Three Reasons Behind The Remarkable Growth Of Cryptocurrency Use In Africa Despite Regulatory Uncertainty

In traditional barter trade, mutual integrity and respect were expected of traders in different market places. If your bag of rice was worth the equivalent of three goats, you’d expect nothing less, and likely feel cheated if your fellow trader tried to convince you that you should instead take two adult goats and a kid. If such a dispute came up, you’d then hope to find a trusted third party to mediate your conflict. The rise of conflicts in trade agreement gave rise to intermediaries and eventually merchants in markets who could be trusted to maintain trust in a market set up.

We have come a long way from the age of barter trade, yet its principles remain relevant to date. Trust, product value and the need for intermediaries are three of these principles that give insight into some of the reasons why presently, cryptocurrency adoption in Africa has grown significantly in recent years in spite of regulatory uncertainty.

Regulation often sets the foundation for investor protection, which is critical for the growth of an industry. Checks and measures create a sense of confidence in the sense that investors can increase or hold their capital in a particular instrument knowing its value will be significant for the foreseeable future. Market cycles undoubtedly shake investor confidence from time to time, baffling even the most seasoned of analysts and experts, yet regulatory backing of some sort offers a measure of assurance.

A lack of regulatory assurance shown toward an asset class would arguably, therefore, dent its growth, if not entirely wipe out its existence. Why does crypto asset use in Africa, then, show a divergence from this expectation?

Lower barriers to entry

Conventional or established investment options in existence right from real estate, stocks and commodities to mutual funds have over time defined access to wealth acumen. They have matured as reliable asset classes, with clear expectations of their investment guidelines, investor protection measures, and long term value. It’s possible to identify significant examples of investors whose lives changed through the well-known routes of investment.


One common denominator is the capital-intensive approach investors often take up to invest in real estate, and for example, stocks, whereby some platforms require one to be an accredited investor. Right from the registration process, which could take days to approve, and the comparison of margins of initial capital ranging from USD 10,000 – 100,000, this presents a challenge of excursion to potential investors, who could be in some form of significant debt, earning minimum wage, or as in the present economic time, simply weighed down by the impact of inflation on their spending power.

Conversely, with a simple starting capital of 10 USD, a few minutes and less stringent know-your-customer or KYC requirements, that’s all it takes to begin the crypto investment journey. This comparatively low barrier to entry into the crypto ecosystem makes the young industry attractive especially to young investors at the dawn of their income generation journey. Africa’s median age is 19 – a significant implication for the financial landscape, as most of it has been tailored to an older demographic.

Perceived value in the ecosystem

New things are often either dismissed or embraced for their novelty. The value that someone assigns to something, however, ultimately determines its worth. In the wake of the economic downturn occasioned by disruptions in supply chains in 2020 – 2021, due to Covid-19, the anticipated job losses painted a grim picture of economic growth. It was then, a stark contrast, to observe 1200% growth in crypto asset use between June 2020 and July 2021, according to Chainalysis.

Facing job losses, capital preservation became a high priority for everyday investors. Where would they get that extra coin to keep their families safe, fed, healthy and going? Some managed to shift into other industries or alternative income earning opportunities; others found their gain in the crypto ecosystem. This period happened to be part of the anticipated four-year cycle bull run after the 2020 Bitcoin
halvening event.

Supposing someone invested USD 1000 during the first quarter of 2020, when Bitcoin was worth about $10,000 and they held through the 2021 price rally where bitcoin reached a high of USD 60,000, their initial capital would be worth between $40,000 and $60,000, comparing the price of Bitcoin in different months of 2021. A rare return on investment, this year’s price rally would certainly put one ahead of the average real estate investor in the same period.

The flip side of Bitcoin’s volatility is a grim reality, whereby if someone became invested at a point when the market was at a top in its cycle, only to see the prices go down in a matter of minutes or months, their assurance would wane. It remains that the daily growth in new participants in the crypto economy speaks to its increased perceived value, in spite of challenges like scams or uncertain regulation.

Trusted intermediaries

As in the origins of barter trade, crypto transactions occur in a peer-to-peer manner. Two people can send each other money in the form of a crypto asset or over a crypto platform, but since there’s yet to be widespread acceptance among merchants for goods and services for crypto assets globally, intermediaries are needed to bridge this particular gap. Given limited regulatory support, or on an extreme, outright bans, intermediaries have worked around this barrier by prioritizing the peer-to-peer model. There are a few exchange services that have made it easy to exchange crypto assets for cash or fiat, as per the traders’ preference or demand on their platforms.

Arguably a handful compared to the number of banking services, crypto exchanges such as LocalBitcoins, Paxful and Binance have played a significant role in pushing for crypto adoption across the continent. The leading countries, Kenya, Nigeria and South Africa, have a common denominator of regulatory restrictions of crypto use in their jurisdictions. They are also the leading in terms of volumes traded daily, ranging from $50 to 100 million. These exchange services offer basic and specialized education on cryptocurrency use, putting in place measures to curb fraud, and protect their customers.

They might well set the lead for regulation, as they are on the forefront of connecting customers to crypto assets, educating them, and collaborating with relevant stakeholders to create an enabling ecosystem for greater value to be realized.

Understanding crypto asset adoption in Africa remains a peculiar journey, yet one to watch, as there are valuable lessons unfolding as adoption continues to reach new levels every week. For every solution found, measure of purchasing power protected, and measure of hope for future value realized, crypto adoption will yet increase on the continent.

Disclosure: I hold bitcoin and other cryptocurrencies.

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