Crypto craze, crypto crash, crypto reality check

Nearly six months after the latest cryptocurrency crash, much of the global market remains in a bearish state of hibernation. Grassroots investors who typically drive momentum are wary, following the colossal tumble. 

However, in nearly all corners of the African continent, the crypto scene is buoyant as adoption continues to grow and authorities take action to regulate this emerging asset class. Kenya is the African leader in crypto adoption, with over 8.5% of the population holding virtual assets, with South Africa following at 7.1%. Nigeria sits third at 6.3% with an estimated 13.8 million adopters, and has been named the world’s most curious crypto market, driven by investors accustomed to the naira’s volatility. Some predict Ghana will soon join the pack, spurred by the cedi’s record value fall, which could undermine the central bank’s plans to roll out its own digital currency.

Regulators step in

With crypto seemingly thriving in Africa, the discourse has moved far from the idealised dreams of a decentralised financial system unburdened by regulators and stock market movements. As Bitcoin shows increasingly persistent correlation with indices like the S&P 500, African financial authorities are moving to regulate cryptocurrencies as they accept that interest in virtual assets is stubbornly growing. 

On 19 October, South Africa’s Financial Sector Conduct Authority (FCSA) declared cryptocurrencies to be a financial product, thereby making the FCSA responsible for licensing, market monitoring, and consumer protection. Four days later, in Botswana, cryptocurrency exchange Yellow Card revealed that it had become the first company on the continent to receive a virtual asset licence. 

2023 will see other African financial authorities closely monitor the roll-out of crypto regulations to determine if similar action is necessary and viable. We might see the Central Bank of Nigeria lift restrictions and align with the country’s Securities Exchange Commission’s enabling approach to virtual assets. Despite initial stern warnings, the Bank of Uganda has since welcomed blockchain firms to its regulatory sandbox, a softening in its stance that could lead it to follow in South Africa’s steps and formally regulate crypto.

Defying “global” logic

The spectre of a global recession is likely to widen the gap between the risk-tolerant early adopters that spurred crypto’s growth and a new class of African investors. In wealthy Western nations – where crypto is often considered a quick way to secure major returns on spare cash – rising inflation and consequent interest rate hikes typically curb activity. 

However, an economic downturn could see the opposite effect in Africa, where crypto adoption helps investors to protect their wealth from local currency volatility. Against this backdrop, crypto is set to find new use cases, including in remittances and retail transactions. 

In the face of this, regulators are carefully weighing their next decisions on the matter, considering their countries’ strategic priorities and needs, while trying their best to mitigate the effects of economic stagnation and inflation.

About the author

Jasmine Okorougo is an Associate Consultant at Africa Practice with a special focus on political economy and digital financial service developments across sub-Saharan Africa. She can be reached at [email protected].