In August 2018, a report on the state of cryptocurrency regulation across Africa came back with one obvious conclusion: most countries were undecided on what to do.
In fact, 21 African countries had made no public stance on cryptocurrency regulation at the time, while only two had shared favorable stances about potential regulation. But, in what represents a major shift, Nigeria and South Africa—two of the continent’s largest economies—are stepping up regulatory plans.
In April, South Africa took its first steps towards creating cryptocurrency laws by publishing a framework proposal and, more recently, Nigeria laid out plans to regulate cryptocurrencies through its Securities and Exchange Commission. This is a marked turnaround from two years ago when the Nigerian lawmakers asked the central bank to “investigate” bitcoin.
But progress remains uneven across the continent. Kenya, which has typically been at forefront of adoption of financial technology solutions in Africa, has not set out concrete plans for regulation since its central bank warned local banks against cryptocurrency dealings.
“We seem to be in limbo,” says Aly-Khan Satchu, a Nairobi-based investor and financial analyst. “The spillover of the central bank governor taking such a strong stance against [cryptocurrency] remains the overarching situation.”
For their part however, local users and cryptocurrency startups across the continent are not exactly waiting for regulation to catch up. In fact, cryptocurrency trading has long taken off and is partly powered by homegrown exchanges which continue to operate in regulatory gray areas.
For context, the total value of retail bitcoin transfers (worth less than $10,000 per transaction) in Africa reached $316 million as of June, according to research by Chainalysis, a blockchain market intelligence firm.
Full speed ahead
The growing volumes of transactions at local exchanges also suggest pace is unlikely to slow down. Luno, one of the continent’s oldest exchanges says monthly trading volume in Nigeria and South Africa alone topped $549 million in August—a 49% increase since the start of the year. (Luno also operates in Uganda and Zambia.)
Meanwhile, BuyCoins, a three-year old Lagos-based exchange, says it has already processed $110 million in transactions so far this year, compared with $28 million for all of 2019.
“The demand we see now is a result of the challenges that people experience across Africa,” says Marius Reitz, Luno’s general manager for Africa. “When people find value in using a cryptocurrency and are able to fulfill their needs with that better than they’re able to do with fiat currency, then they will naturally choose cryptocurrency—that’s what we’re seeing.”
There is also evidence of increasing adoption specifically due to the global Covid-19 pandemic as Luno reports a 122% increase in new customers across Africa between the fourth quarter of 2019 and the second quarter this year.
Among several operational challenges, Africans attempting to do business beyond the continent’s shores face risks of fluctuating exchange rates and difficulty around cross-border payments.
And, amid further economic challenges posed by the Covid-19 pandemic, those underlying factors which hobble businesses have become more prominent, resulting in locals increasingly turning to cryptocurrencyto facilitate international trade.