Crypto in Africa - hypetrain or here to stay?

Happy Friday!

If you’re new here, this newsletter will get you smarter on Africa’s tech scene in under 5 minutes. Maybe 7 if you’re a slow reader 🐢

If you haven’t already, you can subscribe below.

I’m stoked to share that we are so close to 300 subscribers!

I’m grateful to everyone who reads Prox Weekly and has shared with their friends 🙏🏾

I would love your help to cross the 300 mark - whether that’s sharing with a friend or retweeting quote from here.

This article has been a while coming. I’ll be diving into how Crypto adoption has grown in Africa, reactions from business and government and whether there is a true use case on the continent.

My housemate is convinced that there is no real use case for crypto.

And he’s not the only one.

It’s easy to tie in crypto with NFTs of rocks, meme coins and Elon Musk turning degenerate gamblers into millionaires with a tweet.

And from that perspective, I get it.

But in emerging markets, there are less sales of Rock NFTs.

Instead, there is a growing cohort of would-be consumers who are shut out of financial services, and whose local currencies are decreasing in value.

And the features of crypto turn out to be a great fit for these massive challenges.

No Bank? No ID? No worries 😎

People bullish on Africa’s tech scene usually mention these two problems on the continent the most.

Whether or not they are Africa’s most exciting opportunities is for another article. But they are massive issues, so let’s dive in.

1) Africa’s Un-Identified Population:

Around 500 million people in Africa have no identification. In Nigeria, Tech Cabal found that only 38% of Nigerians have any form of identification, and that it can take up to four years to get a valid identification.

2) Africa’s Unbanked Population:

57% of Africa’s adult population is estimated to be unbanked.

This cuts them out of saving and storing money, sending money to other people, getting loans and other financial services.

And crypto solves these problems quite well.

Now, let’s say that you saw the Rock NFT from above and decided you wanted to buy it.

To get started, you would typically link your debit card, or bank transfer money to a crypto wallet.

These options require a) Identification and b) A Bank Account.

But crypto lets you get started without either of these.

No Bank Account? No ID? No worries.

In Africa, you can find local vendors who accept a cash payment, or you can find a bitcoin ATM to buy crypto with cash.

All you need - a smartphone and internet.

Cryptocurrency can be more accessible than traditional banks in Africa.

Add in Africa’s growing mobile and internet penetration on top of a young, tech-savvy population and we’re seeing crypto usage explode on the continent.

Crypto the moon? 🌝

Between July 2020 and June 2021, crypto currency value increased 1200% totalling $105.6 billion in value.

UNCTAD, the United Nations Conference on Trade and Development, found that significant sections of the population in African countries hold crypto currency:

Kenya - (8.5%), 4.5 million people

South Africa (7.1%), 4.2 million people.

Nigeria’s (6.3%) or 13 million people

And compared to other research, these estimates are conservative.

And crypto adoption isn’t just a phase. Users in Africa aren’t pumping and dumping. They’re storing their money in crypto for the long haul.

Why? Because economic institutions in Africa are weakening.

Inflation also to the moon 🌚

Last week at my startup we had a sharp drop in revenue.

60% of our users from Nigeria were suddenly unable to pay for our programs.

The Nigerian Central Bank stopped allowing payments in foreign currency to support the Naira (local currency) and ease pressure on the limited supply of US Dollars.

Inflation in Nigeria hit an 11 month high of 17.7% in July. And it’s worse in other countries with political instability - like Sudan at 258% inflation in February 2022.

In Africa, we’re seeing double and even triple digit inflation.

This means that if you earn and store money in local currency, it will lose value.

Now, if you’re worried about your money devaluing in the West, you can stash your funds into other assets - like gold, a house or in public markets.

In Africa, this is a bit out of reach.

What is easier is hedging your money in a stablecoin, like DIA, USDC or USDT.

And this is one of the biggest use cases for retail crypto investors.

In April, 52% of Nigerian crypto investors had allocated over half of their assets to cryptocurrencies.

Lanre, founder of Fluidcoins, has stashed 85% of his assets in stablecoins. And he sums this whole article up nicely:

And it’s not just consumers who need crypto.

Businesses have needs, too 💁🏾‍♂️

When Lanre worked at Tyk, a global company, he couldn’t receive his money in Naira.

He had to pay himself via crypto to get money in his account. Realising this was a common problem, Lanre set off to create a crypto payments company.

But he quickly learned that businesses have needs, too.

It’s not just retail consumers that need to make payments.

As crypto adoption shoots up, businesses need to accept payments in crypto as well.

And just like 52% of crypto users who store their money in stablecoins, businesses in Africa don’t want to store their money in local currency where it will decrease in value.

So he launched Fluidcoins in September last year, and has built a suite of products to help companies catch up to Africa’s growing crypto usage.

So it’s not just individuals who love and need crypto - it’s businesses as well. But what about government?

A Love/Hate Relationship ❤️‍🔥

Well, we’re seeing mixed reactions.

On the supporting side, Central African Republic (CAR) passed a bill legalising bitcoin as legal tender (the second country to do this globally).

CAR’s president, Touadéra, is bullish.

They also announced MARA, a crypto exchange, as their official crypto partner.

Seeing tech and government team up to solve problems in Africa is always exciting for outcomes on the continent. See Safaricom + Kenya.

But not all governments have a great relationship with crypto.

In February 2021, the Nigerian Central Bank banned banks from enabling crypto transactions, calling it a ‘direct contravention of existing law.’

This prevented Nigerians from buying and selling crypto with the Naira.

The impact?

After the ban, Google ranked Nigeria in first place for bitcoin searches. Crypto exchanges reported that more Nigerians had started using crypto.

Users found other ways to transact without Naira - like through peer to peer trades and vouchers.

Owenize Odia, Country Manager of crypto exchange Luno, summarises the Nigerian Government’s move accurately:

Crypto’s ideal state in Africa 🔮

Crypto solves key problems around financial inclusion and safety of currency in Africa.

And we’re just at the start of the journey.

To super charge adoption and help solve Africa’s financial access issues, I hope we’ll get to see more team ups like MARA and Central African Republic.

Lanre, who is pro regulation, wants to see government set processes for crypto startups to be registered in the country.

‘Crypto scams still happen frequently. Anyone can set up a token in minutes and start selling it. Instead of trying to control crypto, the government should focus more on protecting consumers.’

Lanre is optimistic, and thinks we’ll see regulators in Nigeria come around.

But until then, African users and businesses will want to store and grow their money safely and startups like Fluidcoins will keep building crypto solutions for the continent.

What do you think of crypto in Africa?

Let me know on this LinkedIn post here.

And that’s a wrap!

Did you learn something new? If you did, reply to this email to let me know.

If you enjoyed this and know someone else who might please share it with them - we want more people to hear about Africa’s incredible growth story 🙏🏾

I’m also very close to 300 subs! I’m buying lucky #300 a (virtual) coffee ☕️

Catch you all next week 💌