For the global cryptocurrency industry, 2021 is likely to be remembered as one of the many years bitcoin broke past its all-time price high and drove the sector even closer towards mainstream adoption. However, from a regional perspective, it is also arguably the year where Africa took centre stage.
From a reported 1,200% surge in crypto adoption, the launch of Africa’s first central bank digital currency and the Central Bank of Nigeria’s circular on cryptocurrencies, it is hard to navigate any of the key conversations surrounding the sector without referencing activities on the continent.
As we kick off the new year, Marius Reitz, Luno’s General Manager for Africa, explores three key trends to expect on the continent throughout the year:
Rethinking Regulation
To describe regulation of Africa’s crypto sector in 2021 as eventful would be an understatement. Last year saw the continent’s major economies take a much more proactive stance on consumer protection with one strategy in particular grabbing attention – the introduction of blanket bans. For countries that adopted these measures, the results have been far from ideal with trading activity being pushed underground and regulators left with a reduced level of visibility of the sector.
With this in mind, we could see a greater openness amongst regulators to work alongside industry players to establish a more robust and effective framework, which could encourage other African countries to follow suit. As we’ve witnessed from China, blanket bans do little in terms of limiting trading activity and protecting consumers but engaging experts who understand the nuances of new and complex technology like cryptocurrencies can provide a huge amount of value on how to protect consumers from its risks.
Kenya’s emergence
With Nigeria’s crypto ban dominating headlines throughout 2021, one significant development on the continent which potentially slipped under the radar was Kenya’s ranking as the world’s leader in P2P trading volumes for the second consecutive year. The country’s crypto industry is booming with a rapidly emerging crop of companies building blockchain-based solutions and considering its young population, high levels of mobile connectivity and familiarity with digital payment solutions like mobile money, it’s firmly positioned to emerge as East Africa’s leading crypto hub in 2022.
However, in order for any significant inroads to be made in terms of mainstream adoption, the importance of widespread crypto education can’t be understated. According to Luno’s 2021 consumer research survey, 64% of Kenyans don’t invest in cryptocurrencies as they don’t simply understand them and given Kenyans were also found to be the most proactive in seeking out financial advice from traditional sources (i.e. financial services companies, publications and advisors) before making investment decisions, it is vital crypto firms go the extra mile to ensure the right information is readily available.
A new solution to Africa’s remittances problem
It is no secret that investments are currently the most prevalent use case for cryptocurrencies across Africa however, one area which could receive a major boost this year is remittances. According to the World Bank, total remittances in Sub-Saharan Africa alone broke past $45bn in 2021 but with the severe lack of foreign currency reserves across Africa stopping companies from receiving international payments and remitting their profits, many businesses could look towards cryptocurrencies as an alternative means of handling cross-border transactions.
The key strength of cryptocurrencies in this area lies in the open and decentralized blockchain networks that support them, which allow money to be easily transferred between parties without all the lag times and exorbitant fees no matter who or where they are. Similar to most aspects of the crypto industry, progress in this area will be heavily dependent on a favourable regulatory climate and should this materialize, cryptocurrencies could emerge as a major asset for companies with extensive operations throughout Africa.
Expect the unexpected
Despite the huge influence developments in the three categories mentioned will have over the course of the next year, they are by no means the only trends to keep an eye on. For example, attracting institutional investment into Africa’s crypto space is still a major problem; however, we could see more mature markets on the continent like South Africa introduce stronger regulatory frameworks to encourage more participation from these stakeholders.
Equally, as the sector grows in popularity, it is attracting world-class talent as well as attention from leading media outlets who are dedicating more resources to quality reporting and both of these are trends that we should expect to continue. However, if we have learnt anything from events over the last two years, we should also expect the unexpected and whilst this can often breed uncertainty, a quick look at Africa’s current position and prospects should still provide huge optimism that it remains the most promising region for the adoption of cryptocurrencies.
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