governments and traditional financial institutions in Africa have restricted crypto transactions and continually advice populations against its use, some policy shifts are starting to indicate a brighter future for crypto use in the region.Some countries are championing the implementation of digital currencies. For example, in 2021, Nigeria became the first African country to introduce a digital currency.South Africa followed suit by acknowledging that cryptocurrencies are investments and can be taxed.Several other African countries such as Morocco, Ghana and Senegal are also stepping up efforts to create their own digital currencies (CBDCs).The greatest threat to cryptocurrency as viewed by many financial institutions, is the lack of proper regulation.

The lack of regulation has led many users to depend on underground trading tactics and depend on P2P platforms because they cannot access banks or mainstream financial institutions for their trades.The risks in unregulated crypto has led countries such as Kenya and Zimbabwe to ban banks and institutions from processing crypto payments.

As the number of crypto users increase across the continent and globally, countries are considering changing their stance and developing regulatory guidelines for cryptocurrencies.More regulation is believed to be a good thing as it is reviewed as it will see to it that investors are protected and the crypto market could become more stable.Following the war in Ukraine, the US and EU are considering cryptocurrency regulations, with the US Fed Chair Jerome Powell stressing the need for regulations in crypto use.