Since the early days of bitcoin, many believed that the digital currency would end up banking the unbanked in developing regions such as Africa. While bitcoin adoption in Africa has made some commendable steps forward, its use as a payment method is yet to have a far-reaching impact. Despite this, the African continent has seen the establishment of some well-known bitcoin economies of which Kenya is one of the most prominent.
In this article, you will gain an insight into the state of bitcoin in Kenya and learn about the challenges that bicoin startups are facing in this East African economic hub.
The Bitcoin Ecosystem in Kenya
Kenya is one of the African nations where bitcoin use has continued to gain significant momentum, which has led to the development of a thriving local bitcoin economy.
As more African countries awaken to the adoption of bitcoin, only Kenya, Nigeria, Ghana, and South Africa provide promising bitcoin ecosystems that incorporate bitcoin liquidity, local bitcoin communities, startups, and meetups.
Kenya’s bitcoin ecosystem boasts regular meetups, a co-working space and accelerator focused on blockchain technology, is home to several bitcoin startups and exchanges, is experiencing an increasing demand for bitcoin and a community that’s well-versed in mobile money usage.
BitPesa – Kenya’s Leading Bitcoin Startup
There would be no talk of bitcoin in Kenya without the mention of BitPesa, its leading local bitcoin startup. Nairobi-based BitPesa was launched in 2013 with the aim to provide businesses and individuals with a cheaper alternative of making international payments to and from Africa by leveraging bitcoin as a payment method. The use of bitcoin has enabled BitPesa to lower payment costs in and out of Africa by 50 percent.
Since its establishment, BitPesa has been able to raise more than $10 million in funding from leading venture capital firms that are focused on blockchain technology to expand to other markets. The venture capitals that funded BitPesa include Draper Associates, BitFury Capital, Blockchain Capital and Digital Currency Group.
With over 17,000 transactions and more than 6,000 users, BitPesa’s current operations are in Kenya, Tanzania, Nigeria, Senegal, Democratic Republic of Congo, Uganda, and the United Kingdom. The payment platform allows businesses to process payments in over 30 currencies across borders.
Initially, BitPesa started its operations targeting private individuals who were looking for alternative means of remitting money. However, they have since changed their model and have started to offer their services to businesses. Changing their model to focus on B2B clients and enabling them to make cross-border transactions has not only seen their expansion into other African markets but has continued to shape the BitPesa success journey enabling it to raise further funding in 2017.
Despite the strong growth of BitPesa’s trading volumes in Africa, however, it has been forced to seize KES payments due to the pushback of the Kenyan central bank against bitcoin and bitcoin-related startups in September 2017. Unfortunately, BitPesa is not the only bitcoin startup facing difficulties when it comes to banking in Kenya due to the central bank’s very clear negative stance on the digital currency.
Central Bank of Kenya’s View on Bitcoin
Following an embroiled court case between BitPesa and Safaricom – Kenya’s largest telecommunication network – in December 2015, a statement warning the public about the use of bitcoin was issued by the Central Bank of Kenya (CBK) across various newspapers. In part, the warning stated:
“virtual currencies such as bitcoin are not legal tender in Kenya and therefore no legal protection exists in the event that the platform that exchanges or hold the virtual currency fails or goes out of business…”
In the eyes of the CBK, the anonymous nature of bitcoin payments makes it, “…susceptible to abuse by criminals in money laundering and terrorism financing”.
Following this directive by the CBK, no known directive or clarity has been offered on the use of bitcoin or on any other form of digital currency.
However, it has become known that the Central Bank of Kenya has communicated to local banks not to perform any business whatsoever with bitcoin startups. Following this communication, several bitcoin startups such as BitPesa had their bank accounts shut down. This, of course, poses a challenge to new and existing bitcoin startups who want to operate in the country.
Kenya’s Blockchain Hub
The opening of a blockchain-focused startup incubator and co-working space by BitHub.Africa in 2016 in Nairobi made Kenya the first of a kind in the East African Community to house one.
BitHub.Africa was founded in 2015 by John Karanja, a former employee of BitPesa. His desire was to create a space that would help drive the adoption of blockchain technologies and solutions in Africa. BitHub.Africa has a co-working space, an accelerator for startups that are interested in creating blockchain solutions, and provides consulting and advisory services for
BitHub.Africa has a co-working space, an accelerator for startups that are interested in creating blockchain solutions, and provides consulting and advisory services for organisations that are interested in blockchain technology.
