By Marius Reitz, GM for Africa at Luno
Could cryptocurrency fulfil its decentralised potential in African countries and other developing nations? The experts and the numbers suggest so.
While the US and other Western nations account for the majority of global cryptocurrency trading volumes, Africa is increasingly emerging as a leader in cryptocurrency adoption. Nigeria, for example, ranked second in the 2023 Chainalysis Crypto Adoption Index, with the top spot going to India – another developing nation you don’t hear much about in cryptocurrency conversations. The US ranked fourth, behind Vietnam.
Africa has a history of leapfrogging technologies, where the adoption of a technology solution in a specific region bypasses older, more established ones. The mobile phone market is a prime example, as are digital agriculture and mobile money services such as M-Pesa. But can it do the same in crypto?
Cryptocurrencies currently form a small portion of total investment capital in South Africa managed by fund managers, wealth managers and financial advisors. The recent approval by the Financial Sector Conduct Authority (FSCA) of several financial service provider licences could change this, which is one of the key issues explored in a new report by Luno.
The State of Crypto in Africa report asserts that the legitimacy from the FSP licences could open the conversation with fund managers, wealth managers and financial advisors, and this could bring a fresh influx of investors into crypto. Regulatory changes lay the foundation for greater adoption and crossover from traditional financial institutions into the crypto asset space but do not extend far enough to allow crypto’s inclusion as an underlying investment in collective investment schemes such as unit trusts and exchange traded funds. Further legislative changes are required to enable crypto products to trade on stock exchanges in a similar manner to what we have seen in the United States.
The State of Crypto in Africa report provides a glimpse of the current state of cryptocurrency in African crypto hubs. It paints a picture of a continent primed for financial innovation and with a huge opportunity to leapfrog other regions, but it also reveals serious challenges moving forward that will need work to overcome.