“Captain Obvious” is quite an apt name for anyone stating with a hint of discovery that cryptocurrency adoption is on the rise globally. Actually, crypto, as it is known for short, has been booming for years, but perhaps now more than ever.
In fact, the global crypto market is now valued at over USD 343 Bn – that figure even eclipses South Africa’s 2020 annual GDP forecast drawn up by the World Bank.
More so, on the African continent, in particular, Bitcoin, Ethereum, and other cryptocurrencies are in a boon. Yes, smaller crypto transfers in Africa have increased by 55 percent in the last year.
So, what’s spurring this ever-increasing fondness for cryptocurrency in Africa? A soaring population of young, tech-savvy individuals? Rising internet connectivity and smartphone use? The increasing appetite for the digital side of life? The longing for better economic outcomes? Or perhaps, a combination of all those factors?
Well, maybe it really is a combination of all those factors. But one strong, recurring factor is that in the African markets where crypto is exploding (think South Africa, Nigeria, Kenya), there is depleting trust in the stability of the local currency. That is to say, there is a correlation between rising crypto adoption in African markets and flailing currencies.
Hence, Africans are increasingly turning to cryptocurrency as a way to store value or as a means of exchange and remittance.
As of September 2020, the number of monthly crypto transfers to and from Africa has surpassed 600,000, per research conducted by Chainalysis, a blockchain market intelligence firm.
Indeed, many locals and businesses are using cryptocurrency to hedge against the instability of their local currencies. According to Chainalysis, the total number of transfers under USD 10 K in Africa jumped by 55 percent to reach USD 316 Mn.
It has been estimated that the total value of cryptocurrency transacted in Africa in 2020 is set to surpass last year’s total of USD 8 Bn. In June 2020 alone, almost USD 1 Bn worth of crypto was transacted. Nigeria, South Africa, and Kenya lead in cryptocurrency transfers in Africa.
The relationship between local currency dynamics and crypto adoption is especially epitomised by the situation in Zimbabwe. Due to the country’s long-standing currency woes and soaring inflation, Zimbabwe had the highest bitcoin prices in the world at some point in 2017, owing to skyrocketing demand for crypto.
In fact, Zimbabweans still have a strong love affair with bitcoin, turning to crypto in droves as such digital currencies serve as a more stable store of value, compared to the notorious Zimbabwean dollar that became so worthless at some point in 2019 that locals used it as makeshift rolling paper for cigars.
In Africa’s top crypto markets, there appear to be similar forces at play. In Nigeria where government earnings from the key export, crude oil, have dipped significantly since global oil prices plummeted, a foreign currency shortage has led to the recent devaluation of the local currency and restrictions on transactions with forex.
In the midst of sky-high inflation, the fall and fall of the Nigerian naira has individuals and businesses in the country getting poorer while earning more.
A few days ago, we neatly highlighted how Nigerians earn more but make less in an article titled: “The Naira-Dollar Affair: To Hit $1M In 2020, Nigerians Must Earn ₦450M; 3X The 2015 Sum.” Hence, Nigerians are increasingly turning to crypto to hedge against the unstable local currency and to carryout out transactions that involve foreign currency.
Similarly, the South African rand has lost over 50 percent of its value against the U.S. dollar in the last decade and many other emerging market countries are also struggling with currency devaluation and instability. Cryptocurrency exchanges like Luno and BuyCoins have reported record numbers.
According to data from the Nairobi Securities Exchange, Kenya’s currency environment remains volatile and this is evident in the 7 percent depreciation of the Kenyan shilling against the U.S. dollar in the first half of 2020. Guess which African country ranked highest on the 2020 Global Crypto Adoption Index? Of course, it’s Kenya.
Although cryptocurrency is, on its part, still quite volatile in nature, it appears to have matured to a point where it has become a viable alternative to many national currencies in emerging and frontier markets.
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