Headline: Is Africa the next big Market for Cryptocurrencies?

Date: 8/2/2022

Body:  I will always remember one portion of an MPT documentary I saw decades ago.  The subject was Africa, and they mentioned that because infrastructure for copper-wire phones was so incredibly difficult to support, they had effectively “skipped” that generation of innovation, and very quickly embraced cell phones.  The embrace of cell phones was so universal and nearly immediate, that the trading of cell phone minutes had become effectively currency in many places.  So, it seems logical that the use of cryptocurrencies would be similarly embraced.  And, it has been; According to Chainalysis, in the 12 months since July 2020, Africans received $105.6 Billion in cryptocurrency  They seem to already be very accepting of these cryptocurrencies.  The question is; Why are they so ready to accept these currencies? 

The Banking Infrastructure is not well-developed

Cryptocurrencies are designed to be decentralized (peer-to-peer) in nature, and this flexibility allows them to be used in many different environments.   It also makes sending remittances very easy, and this is key; in 2019, roughly $562 Million was sent via cryptocurrencies to their home countries.

These Players mean Business

It did not take long for some entrepreneurs to start businesses to take advantage of this decentralized finance.  Empowa is a business that uses the power of cryptocurrencies to crowdsource financing for development projects.  Pezesha is a business that makes finding a loan easier by instituting a credit scoring system.  This system allows for  easier loan origination as investors can now see much more easily what projects are most likely to succeed.   Prior to this, such a system didn’t exist.  They have now facilitated more than 3,700 loans, and that leads to jobs, and development.  

Corruption is a problem in many places

Corruption is also a common problem that cryptocurrency can help solve, but we must exercise caution here.  Among the Top 10 cryptocurrency adopting states, the first 5 are often seen as corruption-adjacent.   But, #6 is the U.S., so we must face 2 alternatives:

  1.  The U.S. is nearly as corrupt as many other nations on the list.
  2. Corruption is not the main driver of accepting Cryptocurrency.

Are there any nations with particularly interesting approaches to cryptocurrency?

Yes, there are countries like this.  Kenya has setup a regulatory “sandbox” where they can experiment with many different approaches to regulation.    One expert defined this kind of sandbox as a “tailored regulatory environment that allows for the live testing of innovative capital markets related products, solutions and services with the potential to deepen and develop the capital markets prior to launching into the mass market.”   This is a really interesting approach as the transparency afforded by the sandbox could go a long way towards achieving buy-in from citizens. 

In another development, the Central African Republic has begun to accept Bitcoin as their nation’s legal tender.  As interesting as it is, we have to be realistic here.   The Bitcoin ecosystem is very energy-intensive, and the CAR does not have a robust electrical grid to support it.   (The IMF also raised some issues, mainly related to transparency, which is odd given that the blockchain is visible to everybody.) If it could be made to work, the stimulus created by Bitcoin could be support and be supported by the many mineral resources that the nation already has.  Further, there are plans in 2023 to install a vast and robust fiber optic network nationwide that will allow easy access to the Internet and cryptocurrency.   There is even talk of sharing this resource with nearby Cameroon.

But, what about the children?

Believe me, they are being considered, and profitably so.  An industry has sprung up, selling educational materials concerning Bitcoin; This information has to be translated into all of the major languages.  SHAmory is one such company that makes educational games and books.   So, perhaps in the future, citizens there might be more prepared to become involved in Bitcoin and other cryptocurrencies.  In Nigeria, Binance put on a program to educate 400 University students in how to use Bitcoin.  Clearly, they have a vested interest, but, as long as we all have our eyes open…

On the other side of the Bitcoin, children today are seeing some of the darker side of these cryptocurrency too.  There was an exchange located in South Africa, called Africrypt.    This company either went bankrupt or just disappeared, but not before stealing $3.6 Billion.  To make things worse, cryptocurrencies are not classed as financial assets, and  there were no laws broken in South Africa, and prosecution is impossible.   No doubt, the children of today will see and remember these crimes.  The question is, will the forgo the opportunity represented by cryptocurrency?

The World is Never Enough?

Bitcoin is infinitely better for most businesses if only for the clearing time required.   In most international transactions, it takes 3-5 days for a transaction to clear.  Within the Bitcoin ecosystem, transactions are cleared instantly, and this will serve to foster more business development.

The Verdict

Africa has some exciting prospects as it comes to cryptocurrency.  But, please note carefully the word “prospects.”  To my way of thinking, they are not here yet, and perhaps they will never be.  Maybe the electrical power grid needs to be developed before the adoption of cryptocurrency.   Maybe the educational component will prove too much to allow for cryptocurrency to gain scale.  We don’t know.  If you are thinking of investing in this space, I might suggest (for once) going with a specialty (read expensive) mutual fund that is run by a team of knowledgeable professionals; an index fund probably wouldn’t work here.  Look carefully at the credentials and experience of the management team before investing.





Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

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