Blockchain Technology in Kenya
Unlike bitcoin, blockchain technology is very welcome in East Africa’s largest economy. As BitcoinAfrica.io reported on September 14, several industries in Kenya are implemented blockchain solutions to improve their services.
The National Transport and Safety Authority (NTSA) announced that it will be mandatory for Kenyan vehicles to have electronic stickers. The electronic motor identification service will ensure that all drivers have the stickers on the windscreens of their cars and will be detected by use of special gadgets. This move will help in the recovery of stolen vehicles and rid Kenya of unsafe old cars. The service will operate on a shared blockchain platform that will link key state agencies like the Kenya Police and the Kenya Revenue Authority together.
Furthermore, Kenya’s health sector will make use of blockchain technology through the installation of a smart platform that will enable all public hospitals to monitor important patient data such as a patient’s health history as well as for the use of public health and hospital management.
In the insurance sector, America Insurance Group (AIG) has partnered with banking group Standard Chartered to launch a pilot using blockchain technology where it ran cover offers for their policyholders across America, Kenya, and Singapore. The pilot saw the two companies process real-time payments for their clients on a unified blockchain-powered platform that linked their agents and financial institutions.
Needless to say, industry in Kenya is discovering the benefits of blockchain technology for itself and many more applications using the distributed ledger technology are expected to follow.
Bitcoin Adoption in Kenya
One of the major setbacks bitcoin adoption has faced in Africa is the high cost of the Internet and a lack of Internet connectivity. As it stands, Internet penetration in Africa is at 18 percent, which is substantially lower than the acceptable global average rate of 30 percent. Many rural areas in some African nations are quite distant from cable stations making Internet connectivity expensive and inefficient.
Besides being one of the two countries in Sub-Saharan Africa with leading telecommunication development, Kenya’s Internet penetration stands at 66 percent which is the highest in Africa. This has made Nairobi – the capital of Kenya – a hub for many tech startups and is famously known as Silicon Savannah. Moreover, in Africa, according to data from McKinsey, Kenya leads in the adoption and use of mobile payment with 86 percent of houses having active mobile money accounts.
While these elements make Kenya a conducive environment for bitcoin startups, there are a handful of entrepreneurs that have adopted the use of bitcoin in providing solutions in the region. Besides BitHub.Africa and BitPesa, Umati Blockchain, BitSoko, Belfrics Kenya, and Remitano are other startups that are making use of bitcoin in Kenya.
Bitcoin merchant adoption in Kenya, on the other hand, is nothing to write home about. Currently, there are only a handful of companies in Kenya that accept bitcoin payments for their services as stated by CoinMap, a platform that gathers and lists traders that take bitcoin. These include two tech companies, two travel agents, and three e-commerce shops.
According to several members of the bitcoin community in Nairobi, bitcoin use is prevalent among the youthful tech-savvy generation who receive bitcoin payments for their freelance work or are buying them for investment purposes.
The Future of Bitcoin in Kenya
With a bitcoin-unfriendly central bank, international bitcoin startups are finding it hard to break into the Kenyan market and homegrown startups are struggling to get off the ground. Nonetheless, bitcoin adoption is on the rise in Kenya as can be witnessed by trading volumes on LocalBitcoins. Even the national media has been reporting about bitcoin, which has boosted bitcoin awareness in the East African nation.
Should the Central Bank of Kenya change its view on the use of cryptocurrencies, Kenya would have the potential to become a leading global bitcoin economy as the country benefits from a well-educated driven young generation of entrepreneurs and developers in Nairobi’s Silicon Savannah who are very capable of developing new bitcoin and blockchain business solutions if they were to receive the regulatory stamp of approval and support from local authorities.
Nigeria’s Capital Markets Regulator to Create Framework for Cryptocurrency Regulation
Nigeria’s blockchain community and cryptocurrency exchanges could get a clear stance on the classification of cryptocurrencies from the country’s Securities and Exchange Commission (SEC) before the end of the year.
A Framework for Cryptocurrency Regulation Is Coming
According to a report by Pulse, the regulatory institution is set to implement the roadmap for the fintech industry as it pertains to its capital markets. According to the roadmap, between the last quarter of this year and the first quarter of 2020, the SEC is expected to:
- Decide on its preferred classification of cryptocurrencies (either as commodities, securities or currency).
- Develop a framework for the regulation of Virtual Financial Assets (VFAs) and VFA Exchanges.
- Issue guidelines and standards for whitepapers and ICOs.
