Will Africa Spearhead the Next Wave of Crypto Adoption?

VYSYN Ventures Weekly Insights #6

This originally appeared on the VYSYN VENTURES blog.

“Africa will define the future (especially the bitcoin one!). Not sure where yet, but I’ll be living here for 3–6 months mid-2020.” — Jack Dorsey

Twitter and Square co-founder Jack Dorsey may not have followed through on his plans to live in Africa but his forecast of the continent defining the Bitcoin future may prove to be true. Analysts rank African nations amongst the most promising emerging markets.

Home to a 1.2 billion person market, the forecasts for GDP growth in Africa were high before the Covid-19 outbreak. Investors who moved capital into Africa in 2019 reaped high rewards but the virus outbreak has unfortunately sparked the first recession in 25 years.

Despite the hit to economic growth, Africa remains one of the most promising regions for driving future crypto adoption. In our latest VYSYN VENTURES release, we analyse the forces that are aligning to create a perfect storm for cryptocurrencies in Africa.

Search Volume & Data Highlights Heightened Bitcoin Interest

Google search data highlights piqued interest in cryptocurrencies among African nations. Nigeria and Uganda currently account for the highest search volume for the term “cryptocurrency” while South Africa and Ghana rank sixth and seventh respectively.

Cryptocurrency businesses operating in Africa have shown how the search volume is backed by real demand. P2P Bitcoin exchange Paxful has its biggest market in Africa and has reported rapid growth in the region.

Paxful reported $1.6 billion in global trade volume in 2019 with 45% of this coming from Africa. Paxful trading volume in Africa grew by 57% over 2019.

Nigeria, Kenya, Ghana, and South Africa are the leading markets by trading volume for Paxful. Steady increases in trading volume were reported in nations including Zambia and Uganda.

Inflation & Unstable Domestic Currencies as a Driver

African nations have historically struggled with high inflation rates and unstable domestic currencies. Textbook examples of hyperinflation have struck citizens in nations such as Zimbabwe.

Those who store their wealth in currencies undergoing hyperinflation experience rapid erosion of their purchasing power. Despite its volatile price movements, Bitcoin has proven to be an attractive alternative to troubled domestic currencies.

The predetermined inflation schedule of Bitcoin has attracted netizens in regions where the domestic currency is suffering inflation. Venezuela and Argentina are the most recent examples of this.

Furthermore, African citizens suffer from a lack of banking infrastructure. Data from the World Bank shows that there are roughly 55% less commercial banks in Africa compared to the global average.

Cryptocurrencies provide an alternative way for Africans to transfer value and tap into financial services. The growth in decentralized finance demonstrates the increased interest in blockchain-related financial services with over $1.3 billion currently locked into DeFi protocols.

Mobile Dominance May Spur Crypto Usage

For those who have travelled around China, one thing which may stand out is mobile usage among the population. Mobile usage is deeply ingrained into daily life in China.

Apps such as WeChat combine payment services, social feeds, and messaging. An entire generation seems to have skipped desktop usage and directly adopted mobile.

Mobile applications are extremely important to Chinese consumers and the seriousness of any business without a mobile app will be questioned. While it is uncertain the role which mobile dominance plays, China is arguably the most influential in the Bitcoin market.

Not only does China hold the largest share of Bitcoin hash rate and Bitcoin mining management companies but Chinese retail investors have a notoriously large impact on the market. When Xi Jinping publicly endorsed blockchain technology, Bitcoin price recorded a 42% increase during Asian trading hours.

If we accept that the importance of mobile among Chinese retail investors plays a role, a bullish case can be drawn for those in Africa who adopt the technology. Mobile money service applications have forced African users to become comfortable with mobile usage. Furthermore, smartphone usage across Africa is expected to rapidly grow over the coming years.

Perfect Storm for Bitcoin Adoption in Africa?

Africa is not without its challenges. The infrastructure across the country is still lacking and may serve as a headwind to crypto adoption.

Nonetheless, there are powerful forces at play which position Africa as a potential powerhouse for Bitcoin usage. A long history of debased domestic currencies have sparked interest in Bitcoin as an alternative and the data is backing it up.

Search and trading volume from Africa is high and has rapidly grown in recent years. Another factor to take into account is that Bitcoin price has dominantly been in a bear market since the peak of 2017. The fact that African interest has grown despite this demonstrates strong organic demand.

Mobile usage may also be a powerful force driving crypto adoption in Africa. China is arguably the most powerful retail market in crypto and mobile dominates their internet usage.

Africa is a young and growing population and their smartphone usage is expected to rapidly increase in the coming years. Furthermore, mobile money services such as M-Pesa in Africa are pushing the population to become comfortable with smartphone usage.

While COVID-19 may have dampened economic growth prospects for Africa in 2020, data suggests that huge potential demand for Bitcoin and cryptocurrencies may be brewing. We may have observed some significant price declines in Bitcoin over recent years but a perfect storm for demand in Africa has also been building.

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