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CRYPTOCURRENCIES ADOPTION IN KENYA AMID WARNINGS FROM CBK & KRA.

 

CRYPTOCURRENCIES ADOPTION IN KENYA AMID WARNINGS FROM CBK & KRA.

 When the covid-19 pandemic struck early last year, little did Kenyans know that it would be a blessing in disguise. The lockdown period created an optimum environment for citizens to explore the crypto world at a rate never seen before.

According to data from Chainalysis – a blockchain data analysis platform and company – the adoption of cryptocurrencies in Africa jumped by a whopping 1200% in a span of one year ending June 2021. The data further indicates that Kenya alongside Nigeria and South Africa contributed a big chunk to this growth. Collectively all African countries received close to $105.6B worth of cryptocurrencies in the same time period. Even though this is a drop in the ocean (3%) when compared to developed economies like USA and China, the growth rate is the fastest among all.

 On the Global crypto adoption index, Chainalysis ranks Kenya as the first country in Africa above Nigeria and 5th in the world.

 

Figure 1: Ranking of Global Crypto Adoption as of July 2021

Image Credits: Chainalysis

  Adoption Patterns

 The adoption patterns in Kenya can be spotted in four key areas:

 Peer-to-Peer trading: On P2P platforms such as Paxful and Localbitcoins, the trading volume traffic of retail traders from Kenya increased significantly from 2020 up to date. In fact, P2P transactions in Africa are the highest in the world.

 

Image Credits: Chainalysis

 The data shows that the use of the Kenyan Shilling on P2P  crypto trading platforms outperformed that of USD for a better part in the past year.

 

Image Credits: Chainalysis

  • Remittances: a big percentage of relatives and friends of Kenyans working abroad have found a convenient way to send money back to their loved ones without restrictions and limits.  Reports from Chainalysis show that cryptocurrency remittances to African countries increased exponentially by about $100M within the past year.

  

Image Credits: Chainalysis

 

  • Store of value: the constantly high rate of inflation being experienced across the globe and within the country has gradually devalued the Kenyan shilling. This coupled with the high unemployment rate majority of Kenyans opted to convert their saving and wealth into cryptocurrency assets to which appreciate in value, unlike their fiat currency. In fact data from Chainalysis shows that whenever the value of the Ksh. falls, the trading volume on P2P crypto platforms rises. A clear indication that Kenyans are have found a safe haven to escape inflation.

 

Image Credits: Chainalysis

 

 

  • Acceptance in the remote areas: with the increased use of smartphones in the grassroots more Kenyans in such regions got exposed to cryptocurrencies and an encouraging number of them have at least used the virtual currencies in the past year. With the majority of them being unbanked, decentralized crypto exchanges bring them an ingenious way of banking with no intermediaries, making it even more attractive.

 These factors are best captured by Changpeng ‘CZ’ Zao – the CEO of Binance – when answering a question on what could be fueling crypto adoption in Africa [Kenya included] in an interview with TechCrunch. He said:

     “I think it’s always a combination of many things. Africa is a unique continent with unique challenges. For example, several African countries are plagued with constant constant currency devaluation, and so users are more likely to use crypto and stablecoins as a hedge against devaluation and as a store of value.

   Making payments – whether it’s remittances, cross-border transfers or settlements – is also pretty difficult across country lines, and crypto simplifies this.

 

 Summing-up

Despite the stern warnings and punitive policies (such as the recent 15% tax on any crypto-related activities) towards the use, holding and trading of cryptocurrency assets, crypto adoption in Kenya will continue to rise because the benefits outweigh the risks. Blockchain technology is here to stay. The Central Bank of Kenya like other regulators in Africa and across the globe will have to embrace it in the future. El-Salvador – a country in Central America – already set the pace in September last year by making bitcoin its second legal tender to provide monetary stability to the country – something its previous national currency failed to deliver. Therefore Kenya adopting crypto would be a win-win situation for the CBK and the retail traders/merchants.

 I hope you found this article informative.

 

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