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Booming African crypto adoption drives concerns over regulation

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2020 has seen an acceleration in African crypto adoption, with the continent emerging as the second-largest region for peer-to-peer (P2P) trading, and two African nations ranking in the top eight of the Chainalysis crypto adoption index.

However, the booming growth has caught the attention of Africa’s financial regulators, sparking concerns that a rush to introduce heavy-handed oversight could quell innovation in the local crypto industry.

Nigeria has led the continent’s growth in 2020, posting weekly P2P volumes of between $5 million to $10 million, followed by Kenya and South Africa with between $1 million and $2 million a week each.

Speaking to Cointelegraph, a representative of top P2P exchange Paxful stated that Africa has been its strongest growing region in 2020, noting there was also dramatic growth in smaller economies like Ghana, and Cameroon.

Centralized exchanges have also reported a spike in trade activity, with Luno reporting $549 million worth of combined volume from Nigerian and South African customers last month — a 49% increase compared to the start of 2020. The exchange also notes that new customer sign-ups have increased by 122% from the fourth quarter of 2019 until Q2 of 2020.

Marius Reitz, Luno’s general manager for Africa, told business publication Quartz that the increasing demand for crypto is being driven by the benefits that virtual currency offers over the notoriously exclusive local banking sector.

Reitz notes that crypto assets are seeing increasing popularity among Africa’s large community of workers who live away from their home countries, with the steep fees on foreign exchange across the continent driving these migrants to explore crypto assets.

“The demand we see now is a result of the challenges that people experience across Africa.”

Lagos-based BuyCoins exchange has also noticed growth in “people trying to move money in and out of the country” with the exchange hosting $110 million in crypto volume this year, up from $28 million during the entirety of 2019.

However, the increasing popularity of crypto has also brought greater regulatory scrutiny — with African lawmakers analysts appearing divided on how to best respond to the crypto phenomenon.

In April, South African regulators proposed regulations that would impose strict licensing and monitoring requirements but do not recognizeng crypto assets as legal tender. Last week, Nigeria’s Securities and Exchange Commission (SEC) proposed guidelines that would treat all crypto assets like securities by default.

Stephany Zoo of the Kenya-based exchange Bitpesa welcomed the consumer protections that will come from increased regulation. “It is important that the space is regulated and properly guided by the financial authorities to ensure confidence and protection of the consumer,” he said.

But Reitz warned that hasty, heavy-handed regulation could crush innovation within the sector:

“What we’d like to see is a phased approach. It can be very easy for regulators to want to regulate the entire industry from the onset but it could stifle innovation. Once governments regulate better, there’s more chance of opening up integration with traditional financial infrastructure and there would be more mass adoption as well.”



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Regulation

El Salvadorians take to the streets to protest Bitcoin law

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Protesters calling themselves the Popular Resistance and Rebellion Block have come out against El Salvador’s government passing a law making Bitcoin legal tender.

A Tuesday tweet from local news outlet El Mundo shows El Salvadorians carrying banners saying “no to Bitcoin” in the streets of San Salvador demanding a repeal of the country’s Bitcoin law. Legislative assembly members Anabel Belloso and Dina Argueta addressed the protesters after first meeting the group separated by a barrier of razor wire.

In a letter made available at the protest, the Popular Resistance and Rebellion Block group claimed that President Nayib Bukele passed the law making the cryptocurrency legal tender in the country without proper consultations with the people. It also cited the volatility of Bitcoin (BTC), comparing investing in the cryptocurrency to playing the lottery: “betting on the lottery is a voluntary act, while Bitcoin is required by law.”

Related: Coercion and coexistence: How El Salvador’s Bitcoin Law may change global finance

However, the group’s main grievance around the Bitcoin legal framework seemed to be centered around a perceived disparity in the cryptocurrency’s usage by the government when compared with the average resident in El Salvador. Protesters said Bitcoin “only serves some large businessmen, especially those linked to the government, to launder ill-gotten money.”

“Entrepreneurs who put their capital in Bitcoin will not pay taxes on their earnings,” said the letter. “In addition, to apply Bitcoin the government will spend millions of dollars of the taxes paid by the people.”

They added:

“Bitcoin would facilitate public corruption and the operations of drug, arms and human traffickers, extortionists and tax evaders. It would also cause monetary chaos. It would hit people’s salaries, pensions and savings, ruin many MSMEs, affect low-income families and hit the middle class.”

Though passed by El Salvador’s government and signed into law by Bukele in June, the law recognizing Bitcoin as legal currency in the country will not go into effect until Sept. 7. The Popular Resistance and Rebellion Block’s protest was aimed at government officials to demand the law be repealed. In addition, the World Bank has also refused to help El Salvador transition to a Bitcoin-friendly framework, given its “environmental and transparency shortcomings.”

Related: What is really behind El Salvador’s ‘Bitcoin Law’? Experts answer

During a scheduled visit by the U.S. State Department earlier this month, Under Secretary of State for Political Affairs Victoria Nuland suggested El Salvador ensure Bitcoin is well regulated and transparent, but did not explicitly say anything against the country’s move to a more digital economy. Some proponents of the law including Bukele have suggested Bitcoin could help facilitate remittance payments from El Salvador citizens living abroad and lessen the country’s reliance on the U.S. dollar.