Africa’s cryptocurrency market grew by over 1200% between July 2020 and June 2021. This is according to Chainalysis 2021 Geography of Cryptocurrency report. The growth is based on the value of cryptocurrencies received on the continent in that period.
While noting that the African market is one of the most dynamic and exciting in the world despite being the smallest, the report says Africa received a total of $105.6 billion worth of cryptocurrency between July 2020 and June 2021.
This makes the continent the third-fastest growing cryptocurrency economy in the world behind North America and Western Europe.
“Africa also boasts a bigger share of its overall transaction volume made up of retail-sized transfers than any other region at just over 7%, versus the global average of 5.5%,” the report says.
According to a report on the African Crypto Landscape by Startup List, African crypto companies transacted over $600 million in 2020. The total value might have been higher though as transactions by popular exchanges like Luno, Xend and VALR were not taken into consideration.
Also, crypto traded on international exchanges like Binance, Paxful and Coins App was not included as the report focused on exchanges headquartered in Africa. As of June 2020, Chainalysis puts the total monthly crypto transactions on the continent at $316 million.
Remittance and wealth preservation driving adoption
Not only has Africa’s cryptocurrency market grown over 1200% by value received in the last year, the region is also reported to have some of the highest grassroots adoption in the world. Countries like Kenya, Nigeria, South Africa, and Tanzania all rank in the top 20 of the Global Crypto Adoption Index.
According to the report, two major factors driving this explosive adoption rate are remittances and wealth preservation. Remittance is an important source of cash for Nigerians. Pegged at $17.2 million in 2020, remittances account for roughly 8% of Nigeria’s GDP, with 70% of this money used for family support according to Nigeria’s vice president, Yemi Osinbajo.
The report noted that some African countries have implemented strict controls on how much currency can be moved abroad. In Nigeria, for example, some banks limit customers to sending as little as $500 out of the country at a time.
Furthermore, most Nigerian banks charge 1 – 2.5% for foreign transfers. This means that for a $1 million transaction, bank charges may go up to $10,000. But with Bitcoin, transfer charges are outrageously low and would not exceed $250 for the same transaction, even at peak periods.
As bank restrictions continue to make remittances more expensive with limited transferable amounts, Africans are quickly turning to cryptos to facilitate how they send and receive money.
According to the Co-founder and COO of Paxful, these restrictions are only forcing Africans to adopt cryptos as means of money transfer.
“If the government is strictly limiting the amount of money people can send abroad, they’ll get creative and turn to cryptocurrency”Artur Schaback
Another reason for the fast-growing adoption rate is wealth preservation and international transactions. Due to the continued decline in value of the Nigerian Naira, for instance, many Nigerians are learning to preserve their wealth in the more stable cryptos, which, if anything are more likely to appreciate than depreciate in value.
Also, because of the unbearable Naira to Dollar exchange rate, Africans would rather transact in cryptos than in local currencies only to find out they no longer have sufficient funds to transact an international business due to a drop in the value of the currency.
“If you’re working with a partner in China to import goods to sell in Nigeria or Kenya, it can be hard to send enough fiat currency to China to complete your purchases. It’s often easier to just buy Bitcoin locally on a P2P exchange and then send it to your partner,” Paxful COO said.
P2P is fueling Africa’s crypto usage
Peer-to-peer (P2P) platforms are very popular in Africa compared to other regions, according to the report. P2P accounted for 1.2% of all African transaction volume and 2.6% of all volume for Bitcoin specifically. Many African cryptocurrency users rely on P2P platforms to buy and sell cryptos as well as for remittances and even commercial transactions.
One reason why P2P became so popular across the continent is adverse regulations that restrict crypto transactions. Nigeria’s Central Bank, for instance, issued a directive prohibiting banks from facilitating crypto transactions.
The report noted that this isn’t an issue for P2P platforms like Paxful and Remitano as they are non-custodial and let customers trade cash for cryptocurrency amongst themselves. From there, users can send cryptocurrency to centralized exchanges for more trading options if they so choose.
CEO and founder of a Nigerian blockchain consultancy company, Convexity, Adedeji Owonibi, while explaining how the CBN regulation in Nigeria moved the focus from exchanges like Binance and Luno to P2P platforms noted that a lot of the P2P transactions were also taking place on informal chat platforms like WhatsApp and Telegram.
“Informal P2P trading is huge in Nigeria on Whatsapp and Telegram. I’ve seen young people and businessmen in these groups carry out transactions for several millions with popular OTC merchants,” he said.
Other possible factors driving the adoption rate across the continent are a fast-growing youth population as well as fast-rising internet and smartphone penetration rate which positions millions of Africans to benefit from Bitcoin growth.
Finally, the continuous increase in crypto prices, especially the popular ones like Bitcoin and Ethereum makes them attractive investment instruments. Many Africans are making a killing out of it.
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