Africa is rarely mentioned among the largest markets for cryptocurrencies. But it may be set to steal a march over other markets. (See also: The Rise Of Africa.)
The surge in popularity of cryptocurrencies spurred the opening of at least 15 trading venues there within the past year alone. Peer-to-peer marketplaces also recorded a spike in trading volumes as bitcoin’s price skyrocketed last year. For example, trading volumes in Kenya on localbitcoins.com increased to $8.1 million in December 2017. Luno reported 2000 BTC worth of transactions in November 2017, when the cryptocurrency’s price was hovering in the $10,000 range. Approximately 37% of those transactions occurred in South Africa.
Recently, the continent’s oldest exchange disclosed lofty ambitions. Luno is a cryptocurrency exchange based in South Africa. It started operations in 2013 and boasts 1.5 million users spread across 40 countries. By 2025, it plans to reach 1 billion customers. For context, North America’s largest cryptocurrency exchange Coinbase reported 11.7 million users last year. (See also: Coinbase Has More Users Than Schwab.)
There are a couple of reasons why Africa might become the next big market for cryptocurrencies.
First, local conditions in Africa are conducive to adoption of cryptocurrencies. Several countries in the continent suffer from rampant inflation. For example, Zimbabwe and South Sudan both have runaway inflation rates. (See also: Worst Hyperinflations In History.)
With their paradigm of decentralization, cryptocurrencies offer an alternative to disastrous central bank policies. In fact, South Africa’s central bank recently announced a pilot test using ethereum’s blockchain for smart contracts. Second, the penetration of mobiles within the continent has helped its population become comfortable with cryptocurrency technology. In the evolution of its financial services ecosystem, Africa skipped step involving the setup of physical banking infrastructure to a decentralized mobile money platform.
New businesses that use blockchain have emerged. Kenya-based BitPesa, a payment platform and money transfer service, works with 60 banks around Africa and has seven mobile wallets on its platform. Third, the threat of government regulation, which has roiled cryptocurrency markets recently, is currently fairly low in Africa. While they have warned about the dangers of investing in cryptocurrencies, regulators in African countries have taken a hands-off approach to trading at exchanges.
But Africa is susceptible to the same pressures as other cryptocurrency markets. Cryptocurrency traders in Africa were paying a premium of as much as 40 percent in 2017 as bitcoin’s price reached new records. According to some reports, the premium occurred due to a shortage of liquidity, meaning sellers were able to command unrealistically high prices due to high demand from buyers.
Investing in cryptocurrencies and other Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns small amounts of bitcoin.