Africa wake up and smell cryptocurrency

BY EBEN MABUNDA

The past 12 weeks have been eventful and very much of a roller coaster ride on the global cryptocurrencies front, which has been characterised by record surges in the prices of Bitcoin, Ethereum and the Elon Musk-hyped Dogecoin, among others, to have the tide turned by Tesla’s halt on Bitcoin purchases of its products, China’s heavy ban on cryptocurrencies, Singapore’s decision to have cryptos traded via registered brokers — all of which have militated against cryptos, whose values have plummeted across the board in recent weeks.

While these and other happenings have a defining bearing on the future of cryptocurrencies, it is vital to zero in on crypto adoption trends to draw a reasonable narrative toward a prudent stance on cryptos for Africa. A recent report by Binance, the world’s leading blockchain infrastructure provider, shows that retail adoption of cryptocurrency across the world has continued to increase with the total number of crypto users hitting 101 million as of the third quarter of 2020 compared to 5,8 million users as of quarter two of 2017. Sureness in crypto continues to grow with  a near unanimous confidence in crypto at 97% among crypto users, while 78% of the general population say they have confidence in crypto. The report dubbed 2021 Global Crypto Index is based on a survey conducted by Binance across 178 countries and regions focusing on the motivations, behaviours, and preferences of these growing users.

The report indicates that about 52% of those who hold cryptocurrency consider it as a source of income, while 55% of the respondents said they own crypto as part of their long-term investment strategy. In Africa, while regulators have been slow to jump onto the crypto wagon, Binance.com reports a 114% growth in African users between January and April 2021, and a whopping 2 228% increase in African peer-to-peer P2P users on Binance P2P in the same period.

Another report, Chainalysis’ 2020 Global Crypto Adoption Index indicates that South Africa, Kenya, and Nigeria are among the world leaders in P2P cryptocurrency trading. Reuters in September 2020 reported that cryptocurrency transfers reached a peak of US$316 million last June with Nigeria, South Africa and Kenya leading the pack. Feeding the trend for Africa is a growth in remittances, currency devaluations and the striking similarities with mobile money.

However, in February 2021, the Nigerian Central Bank instructed  financial institutions to close accounts dealing in crypto, citing cryptocurrency as a threat to the Nigerian financial system. China’s ban on cryptocurrencies is not to be misread. A protectionist precedence shows China prefers to have its own artillery for everything. Western tech innovations, Facebook, WhatsApp, Uber and Lyft, Google, Amazon and Apple have their near Chinese replicas; Renren (formerly Xiaonei),  We Chat, Didi Chuxing, Baidu, Alibaba and Huawei respectively — whose positions have been reinforced by Chinese protectionism.

It comes as no surprise that China is piloting its own digital yuan or e-CNY. The country has already started trials for the e-CNY in several cities, including Shenzhen, Chengdu and Suzhou. Different from general cryptocurrencies such as Bitcoin, the e-CNY is controlled by the Chinese central bank — as opposed to a decentralised network in a bid to lower financial risks and discourage speculative trading. In a fresh bout, Bitcoin (BTC-USD) and Ethereum (ETH-USD)  cryptocurrencies plunged 10% on Tuesday morning following FBI’s seizure of the Colonial Pipeline ransom (which was paid in bitcoin), suggesting Bitcoin is somehow hackable-contrary to the belief of many.

Elsewhere, there is much to be said about El Salvador’s move to make Bitcoin legal tender within that country amid reports governments in Brazil, Argentina, Paraguay Panama, and Nicaragua have given strong indications of following suit. African countries need to collectively build a regulatory framework for Crypto rather than shun the revolution. In May, the Standard Chartered Bank established a cryptocurrency brokerage and exchange platform for Europe, connecting institutional traders with counterparties trading bitcoin, ether and other digital assets. A move of this sort is worth looking into for Africa.

Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — ebenm@equityaxis