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The continent is fast becoming a hotspot for growing usage of bitcoin for transactions on a day-to-day basis.
The global bitcoin and cryptocurrency market is growing every day and Africa is not an exception to this. Although Africa is the smallest cryptocurrency economy by continent, it is the most dynamic. It has grown massively, receiving over $105.6 billion from July 2020 to mid-2021. In fact, it ranks as the third fastest-growing bitcoin and cryptocurrency economy in the world per Chainalysis. What’s more, Nigeria, South Africa, and Kenya all rank in their 2021 Top 20 Global Crypto Adoption Index.
Nigeria is the biggest bitcoin and cryptocurrency market in Africa with first-quarter trading volume amounting to $99 million. Kenya and Ghana come second and third with $34.8 million and $27.4 million respectively. South Africa trails the four. This signifies that the continent has some of the highest grassroots adoption in the world.
Retail-Sized Bitcoin And Cryptocurrency Payments
Unlike other regions where institutional adoption is massive, small-sized bitcoin and altcoin transfers are perhaps the most promising aspect in the African crypto market. The retail-sized transfers are the highest in the world with an overall transaction volume of 7%, considerably higher than the global average of 5.5%.
The region also leads in cross-region bitcoin and altcoins transfers. While the cross-region transfers make up 96% of all transaction volume in Africa, the figure stands at 78% in other global regions combined. Again, this indicates a growing grassroots adoption.
Most of the transactions happen over peer-to-peer platforms, which form the backbone of cryptocurrency market growth in the continent. Many people rely on P2P platforms for commercial transactions and remittances.
P2P Platforms Driving The Retail Bitcoin Trends In Africa
Due to central bank sanctions, informal P2P trading has become the most popular method of trading bitcoin and altcoins in the continent. The non-custodial P2P platforms enable traders to exchange cryptocurrencies and send money amongst themselves either using banks or other money transfers. By using these platforms, users can maneuver the hurdles created by financial institutions on cryptocurrency trading.
Some African governments for example in Nigeria and Kenya have directed banks to disallow bitcoin and altcoin trading through their systems. As a result, peer-to-peer platforms have become suitable alternatives thanks to their convenience and effectiveness.
In essence, bitcoin and cryptocurrency trading constraints put by banks is one of the main reasons attributed to the growth of P2P platforms such as Paxful and Luno. According to COO and Cofounder Artur Schaback, Paxful has grown over 300% in Kenya over the last year, and 57% in Nigeria. Similarly, P2P transactions account for 1.2% of all Africa’s bitcoin and altcoin transaction volume, the highest in the world. To be specific, 2.6% of bitcoin transactions occur over P2P platforms.
How Are P2P Platforms Boosting Bitcoin And Cryptocurrency Use?
In 2020, sub-Saharan Africa received $48 billion in remittances, with Nigeria accounting for half of the amount. The bulk of these remittances came from Europe and North America. Again, P2P platforms have played a pivotal role in remittances and retail bitcoin and cryptocurrency payments.
According to Blockchain Analysis, crypto-backed remittances are in a growth trajectory. The number of remittances under $1,000 has grown steadily since April 2020, bar June 2021 when there was a substantial drop compared to the previous month.
Besides remittances, African business people are relying more on bitcoin for commercial transactions. Sending fiat currencies for transactions can be challenging due to regulatory bottlenecks. For context, Nigeria limited offshore debit card transactions to $500 at a time. For that reason, many people have resorted to using bitcoin for their larger transactions.
- Wealth And Value Preservation
With the hard economic times, bitcoin has become an ideal asset for preserving wealth and value. During the time of devaluation, the Paxful growth accelerated in Nigeria. People seeking growth are investing in bitcoin and the more speculative cryptocurrencies as well.
African countries are set to follow the footsteps of China and launch their own central bank digital currencies. In fact, Nigeria and Ghana have already rolled out their CBDCs. This means that users can send and hold blockchain-based versions of their fiat currencies in digital wallets.
As mentioned, retail bitcoin and alternative cryptocureency payments in Africa have made significant contributions to the growth of P2P platforms. One of the platforms that has grown significantly is Luno. Africa customers dominate the platform after increasing 271% since January 2020, to reach 4.7 million of the total 7 million customers. The platform has played a great role in the growth of bitcoin adoption by creating infrastructure and introducing local currencies into the crypto marketplace.
Remember, retail has played a key role in the growth of bitcoin and altcoins, such as during the bull run in 2018. But the trust issue was a key hindrance. According to a Luno Survey, “54% of Africans are ready to adopt a single global digital currency” which is a considerably higher percentage than 41% in Asia and 35% in Europe.
South Africa Leading The Way In Regulation
Without a doubt, there is a need for regulations to support the sustainable growth of the bitcoin market. When it comes to regulating the financial field, South Africa is subject to the strongest regulatory body on the continent – the Financial Sector Conduct Authority. This financial institution regulator brings to the table investor protection and ensures all FSCA licensed companies are playing by the rules and are not taking advantage of their clients.
With an expected increase in bitcoin adoption in South Africa, the market regulators have embraced the trade by enacting requisite laws. The regulations are designed to prohibit irregular use of bitcoin for nefarious activities. Besides enhancing transparency, the regulations will prevent funding terrorism and money laundering by addressing customer identification, verification, and keeping track of their transactions record to monitor usual activities. The regulations will also limit the risk exposure of banks which could spill over to the economy causing financial instability.
That said, South Africa is charting a new path which is not the case with many other countries. Regulators in countries like Kenya, Nigeria, and Zimbabwe have prohibited banks from processing bitcoin transactions.
Africa has immense economic potential. Although many countries lack good infrastructure and regulations, they can leverage bitcoin and blockchain technology to boost their growth. In fact, the region has adopted bitcoin and altcoins massively, especially for retail-sized cryptocurrency payments, which assuredly will cause ripple effects in other sectors, leading to more overall growth and adoption.
This is a guest post by Jerry Goddard. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.