Cryptocurrencies such as bitcoin are primarily used to avoid regulation and strict capital controls in many African countries, according to a prominent investment banker who advises fintechs on the continent.
Speaking to the African Business podcast, Edmund Higenbottam, managing director of Verdant Capital, said that the popularity of the currency was tied to the strict capital controls deployed on the continent.
“Cryptocurrencies are a means of getting around regulation. And you see that in terms of the high usage of cryptocurrencies in countries that have very strong exchange controls or capital controls. You see using cryptocurrencies to get around regulation in many different ways, [like] money laundering regulations.”
The comments come as bitcoin use soars in Africa and regulators consider greater controls on the currency after recent spikes and falls in its value. Across Africa, monthly cryptocurrency transfers under $10,000 to and from the continent grew more than 55% between 2019 to 2020, hitting a $316m high in June last year.
US research firm Chainalysis says that Nigeria was among the top 10 nations with the highest cryptocurrency use. Proponents say that the currency is not just a plaything of speculators and has real application in Africa, particularly as a source of remittances and an alternative to tightly-controlled local currencies.
Calls for greater regulation
South Africa’s financial industry regulator, the Financial Sector Conduct Authority, is calling for extra powers to regulate cryptocurrencies after a probe into the failure of Mirror Trading International, a bitcoin platform which claimed to have around 260,000 members.
Higenbottam said that easing capital controls would be a way of bringing cryptocurrency use under control.
The volatile, unregulated nature of the currency has led to questions about whether policymakers need to further regulate the sector. Bitcoin spiked to a high of nearly $42,000 on 8 January, before tumbling 20% to $33,000 just a few days later, highlighting the opportunities and dangers for retail investors. It is currently worth almost $36,000.
“Where regulation needs to change and evolve, public policy needs to change and evolve. I think we need over time to look to reform those markets where there’s very strong currency controls and capital controls, I don’t think it’s developmental in the long term. But equally we should try to develop the economy and improve lives within the constraints of public policy as we find it. We should not be using cryptocurrencies for illicit or non-transparent capital movements and for various illegal purposes.”
To listen to the African Business podcast with Edmund Higenbottam, click here.