Crypto Adoption in Sub-Saharan Africa Largely Driven by Retail and P2P Activities

Although institutional traders do not predominate in sub-Saharan Africa, the region is known to have the highest number of small retail transactions globally.

Part of the driving force behind cryptocurrency adoption is fiat currency devaluation, high unemployment, and economic instability.

P2P Crypto Thrives in Africa Despite Regulatory Issues

According to a report by blockchain analytics firm Chainalysis, retail users make up the bulk of crypto-related activity in the sub-Saharan area. The institutional presence in the region is smaller than that of other countries.

Retail sales volume on the continent, however, is largely driven by economic factors such as the need to preserve wealth. This is because the currencies of many of these countries have suffered decades of devaluation against the US dollar.

“Our interviews suggest that this reflects the trend of many young people in sub-Saharan Africa turning to cryptocurrency as a way to preserve and build wealth despite little economic opportunity, unlike in other countries where we see many using cryptocurrency as a way to multiply their existing wealth,” Chainalysis stated in the blog post.

The near absence of institutional interest in cryptography in sub-Saharan Africa can be attributed to the presence of strict regulatory policies. Nigeria’s central bank, for example, banned commercial lenders from servicing cryptocurrency companies.

Nigeria’s central bank ban also contributed to another retail adoption metric. It led to an increase in peer-to-peer crypto volumes. According to the report, these P2P transactions are not restricted to platforms like Paxful and Binance that have brokerage and escrow services. Direct P2P cryptocurrency deals between buyers and sellers are also happening outside of cryptocurrency exchanges in the region.

Crypto also drives remittance flows

Remittances are popular in sub-Saharan Africa due to the high number of diaspora sending money home. Inflows to sub-Saharan Africa in 2021 rose 14.1 percent to nearly $50 billion, after an 8.1 percent decline the previous year, according to World Bank figures. However, the high fees charged by conventional platforms act as a deterrent for users. The situation has led people to look for cryptocurrency as it offers a faster and cheaper alternative.

Fintech payment platforms are also integrating cryptography as a way to facilitate cross-border transactions. There has been an increase in fintech payment projects across the continent. Fintech startups in Africa raised $3 billion by 2021, according to a report by market analysis firm Briter Bridges. This accounted for 60% of the total capital raised by African tech companies last year.

The cryptocurrency has also been useful for companies importing materials, as the region sees the emergence of crypto payment brokers between partners in Africa and Asia. These payment brokers often use stablecoins like Tether to facilitate transactions.