- Develop a framework for KYC and due diligence for cryptocurrencies, Virtual Financial Assets, tokens, and ICOs.
- Define clear classification for tokens based on their unique properties. They could be payment tokens, asset tokens, utility tokens or others.
The Acting Director-General of the SEC, Mary Uduk, revealed at a Capital Markets Committee briefing last month that the Working Group to drive the implementation of the roadmap would be chaired by Adeolu Bajomo, the Vice-President of the Fintech Association of Nigeria.
Cryptocurrencies as Commodities or Securities But Not as Currency
One of the recommendations that stands out in the roadmap, which was prepared by a committee comprised of officials from the regulatory agencies, the private sector, and a member of the blockchain community, is for the SEC to recognise cryptocurrencies as commodities or securities, and not as a currency. This classification is expected to have tax implications for investors.
This recommendation is in line with the central bank’s directive last year, which stated that “virtual currencies” were not a legal tender.
Cryptocurrencies have lacked a single, definite identity. For example, Germany is treating them as money and means of payment while the US uses the Howey test to decide whether a cryptocurrency is a security or not.
Crypto Adoption in Nigeria
Citigroup, a US investment firm, reported in January 2018 that Nigerians were the third-largest holders of bitcoin as a percentage of gross domestic product (GDP). The use has ranged from trading to making fast, low-cost cross-border transactions, saving on the high fees taken by commercial banks and traditional money-transfer services.
Nigeria has a fast-growing young population with a significant chunk below the age of 35. But there is still a small number of people with access to the financial system. Less than 50 million people with bank accounts in a population of over 180 million. Blockchain applications could be a great way to onboard millions of underserved people into the financial system.
With the SEC expected to take responsibility for the regulation of cryptocurrencies in the country soon, we can foresee more scrutiny of Nigeria’s biggest crypto companies, which could lead to a more secure crypto trading ecosystem down the road.
Poor Financial Infrastructure? Why Ghanaians Need Crypto More Than Ever
Ghanaian investors continue to face difficulties as the Bank of Ghana (BoG) continues to probe fund managers for mishandling funds. Is it time for one of the fastest-growing economies to look at cryptoassets for financial freedom?
A Three-Year-Old Banking Crisis
The Ghanaian banking crisis started on August 14, 2017. The Bank of Ghana (BoG) revoked the licenses of UT Bank Ltd and Capital Bank Ltd and approved a Purchase and Assumption (P&A) transaction with GCB Bank Ltd that transferred all deposits and selected assets of the two banks after they were found to be insolvent.
The following year, the BoG subsequently revoked the universal banking licenses of five banks, including UniBank Ghana Limited, Construction Bank, Sovereign Bank, Royal Bank, and Beige Bank. Additionally, it issued a license to a newly created bank – Consolidated Bank Ghana Limited – which is wholly owned by the Government of Ghana.
After a tough time dealing with the aftermath of the shake-up in the banking sector, the BoG then proceeded with revoking the licenses of 23 insolvent savings and loans and finance house companies just weeks ago.
These happenings in the country’s financial sector have led to several issues in the world’s fastest-growing economy in 2019.
A Time to Consider Cryptoassets?
With the current turbulences in the financial ecosystem in Ghana, one may raise the question: “Is it time for Ghanaians to consider cryptoassets as investments with real asset ownership and transparency?”
Bitcoin and other decentralised cryptocurrencies are a natural fit in situations like these. For investors and consumers to escape the uncertainty of such a disorganized space, they will have to hold assets that they directly control.
Cryptocurrencies allow users to own their assets and give them independence from regulated, mainstream and established systems. With cryptoassets, no financial institution is responsible for the safekeeping of your funds and, therefore, cannot mishandle your funds.
Unlike the current situation where thousands of Ghanaians are not sure of the future of their funds due to the changes in the financial sector over the last three years, cryptocurrency users always have control of their funds and can access them at any time.
Imagine a pregnant woman in Kumasi, Ghana who kept her money in a savings and loans institution ahead of giving birth to cater for the hospital bills but cannot access her funds and is now stuck in the hospital because the institution has been closed down.
If she held bitcoin instead, she could pay in BTC or easily exchange it to cedi, to pay her bills without any issues.
Growing Interest in Cryptoassets in Ghana
Perhaps, the point made above has already been registered in the minds of many in the country who have shown interest in cryptocurrencies, especially bitcoin.
