Africa’s crypto market has grown by $ 105.6 billion in the past year

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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please review our website policy before making any financial decisions.

Tokenizing financial flows is much cheaper than building nations. On the back of it, the process itself can drive the growth of real assets. This is where some African countries are located.

Africa seen as the next crypto frontier

Africa is the second most populous continent in the world, with around 1.3 billion people. Due to historical problems related to colonialism, civil wars and difficult terrain, African countries have long suffered from infrastructure problems. This made financial services less accessible, leaving around 57% of the population unbanked.

At the same time, underdeveloped infrastructure has made Africa a perfect vector for cryptocurrencies, which only require a smartphone to access blockchain networks. We previously covered Africa’s most populous country, Nigeria, as a forefront of crypto adoption around the world.

Thanks to the latest research from Chainalysis Insights, we can take a magnified photo of crypto adoption in Africa and its likely global impact.

Adoption rate of African wealth versus crypto

According to the World Bank, the median GDP per capita in sub-Saharan Africa is $ 1,483. Compared to the European Union, which has a per capita GDP of $ 33,927, this makes Africa’s wealth production 22 times lower. As a result, the Chainanalysis report found that Africa’s cryptocurrency market share is the smallest.

Image credit: Chainalysis Insights

In raw numbers, this translates to $ 105.6 billion in crypto assets between July 2020 and June 2021, which represents a 1,200% growth in crypto value. Using this measure, Africa has overtaken peer-to-peer (P2P) payment platforms in terms of transaction volume in all regions.

Image credit: Chainalysis Insights

As you can see, Bitcoin continues to lead the way as the dominant and most popular cryptocurrency. Once we take into account that the central banks of most African countries are hostile to cryptocurrency exchanges, Africa finds itself in a situation where P2P platforms are the only viable solution – unless ‘they don’t use VPNs to access servers in other countries.

At the best of times, a central bank can leave the cryptocurrency industry unregulated. For example, the Central Bank of Kenya issued a notice in December 2015 not to engage in Bitcoin trading, warning that:

“There is no underlying or asset collateral and the value of virtual currencies is speculative in nature. This can cause high volatility in the value of virtual currencies, thus exposing users to potential losses. “

Interestingly, since this proclamation, Bitcoin has gained over 11,000% in value while the Kenyan Shilling (KES) has lost 7% in value. The Central Bank of Nigeria (CBN) issued similar decrees, banning all banks in 2017 from using, holding, trading and transacting in cryptocurrencies. As you might expect, its currency Naira (NGN) has fallen almost 52% in the meantime.

Performance of the Nigerian Naira (NGN) and Kenyan Shilling (KES) against Bitcoin over 5 years, source: TradingView.com

As the most populous African nation with over 201 million citizens, Nigeria has been hit hard by the Covid-19 lockdowns. Compared to a year ago, food prices have increased by 20%, while the inflation rate appears to be waning, currently standing at 17%.

Kenya, with its 53 million people, has experienced a similar rise in inflation; although less dramatic at only 6.57% compared to 4.2% a year earlier. From these indicators, we can conclude that the increase in the volume of P2P transactions will accelerate unabated, thanks to:

Devaluation of fiat currencies. Fewer barriers to cross-border remittances. Sub-Saharan Africa alone received $ 48 billion in 2019. Convenience, access and speed make using smartphone apps compared to banks more appealing.

On that last note, Africans are already used to using phones for payments thanks to the very popular M-Pesa that originated in Kenya. When we introduced Celo as a blockchain alternative to M-Pesa, we found that while 11% of Ugandans have a bank account, 43% use a mobile payment account. It is then a small step to move from a fiat-based P2P to a blockchain-based P2P.

Join our Telegram group and never miss a memorable DeFi story. Who is leading the growth of FinTech in Africa?

It’s no secret that Jack Dorsey, founder of Twitter and Square, loves Africa as an investment opportunity. He first revealed his appreciation in October 2019, going on an African tour.

Dorsey is also fit for work. Although better known as the founder of Twitter, Square, his other company, generated $ 2.72 billion in BTC revenue for the second quarter of 2021 with its Cash app. However, lockdowns thwarted his plans to move to Africa and start making bigger inroads. In March 2020, when Covid-19 first struck, the official Twitter Investor Relations account noted that it would be foolish to miss such an investment opportunity.

Africa will be one of the most populous continents over the next 20-30 years, technological innovation is amazing with a large part of the population still coming to the internet. Huge opportunity especially for young people to join Twitter + so that we can learn to serve them better.

– Investor Relations on Twitter (@TwitterIR) March 5, 2020

While there are no concrete plans yet, during the Africa tour, Dorsey spoke to many tech leaders, including CcHubs CEO Bosun Tijani. CcHub is Africa’s largest tech incubator for startups. However, Twitter opened a new office in Ghana in April, hoping to increase its social media presence. Currently, it lags far behind Facebook with just 13% of all social media traffic on the continent.

Image credit: statcounter.com

One site to take advantage of Africa’s growth could be on Twitter. Dorsey suggested that a Lightning wallet could be attached to each Twitter account.

OK.

However, every account on Twitter can be linked to a Lightning wallet.

– jack (@jack) August 12, 2021

Meanwhile, promising African native FinTech companies are Nigeria-based Flutterwave and Andela. Flutterwave was valued at over $ 1 billion in March, making it one of TIME magazine’s 100 most influential companies as a digital payments platform. Andela, on the other hand, is tackling the shortage of tech workers in Africa by connecting software developers remotely with US-based FinTech companies.

Still, given Facebook’s 71% social media dominance in Africa, it could eclipse all projects, including Twitter. Formerly known as Libra, Diem is Facebook’s answer to digital money in the form of a USD pegged stablecoin. So far, the social media giant has scaled back the pilot launch of Diem in the US only, to begin by the end of 2021.

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Can DeFi help find a better solution?

Whether or not Diem arrives on the African P2P scene, his concept poses another problem. If the USD continues to devalue, it could reverse its status as a global reserve stablecoin, destabilizing stablecoin tokens. An alternative to this is Decentralized Finance (DeFi).

We have already seen such a trend emerge in the form of organized blockchain games. In developing countries such as the Philippines, DeFi is not just a way to exchange crypto for fiat. Instead, it represents a source of income as foreclosure-induced unemployment sets in.

Given the low cost of living in Africa, a fraction of these revenues could go very far. At the same time, Africa could push the envelope of DeFi to new frontiers.

Do you think Africa’s adoption of Bitcoin will give the region an economic boost? Let us know in the comments below.

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