Africa Crypto Market Grew 1200% In A Year, Fueled By Remittance And Wealth Preservation
Africa's crypto market grew 1200% in a year, fueled by remittance and wealth preservation
Between July 2020 and June 2021, the cryptocurrency market in Africa increased by more than 1200 percent. According to the Chainalysis 2021 Geography of Cryptocurrency report, this is the case. The value of cryptocurrencies received on the continent during that time period is used to calculate the growth.
While noting that the African market, despite its small size, is one of the most dynamic and exciting in the world, the report states that Africa received a total of $105.6 billion in cryptocurrencies between July 2020 and June 2021.
As a result, the continent now ranks third in the world in terms of cryptocurrency economic growth, trailing only North America and Western Europe.
African countries have a higher proportion of their total transaction volume made up of retail-sized transfers than any other region, with a share of just over 7 percent compared to the global average of 5.5 percent, according to the report.
Startup List published a report on the African Crypto Landscape in which they estimated that African crypto companies would transact over $600 million in 2020. Although the total value may have been higher, transactions on popular exchanges such as Luno, Xend, and VALR were not included in the calculation.
The report did not include cryptocurrency traded on international exchanges such as Binance, Paxful, and Coins App, as the report concentrated on exchanges with headquarters in Africa. According to Chainalysis, the total monthly cryptocurrency transactions on the continent reached $316 million as of June 2020.
Remittance and wealth preservation driving adoption
The cryptocurrency market in Africa has grown by over 1200 percent in terms of value received in the last year, and the region is also reported to have some of the highest grassroots adoption rates in the world, according to recent reports. Kenya, Nigeria, South Africa, and Tanzania are all among the countries that rank in the top 20 of the Global Cryptocurrency Adoption Index.
In accordance with the report, remittances and wealth preservation are two of the most important factors driving this exploding adoption rate. A significant source of income for many Nigerians is remittances. According to Nigeria's vice president, Yemi Osinbajo, remittances will account for approximately 8% of the country's gross domestic product (GDP) in 2020, with 70% of this money going toward family support.
According to the report, some African countries have implemented strict controls on the amount of currency that can be transferred abroad. Customers in Nigeria, for example, may be restricted to sending as little as $500 out of the country at a time through certain banks.
Furthermore, the majority of Nigerian banks charge between 1 and 2.5 percent for international transfers. This means that bank fees for a $1 million transaction could reach as high as $10,000 in some cases. However, with Bitcoin, transfer fees are unbelievably low, and even during peak periods, the same transaction would not cost more than $250 to complete.
As bank restrictions continue to make remittances more expensive while also restricting the amount of money that can be transferred, Africans are increasingly turning to cryptocurrencies to make it easier to send and receive money.
Paxful's co-founder and chief operating officer (COO) believes that these restrictions are only forcing Africans to use cryptocurrency as a means of money transfer.
Another factor contributing to the rapid increase in adoption rates is the desire to preserve wealth and conduct international transactions. Because of the continued decline in the value of the Nigerian Naira, for example, many Nigerians are learning to preserve their wealth by investing in more stable cryptocurrencies, which are more likely than not to appreciate in value rather than depreciate.
Furthermore, because of the unbearable Naira to Dollar exchange rate, Africans prefer to transact in cryptos rather than local currencies, only to discover that they no longer have sufficient funds to transact international business as a result of a decline in the value of the currency.
It can be difficult to send enough fiat currency to a Chinese partner in order to complete your purchases if you're collaborating with a partner in Nigeria or Kenya to import goods to sell there. The Paxful COO explained that it is often simpler to simply purchase Bitcoin locally on a P2P exchange and then send it to your partner.
Africa's cryptocurrency adoption is being fueled by P2P transactions
According to the report, peer-to-peer (P2P) platforms are extremely popular in Africa, especially when compared to other regions. P2P transactions accounted for 1.2 percent of total African transaction volume and 2.6 percent of total Bitcoin transaction volume, respectively. Many African cryptocurrency users rely on peer-to-peer (P2P) platforms to buy and sell cryptocurrency, as well as to send and receive money, and even to conduct business transactions.
One of the reasons why peer-to-peer (P2P) has become so popular across the continent is because of restrictive regulations on cryptocurrency transactions. A directive issued by the Central Bank of Nigeria, for example, forbids financial institutions from facilitating cryptocurrency transactions.
However, according to the report, P2P platforms such as Paxful and Remitano are exempt from this requirement because they are non-custodial and allow customers to trade cash for cryptocurrency amongst themselves. Users can then send their cryptocurrency to centralized exchanges, where they will have access to a wider range of trading options.
A lot of P2P transactions were taking place on informal chat platforms such as WhatsApp and Telegram, according to Adedeji Owonibi, CEO and founder of a Nigerian blockchain consultancy company, Convexity, who was explaining how the CBN regulation in Nigeria shifted the focus away from exchanges like Binance and Luno to P2P platforms.
“Informal peer-to-peer trading on Whatsapp and Telegram is extremely popular in Nigeria. I've witnessed young people and businessmen in these groups conduct transactions worth several millions of dollars with well-known over-the-counter merchants,” he said.
Among the other factors that could be driving the adoption rate across the continent are a rapidly growing youth population, as well as a rapidly rising internet and smartphone penetration rate, which could position millions of Africans to benefit from the growth of Bitcoin.
Finally, the continuous rise in the value of cryptocurrencies, particularly the more well-known ones such as Bitcoin and Ethereum, makes them attractive investment vehicles. A large number of Africans are making a killing from it.