Currently, Ghana sits at number three on the list of countries on Google Trends for the search keyword “bitcoin” and Accra sits at number two for the keyword “buy bitcoin“.
With a more deliberate effort to push education and adoption – like the BlockTech Women Conference Accra 2019 held last week – the existing interest in cryptocurrencies could translate into growing adoption that could disrupt the current financial system in the West African nation.
Is Bitcoin Really A New ‘Safe Haven’ Asset?
The launch of the Bitcoin blockchain in 2008 was a low-key affair among a fringe group of cryptography enthusiasts. Just over a decade later, the pioneer cryptocurrency is a world-famous phenomenon with a market value of about $10,000 at press time.
This is certainly a remarkable turnaround, which only the most ardent early supporters could envision. That said, bitcoin as a currency has taken a life of its own and is gaining rather sophisticated market functions. One of these is the emergence of Bitcoin as a possible ‘safe haven’ asset. How ready is bitcoin to perform this unique function? Let’s find out.
Bitcoin currently has a solid market presence. Moreover, a great number of retailers in the market, especially online, accept bitcoin payments. This means that bitcoin users can freely operate and trade which is a great leap forward.
Trading is efficient and simple because of modern exchanges where you can trade for USD, trade BTC-EURX or any major fiat and crypto trading pairs. Generally, bitcoin is now a currency and an asset you can freely own and transact with ease. At the moment, there are over 250,000 bitcoin transactions each day across the world.
Incidentally, some of bitcoin’s intrinsic factors have made it play a unique market function. For one, bitcoin is a finite currency. Unlike fiat which is freely printed by Central Banks, there will only ever be 21 million bitcoin. Whilst this has placed a ceiling on mass adoption as a currency, the finite virtue has made it an attractive proposition as an asset.
The Case for Bitcoin as A Safe Haven Asset
For a historically volatile asset, bitcoin being discussed as a potential safe haven asset is remarkable. In years gone past, equity investors would regularly purchase gold during periods of market uncertainty to distribute risk. Gold is a traditional safe haven investment due to its scarcity and value. Can bitcoin take up such a role?
In the first few days of August 2019, stock markets went wild on fears of a USA-China trade war escalation. Simultaneously, bitcoin booked impressive gains of more than seven percent as opposed to the drops in the major stock markets. This is certainly not a fool-proof case for bitcoin as a safe asset. Regardless, crypto enthusiasts took the development with glee as part of a general argument for bitcoin’s status as a safe haven asset. The major arguments include:
- Bitcoin is effectively immune to geopolitical tensions like the trade wars.
- By virtue of decentralisation, bitcoin is independent of government monetary policy. This means that bitcoin prices are entirely market dependent. Accordingly, bitcoin (though significantly volatile) is attractive because it has no direct correlation to the volatility of other asset classes.
- Bitcoin’s scarcity gives it innate value, like rare metals. Satoshi Nakamoto capped bitcoin supply at 21 million.
Is it that simple though? The fact that bitcoin has a life of its own is an impressive aspect of its position as an asset class. However, the case for bitcoin as a safe haven asset is not as straightforward as it may seem.
Traditional safe haven investments are usually boring. Gold, for all the credibility it has, has generated an average annualised return of 0.32 percent over the last five years. As a matter of fact, its value most of the time is relatively consistent. This would be fitting for the name ‘safe haven’ as it remains safe in the midst of market volatility.
However, bitcoin, even in the most generous terms, would be a ‘colorful’ safe haven. Bitcoin may have a value trajectory unique from the regular stock markets. However, this does not take away bitcoin’s volatility issues. Therefore, investors are as motivated to diversify risk in a volatile stock market as they are to cash in on potential outsize gains.
Taking prices from August 2018 to August 2019, bitcoin has appreciated more than 100 percent. This is certainly a very impressive return from an investment perspective. However, it does little to lend credence to the general idea of a ‘safe haven’ asset.
Moreover, bitcoin still has to navigate a number of regulatory challenges with global financial entities because to truly gain the status of a mainstream ‘safe-haven’, regulators like the SEC have to be on board. Additionally, the stability of the coin against hard forks and security of secondary players like exchanges can add to its credibility.
Is It a Safe Haven Asset?
From the aforementioned, you can look at it both ways. For an investor looking to distribute risk and have an asset class whose volatility does not correlate to mainstream asset volatility, bitcoin can act as a safe haven investment. However, it fails to live up to the classic role of a safe haven like gold in the market. Regardless, this debate will only intensify as bitcoin matures and grows further.
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