The continent is quickly becoming a hotspot for the increasing use of Bitcoin for everyday transactions.
The global bitcoin and cryptocurrency market is growing daily and Africa is no exception. Although Africa is the smallest cryptocurrency economy by continent, it is the most dynamic. It has grown massively, receiving over $ 105.6 billion from July 2020 through mid-2021. In fact, it is the third fastest growing bitcoin and cryptocurrency economy in the world, according to Chainalysis. In addition, Nigeria, South Africa and Kenya rank in their Top 20 Global Crypto Adoption Index 2021.
Nigeria is the largest bitcoin and cryptocurrency market in Africa with a trading volume of $ 99 million in the first quarter. Kenya and Ghana rank second and third at $ 34.8 million and $ 27.4 million, respectively. South Africa follows the four. This means that the continent has one of the world’s highest acceptance points at the base.
Bitcoin and cryptocurrency payments in retail
Unlike other regions where institutional adoption is massive, small bitcoin and altcoin transfers are perhaps the most promising aspect of the African crypto market. With a total transaction volume of 7%, transfers in retail are the highest in the world and are thus well above the global average of 5.5%.
The region is also a leader in cross-regional bitcoin and altcoins transfers. While cross-regional transfers make up 96% of the total transaction volume in Africa, it is 78% in other regions of the world combined. This also indicates a growing acceptance at the grassroots level.
Most transactions are done through peer-to-peer platforms, which are the backbone of the growth of the cryptocurrency market on the continent. Many people rely on P2P platforms for commercial transactions and transfers.
P2P platforms are driving Bitcoin retail trends in Africa
Due to central bank sanctions, informal P2P trading has become the most popular method for trading Bitcoin and Altcoins on the continent. The unprotected P2P platforms allow merchants to exchange cryptocurrencies and send money to one another, either through banks or other money transfers. By leveraging these platforms, users can overcome the hurdles that financial institutions have created when trading cryptocurrencies.
Some African governments, for example in Nigeria and Kenya, have ordered banks to ban Bitcoin and Altcoin trading through their systems. As a result, peer-to-peer platforms have become viable alternatives because of their convenience and effectiveness.
In essence, the trading restrictions imposed by banks on Bitcoin and cryptocurrency are one of the main reasons behind the growth of P2P platforms like Paxful and Luno. According to COO and co-founder Artur Schaback, Paxful grew over 300% in Kenya and 57% in Nigeria last year. Similarly, P2P transactions account for 1.2% of the total Bitcoin and Altcoin transaction volume in Africa, the highest in the world. Specifically, 2.6% of Bitcoin transactions take place via P2P platforms.
How do P2P platforms promote the use of Bitcoin and cryptocurrencies?
In 2020, sub-Saharan Africa received $ 48 billion in remittances, with Nigeria accounting for half that amount. The majority of these transfers came from Europe and North America. Here, too, P2P platforms have played a central role in transfers and Bitcoin and cryptocurrency payments in retail.
According to blockchain analysis, crypto-supported transfers are on a growth path. The number of transfers under $ 1,000 has grown steadily from April 2020 to June 2021, when there was a significant decrease from the previous month.
In addition to wire transfers, African business people rely more on Bitcoin for commercial transactions. Sending fiat currencies for transactions can be challenging due to regulatory bottlenecks. In connection with this, Nigeria limited offshore debit card transactions to $ 500 each. Because of this, many people have turned to Bitcoin for their larger transactions.
- Preservation of assets and value
During the tough economic times, Bitcoin has become an ideal asset for maintaining wealth and value. During the period of devaluation, Paxful growth accelerated in Nigeria. People seeking growth also invest in Bitcoin and the more speculative cryptocurrencies.
African countries will follow in China’s footsteps and adopt their own central bank digital currencies. In fact, Nigeria and Ghana have already implemented their CBDCs. This means that users can send and hold blockchain-based versions of their fiat currencies in digital wallets.
As mentioned earlier, Bitcoin and alternative cryptocurrency payments have contributed significantly to the growth of P2P platforms in Africa. One of the platforms that has grown significantly is Luno. Africa customers dominate the platform after increasing 271% since January 2020 to 4.7 million of the total of 7 million customers. The platform has played a huge role in the growth of Bitcoin adoption by creating infrastructure and introducing local currencies into the crypto market.
Remember, retail has played a key role in the growth of Bitcoin and Altcoins, such as during the Bull Run in 2018. But the trust issue was a major obstacle. According to a Luno poll, “54% of Africans are ready to adopt a single global digital currency,” a significantly higher percentage than 41% in Asia and 35% in Europe.
South Africa is a leader in regulation
Regulations are clearly needed to support the sustainable growth of the Bitcoin market. When it comes to regulating the financial sector, South Africa is subject to the continent’s strongest supervisory authority – the Financial Sector Conduct Authority. This financial institution regulator provides investor protection and ensures that all companies licensed by the FSCA comply with the rules and do not take advantage of their customers.
With an expected increase in Bitcoin adoption in South Africa, market regulators have started trading by enacting the necessary laws. The regulations are designed to prohibit the irregular use of Bitcoin for nefarious activities. In addition to increasing transparency, the regulations will prevent terrorism and money laundering financing by dealing with identifying and verifying customers and keeping track of their transaction records to oversee normal activities. The rules will also limit banks’ risk of spilling over into the economy and leading to financial instability.
However, South Africa is treading a new path that many other countries are not. Regulators in countries like Kenya, Nigeria and Zimbabwe have banned banks from processing Bitcoin transactions.
Africa has immense economic potential. Although many countries lack good infrastructure and regulations, they can use bitcoin and blockchain technology to fuel their growth. In fact, the region has massively introduced Bitcoin and Altcoins, especially for retail cryptocurrency payments, which is sure to create ripple effects in other sectors, leading to more growth and adoption.
This is a guest post by Jerry Goddard. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc. Bitcoin magazine.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.