Africa is emerging into one of the world’s fastest-growing cryptocurrency markets, driven by strong funding activity, favorable market conditions, and booming trading volumes, according to a new report by Swiss blockchain-focused investment firm CV VC.
Released earlier this month, the African Blockchain Report 2021 provides an overview of the emerging blockchain sector on the continent, sharing key growth metrics and trends to look out for.
According to the study, venture capital (VC) funding in the blockchain industry is surging this year, with startups in the sector raising US$91 million in Q1 2022 alone. The figure represents a 1,668% year-on-year (YoY) from Q1 2021.
Blockchain funding in Africa in Q1 2022, Source: The African Blockchain Report 2021, CV VC, June 2022
In Q2 2022, the momentum continued with some noteworthy fundraises being recorded: MARA, a Kenyan startup building a pan-African crypto exchange, raised US$23 million; Jambo, a Congolese Web3 startup, closed a US$30 million Series A funding round; and Afriex, a Nigerian money transfer startup, raised US$10 million in a Series A.
Added to Q1 2022’s figure, these deals bring the year’s total funding for the sector so far to US$154 million, surpassing 2021’s blockchain funding total of US$127 million.
African blockchain funding in 2021, Source: The African Blockchain Report 2021, CV VC, June 2022
Fertile ground for blockchain development
Africa’s dynamic blockchain funding landscape is reflective of investors’ confidence in the prospect of the technology on the continent.
Africa is the second most populous continent in the world, and has one of the youngest populations globally. Additionally, many Africans cannot rely on centralized and regulated infrastructure systems which are often riddled with inefficiencies and red tapes, the report says.
With 370 million people still unbanked across the region, cryptocurrencies and blockchain have the potential to allow Africans in cash-based and informal economies to access alternative infrastructures to obtain credit, access payments capabilities, save and invest, and more, it says.
Developments on the regulatory front have also been another driver of the growth of blockchain in Africa.
In Nigeria, new regulations for digital assets were introduced in May, offering more clarity on trading in cryptocurrencies. The move followed the launch of the eNaira, a retail central bank digital currency (CBDC), in October 2021.
In South Africa, formal guidelines on crypto are expected to be introduced in 2023, and experimentations on CBDCs are being carried out.
In Mauritius, the Virtual Asset and Initial Token Offering Services Act 2021 was passed into law last year, providing a comprehensive legislative framework to regulate the new and developing sector.
A frontrunner in crypto regulation, Mauritius started regulating the industry in 2020 when it released guidance for security token offerings, introducing a regulatory regime for new security token trading systems to become eligible for a Financial Services Commission (FSC) license.
Crypto regulations in Africa, Source: The African Blockchain Report 2021, CV VC, June 2022
Crypto adoption surges
Adoption of cryptocurrencies in Africa has surged these past couple of years. According to blockchain data platform Chainalysis, Africa’s cryptocurrency market grew over 1,200% by value received between 2020 and 2021, and is now the third-fastest growing crypto economy.
Crypto markets size and growth, Source: Chainalysis 2021
In 2021, the region was home to some of the highest grassroots crypto adoption in the world, with Kenya, Nigeria, South Africa, and Tanzania all ranking in the top 20 of Chainalysis’ Global Crypto Adoption Index.
The 2021 Global Crypto Adoption Index Top 20, Source: Chainalysis 2021
According to the firm, several trends are driving the growth of cryptocurrency usage across the region.
First, evidence suggests that Africans are increasingly using cryptocurrencies for remittances, turning to digital currencies to circumvent capital control measures and avoid costly traditional money transfer services.
Another possible use case Chainalysis points out is the use of cryptocurrencies as a hedge against inflation and geopolitical risks. In both Kenya and Nigeria, for example, data show that when the value of the naira and shilling in US dollars falls, trading volumes on P2P cryptocurrency platforms increase.
Kenyan shilling P2P trading volume versus shilling-USD exchange rate, Source: Chainalysis 2021
The release of CV VC’s African Blockchain 2021 came in tandem with the launch of the firm’s African Blockchain Early Stage Fund and the announcement of its upcoming blockchain-focused accelerator program.
Featured image credit: Edited from Unsplash
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