Leading industry experts are discussing the growing adoption of cryptocurrencies throughout Africa. From the drivers behind it to the opportunities that asset tokenization can bring, various trends are shaping the digital asset landscape in the region, according to Ripple (XRP).
More Investors Jump into Digital Assets
Retail participation in cryptocurrency markets is soaring exponentially across Africa. Major sub-custodians estimate that roughly 8.5% of Kenya’s population currently own cryptocurrencies, as do 10% of all South Africans—approximately 5.8 million people. Meanwhile, a 2022 report by crypto exchange KuCoin reveals that 33.4 million people in Nigeria, corresponding to roughly 35% of the population aged between 18 and 60, either own cryptocurrencies or have traded them in the previous six months.
In contrast to cryptocurrencies, inflows into tokenized assets have been somewhat muted. However, experts believe these financial instruments could bring major benefits to investors in Africa. Tokenization allows assets to become more accessible to a wider range of participants, including those in frontier or emerging African markets.
“We recently saw BlackRock launch a tokenized money market fund, lowering the barrier to entry for investors,” said Maximilian Ruf, Director of Global Client Solutions at Ripple. Within a week of its debut, BlackRock’s tokenized fund had already attracted $240 million.
Cryptocurrencies Show No Sign of Slowing Down
Cryptocurrencies are being used extensively as a risk mitigation tool. As cryptocurrency price movements are broadly uncorrelated with those of equities and bonds, these assets have become a safe haven for many in Africa and elsewhere.
“Some, including BlackRock, have said that Bitcoin could be an effective hedge against inflation risk. Bitcoin could potentially complement gold as a store of value,” Ruf continued.
There are other reasons for these inflows beyond returns and hedging, particularly in Africa. A lack of liquidity in certain African equity and fixed-income markets is pushing many towards alternatives, including cryptocurrencies. The practical benefits of holding cryptocurrencies are also more obvious in Africa than in developed markets.
Regulators in Africa Go on the Front Foot
The rollout of crypto and digital asset regulation is helping to accelerate flows, especially from institutions, into cryptocurrencies. A handful of African markets are making significant headway in regulation.
“Having confirmed that crypto assets such as cryptocurrencies are financial products and subject to regulations aimed at protecting customers and preventing money laundering and terrorist financing, South Africa’s Financial Sector Conduct Authority (FSCA) recently approved licenses for 75 Crypto Asset Service Providers (CASP), including the likes of Luno and VALR,” said Bradley Johnson, Custody Sales Director for Africa at Ripple.
Mauritius is also at the forefront of digital asset regulation. The country’s Virtual Assets and Initial Token Offering Act (VAITOS) came into play in February 2022, creating a regulatory framework for digital assets, including cryptocurrencies, and virtual asset service providers.
Meanwhile, other countries in the region, including Kenya, are in the early stages of developing cryptocurrency regulation. As countries increasingly introduce constructive regulations, institutions historically risk-averse about the asset class may become more comfortable.
Custody Drives the Institutional Inflows
Institutions are upping their digital asset game thanks to more enterprise-grade service providers and global digital asset custodians operating in the market today.
“Custody is the foundation of everything. When you speak to institutions about their conditions for entering the digital asset market, the first thing they want is a robust custody network,” explained Johnson.
High-profile examples include Societe Generale FORGE, the first and only bank in France to obtain a full Digital Asset Service Provider (DASP) license, and HSBC, which announced plans to develop an institutional custody solution for tokenized securities.
Technology Providers are Shaping Digital Asset Trading
Technology providers play an instrumental role in facilitating the institutional adoption of blockchain and crypto technology.
Although some banks may choose to build their digital asset technology stacks in-house, others leverage the expertise of external digital asset custody providers like Ripple. Ripple’s crypto custody solution is used by some of the world’s largest global custodians to establish digital asset custody platforms and provide necessary tokenization infrastructure.
“Through Ripple, institutional investors can benefit from the company’s payment capabilities, its big network of liquidity, and sizable balance sheet,” said Johnson.
For more regional insights and digital asset trends shaping the finance industry, download the latest Trends in Regional Payments eBook from Ripple.
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