Cryptocurrency Needs Better Regulations to Thrive in Africa

In May 2024, Triple-A published a report revealing that 562 million people worldwide own digital currencies. While 43.5 million Africans own digital currencies, only one African country, South Africa, is among the top 30 countries with the highest cryptocurrency ownership worldwide. In 2022, Nigeria was the leading African country in cryptocurrency adoption and 11th globally. Kenya, Ghana, and Morocco made up the top 5 countries in Africa. Interestingly, two years later, none of these countries is among the top 30 in global cryptocurrency ownership.

Africa is lagging in cryptocurrency ownership due to the lack of favorable regulations, among other factors. Regulators in African countries should not burden the cryptocurrency industry with needless regulations. A friendly regulatory environment for investors and operators will ensure consumer protection, compliance, and greater cryptocurrency adoption.

African countries’ cryptocurrency regulation has remained unclear and unrealistic. In Nigeria, for instance, the Central Bank has not ascribed a legal status to cryptocurrency but attempts to regulate it as a means of payment. Nigeria’s Securities and Exchange Commission (SEC) introduced Rules on Digital Assets in 2022 to regulate cryptocurrency as a security. It requires digital assets operators to obtain a license to operate in the country. However, one concern about the SEC’s license is its high cost. For example, virtual assets service providers must have a minimum paid-up capital of ₦500 million and pay a registration fee of ₦30 million to obtain a license. In 2023, Nigeria’s Federal Inland Revenue Services introduced a 10 percent cryptocurrency tax.

In Kenya, the Finance Bill 2023 imposed a 3 percent income tax on digital assets. However, the Kenyan government only moved to introduce a regulatory framework for the cryptocurrency market in March 2024 amid scams.

Ghana has banned cryptocurrency transactions since 2018. Although the Bank of Ghana recently proposed guidelines to regulate digital assets, the ban is still in effect.

These regulations are a heavy burden on the cryptocurrency industry in Africa, which could stifle its development. Still, despite these regulatory moves, Africa’s cryptocurrency regulation has failed in terms of consumer protection and compliance.

For Africa to move up the chart in cryptocurrency ownership, regulators must only adopt approaches that will drive adoption, boost public trust, and ensure consumer protection. They should introduce laws that define the legal status of cryptocurrencies, reduce the cost of digital assets operating licenses, and lower tax rates. African regulators such as the central banks, securities and exchange commissions, and revenue authorities of various countries need to classify cryptocurrencies, whether as currency, property, or securities. This classification will determine how they treat crypto assets and users.

Regulations should facilitate the adoption of cryptocurrency as a method of payment. This adoption will entail the central banks recognizing cryptocurrency as legal tender and allowing financial institutions to enable cryptocurrency trading using fiat currency.

The earlier cited Triple-A report finds that countries with higher inflation rates and currency devaluation have higher cryptocurrency adoption. This development is partly because citizens in those countries rely on cryptocurrencies to preserve the value of their fiat currencies. The adoption of cryptocurrency for local payments will help African countries to reduce inflation rates and strengthen the value of local currencies.

Government regulators must create an enabling environment for cryptocurrency to thrive in Africa. They should adopt approaches prioritizing consumer protection, ensuring compliance, and enhancing public trust.

Jude Terna Ayua is a writing fellow at African Liberty.