The crash of Bitcoin, Ethereum and other cryptocurrencies is also being felt in Africa. This is unfortunate, as many on the continent have high hopes for the blockchain technology on which cryptos are based. So: what could happen now?
Capital News Africa: From the Trading Floor – Week 25-2022
Financial markets have rarely seen such a market meltdown: The price of Bitcoin has lost 70% of its value since last autumn. Currently, one Bitcoin is trading at USD 19,595 compared with a high of USD 67,549 last November. Ethereum has tanked even further: The token has lost 80% of its value in the same period and is currently trading at USD 1060.00. The meltdown has even led some crypto providers like Celsius to freeze client accounts so as to avoid further panic.
The crypto crash has also spread to emerging markets like Africa. For while electronic payments were previously a privilege reserved for those with bank accounts and credit cards, cryptocurrencies like Bitcoin have given many people in Africa access to such means.
Indeed, cryptos, along with digital money, have become indispensable currencies in Africa. The key difference of course is that the latter exists both electronically and physically. The Kenyan shilling and Nigerian naira are two prominent examples. The digital money M-Pesa in Kenya is based on the Kenyan shilling and not on a crypto currency. Cryptos on the other hand are private currencies that are only available electronically.
While Africa receives just 2% of the global value of all cryptocurrencies, their growth on the continent is rapid. According to an article by US think-tank Brookings, Africans received USD 105.6 billion worth of cryptocurrency payments between June 2020 and June 2021. “Because cryptocurrency platforms bypass traditional banking services by introducing decentralised peer-to-peer lending services, they can help level the economic playing field and expand finance options to underserved customer markets,” writes Bitange Ndemo, professor of entrepreneurship at the University of Nairobi, in the article.
Numerous fintechs have been launched in Africa that focus on decentralised peer-to-peer lending and thus bypass the traditional banks. In the article, Ndemo cites two examples: Empowa, a Mozambique startup focussed on financing residential real estate and Pezesha, a Kenyan fintech that provides finance to small and midsize enterprises (SMEs).
Meanwhile, the success of blockchain in Africa has created plenty of opportunities for the continent. In IT-circles, a new generation of the World Wide Web called Web3 that would be based on the blockchain is being intensely discussed. Its supporters share the belief that the economy of the future will be based on tokens.
Despite these positive developments, many African nations have either forbid cryptocurrencies or severely curtailed their use. Ethiopia was the last country to restrict their use, following Morocco, Senegal, Uganda, Tunisia, Algeria, the DR Congo, Nigeria and Zimbabwe before it. These countries have justified the policy by pointing to the high volatility of the cryptos and their use in dubious transactions like money laundering.
As reported, however, one African country, the Central African Republic (CAR), has made Bitcoin its national currency. Whether the CAR succeeds in this effort is unclear, as the move has prompted opposition from western financiers and the central African currency union of which it is a part.
Still, Africa’s governments will hardly be able to resist the trend toward cryptocurrencies. Mindful of this, they are trying to get a better handle on it. In Lagos, for example, the Nigerian Exchange has announced a blockchain-enabled exchange platform to deepen trade and lure young investors to the market. “For a lot of young and upcoming Nigerians, that is the kind of technology they adopt and we want to see how we can deploy it to grow our market,” Temi Popoola, CEO of Nigerian Exchange, told Bloomberg.
The bourse’s move is wise considering that Nigeria’s youth does the biggest volume of cryptocurrency transactions outside the US. In the first quarter, Nigerians traded USD 185 billion of Bitcoins on the Bitcoin marketplace Paxful. This amount is incredibly high.
Much of this money is not being transacted on the stock market in Lagos. The new blockchain-enabled exchange platform has the aim to change this. This underscores that the blockchain is taking Africa by storm. While still a niche phenomenon in Europe, it is likely to transform the African economy.