While the global crypto market has seen more than 25% wiped off its total capitalisation value since April, the demand for this type of asset continues to grow exponentially in developing economies.
For example, monthly crypto transfers to and from Africa (under the value of $10,000) have increased by 55% over the course of the last year, peaking at $316 million in June. These numbers are likely to rise further too, particularly as digital currencies continue to bridge the gap between the banked and unbanked in Africa.
But how has Africa become such a fertile breeding ground for crypto demand, and why are assets like Bitcoin (BTC) so popular in the region?
What is Cryptocurrency and Why is it So Popular Amongst Younger Users?
In simple terms, cryptocurrency refers to digital money that can be stored, exchanged and spent online.
Unlike fiat currency, however, cryptocurrency is mined and not issued by a central authority, which means that it’s completely decentralised and underpinned by blockchain technology. As a result, crypto transactions are completely transparent and immutable, while they help to eliminate so-called “middlemen” and potential transaction fees.
This remains crypto’s main selling point, especially in a developing and relatively youthful economy such as Africa.
To begin with, a whopping 370 million people within the region’s total population of 590 million were ‘unbanked’ in 2019, with liquid and accessible crypto assets like BTC enabling these individuals to bridge this gap and seek associated financial products with ease.
Crypto is certainly helping to improve financial inclusion levels amongst younger citizens, especially those who have lost their primary income stream and locked down in the wake of the coronavirus pandemic.
With smartphone penetration rates also increasing exponentially year on year in Africa (the region will account for 6.6% of global handset sales this year), tech-savvy youngsters in the MENA area are increasingly able to leverage cryptocurrency as a way of accessing economic opportunity in the digital age.
This includes financial trading, with the typical forex broker now offering access to BTC and similarly established crypto assets.
How Crypto Has Become a Stabilising Economic Factor
Cryptocurrencies are also being embraced at a governmental level in Africa, especially with a number of countries in the region having experienced incremental bouts of hyperinflation during the last decade and beyond.
Take Zimbabwe, for example, which is currently experiencing hyperinflation of 106% (with this having peaked at 800% through 2020). To provide further context, the country’s central bank recently unveiled a $50 bill, which is not enough to even buy a loaf of bread and boasts an underlying value of just $0.60 on the prevailing bank rate.
Of course, assets such as BTC are largely immune to macroeconomic factors like inflation, so there’s a recognition that adopting tokens at a national level may help to stabilise stricken economies in the long term.
Bitcoin’s liquid nature certainly makes it a viable measure in the battle against rising inflation, even allowing for its own inherent volatility and potential bumps in adoption.
The potential economic benefits of widespread crypto adoption also mitigate the proposed risks of crypto scams and similar bumps in the road, especially if the process is overseen by strong governance and regulation.