Cryptocurrencies Proven To Be A More Reliable Store Of Value In Africa
The relentless devaluation of currencies across many African nations and the rising inflation rates in the past year have prompted a grassroots surge in the adoption of cryptocurrencies, as people seek unconventional assets for hedging against economic uncertainties. According to the latest Geography of Cryptocurrency report by the US-based research firm Chainalysis, there is a clear link between the economic challenges that have plagued Africa since the previous year and the growing interest in and use of cryptocurrencies.
Cryptocurrencies have proven to be a more reliable store of value compared to local African fiat currencies, particularly in countries where inflation and currency depreciation have been most severe, posing threats to the monetary sovereignty of nations.
“Many countries in the region have grappled with soaring inflation and mounting debt, making cryptocurrencies an appealing means of preserving value, safeguarding savings, and achieving greater financial autonomy,” states Chainalysis in its report analysis.
As countries continue to grapple with the challenges posed by cryptocurrencies to their economies, the increased use of cryptocurrencies for hedging purposes could exacerbate the threat they pose to the monetary independence of nations, potentially supplanting “weak” local currencies.
This phenomenon is most pronounced in countries like Kenya, Nigeria, Ghana, and South Africa, which are leaders in cryptocurrency adoption on the continent, according to the report.
Statistics reveal that in these countries, particularly during periods of local currency depreciation, there has been a notable increase in the receipt of cryptocurrencies, particularly Bitcoin and stablecoins.
For instance, in Nigeria, when the Naira hit a historic low exchange rate to the US dollar in June of this year, the amount of Bitcoin and stablecoins received soared to over $2.6 billion. This trend repeated in January and other months marked by currency depreciation. During the year leading up to June 2023, Nigeria’s crypto transaction volume increased by 9 percent, while the Naira depreciated by about 46 percent over the same period, illustrating the apparent connection between these two trends.
In Kenya, however, despite an 18 percent depreciation of the local currency between July 2022 and June of the current year, the amount of cryptocurrency received nearly halved compared to a similar period last year when $19 billion was received.
Nevertheless, there’s a notable surge in interest in cryptocurrencies during the same period, as indicated by online search trends. This suggests a correlation between economic challenges and increased cryptocurrency activity in the country.
David Otieno, a blockchain researcher based in Nairobi, acknowledges the rising curiosity about cryptocurrencies in Kenya and the growing adoption. However, he suggests that this may be driven by multiple factors, not solely the desire to hedge against inflation and currency devaluation.
“Government interest in regulating digital assets and subsequent discussions have genuinely piqued people’s curiosity. But let’s not forget the attention the crypto space received due to initiatives like Worldcoin’s eyeball identity registration,” Mr. Otieno explained.
“Inflation can be a driving factor, but if you look at trends in developed nations like the United Kingdom, it is reported that similar inflation and economic issues have caused the value of Bitcoin to fall,” he added.
The Chainalysis report also acknowledges that the increasing regulation of the crypto space is fueling interest and adoption. In Kenya, a draft bill aims to classify cryptocurrencies as securities, and the government is exploring ways to tax gains from their trade through digital services tax.
In the previous year’s Geography of Cryptocurrency report, Chainalysis noted that unemployment and limited opportunities were driving crypto adoption in Africa, particularly among young people who viewed cryptocurrencies as a means of wealth creation.
