2020 has seen a massive explosion in African crypto adoption. This development has, in turn, prompted fears of a heavy-handed regulatory response. The year has seen an acceleration in African crypto adoption.
The continent has now emerged as the second-biggest region for peer-to-peer (P2P) trading. Furthermore, two African countries are ranking in the top eight of the Chainalysis cryptocurrency adoption index.
Nevertheless, the massive growth has now caught the attention of Africa’s financial regulators. That has sparked concerns that a rush to introduce heavy-handed oversight may limit innovation in the local crypto space.
Nigeria is leading the continent’s growth this year, posting weekly P2P volumes of between $5 million to $10 million. Kenya and South Africa follow with volumes of between $1 million and $2 million a week each.
A representative of top P2P exchange Paxful confirmed that Africa has been its best growing region in 2020. While speaking to reporters, the representative said that there was also dramatic growth in smaller economies like Cameroon and Ghana.
Crypto Adoption In Africa
Centralized exchanges have also experienced a spike in trade activity. For instance, Luno reported $549 million worth of combined volume from South African and Nigerian customers in August. That represents a 49% increase compared to the start of the year.
The exchange also said that new customer sign-ups have increased by up to 122% from Q4 2019 until Q2 2020. Luno’s general manager for Africa, Marius Reitz, told Quartz news outlet that the surging demand for cryptocurrency is being driven majorly by the benefits that these virtual currencies offer over the majorly exclusive local banking industry.
Reitz highlights that crypto assets are experiencing some increasing popularity among the large communities of workers in Africa who stay away from their home countries. The sharp fees on foreign exchange across the African continent is pushing the migrants to explore crypto assets.
“The demand we see now is a result of the challenges that people experience across Africa.”
Another exchange, Lagos-based BuyCoins, has also recorded growth in the number of people trying to move their money in and out of the country. So far this year, the exchange has hosted over $110 million in crypto volume up from $28 million in the whole of 2019.
Regulators Step In
Nevertheless, the rising popularity of cryptocurrency has also attracted great regulatory scrutiny. African lawmakers and analysts seem to be divided on how best to respond to the crypto adoption Africa uprising.
South African regulators proposed regulations in April aiming to impose stringent licensing and monitoring requirements. Notably, they are yet to recognize crypto assets as legal tenders. Nigeria’s Securities and Exchange Commission (SEC) last week proposed guidelines that would essentially treat all cryptocurrency assets like securities by default.
Kenya-based exchange Bitpesa’s Stephany Zoo welcomed the consumer protections that will arise from the increased regulation. He said:
“It is important that the space is regulated and properly guided by the financial authorities to ensure confidence and protection of the consumer.”
Nonetheless, Reitz warned that speedy, heavy-handed regulation may crush innovation within the industry:
“What we’d like to see is a phased approach. It can be very easy for regulators to want to regulate the entire industry from the onset but it could stifle innovation. Once governments regulate better; there’s more chance of opening up integration with traditional financial infrastructure and there would be more mass adoption as well.”
Crypto enthusiasts and proponents hope that regulators will include them in decision-making to ensure that the proposed and enacted laws will not become detrimental to the budding sector. For now, it is a wait-and-see scenario where everyone is closely watching what will happen next in the African crypto scene.