Cryptocurrency exchange Coinbase’s listing on Nasdaq at $86bn pushed bitcoin to an all time high of $65,000 BTC to USD in February 2021. Other cryptocurrencies, or altcoins, such as ether and dogecoin have also seen all-time highs alongside stellar prices for blockchain-based digital assets such as non-fungible tokens (NFTs).
Bitcoin’s extreme volatility is often cited as a reason not to invest, but this is a nascent ascent class, and as such, its volatility is understandable. However, with speculative alternative investments such as these you probably shouldn’t be playing with the house money anyway – you should only invest with what you can afford to lose.
Indeed, on seeing the unprecedented flows into and returns from the asset class, the UK Financial Conduct Authority (FCA) issued a warning to investors on 11 January 2021 that they could lose some or all of their money investing in bitcoin.
The FCA is concerned that consumers may not be protected from money laundering given the incomplete regulatory framework for cryptoassets; the price volatility puts consumers at risk of extreme losses; the complexity of the products, particularly with crypto-derivatives, make it difficult for consumers to fully understand the risks; and there may be liquidity issues when trying to convert crypto back to cash.
Nonetheless, while the regulator is right to defend consumers and market integrity, the aforementioned recent developments means the asset class is undoubtedly professionalising. It is also slowly becoming a more generally accepted means of payment. Companies such as PayPal allowing for payment in bitcoins and altcoins will only accelerate this.
The potential for bitcoin in Africa is particularly good, with 60% of the world’s mobile money already passing through the continent, and Nigeria being the world’s second-largest bitcoin market after the USA.
The next frontier: Central bank digital currencies
The next frontier for crypto is central bank digital currencies. Sovereigns are already positioning to create digital fiat in the form of central bank digital currencies (CBDCs) as crypto begins to challenge bank issued currency.
In fact, crypto does particularly well in those countries with macro headwinds. This is the point, really – in economics there has long been the concept of “money illusion”.
If you believe that fiat money is real or well-governed, you clearly haven’t thought through quantitative easing properly or spoken to any Zimbabweans and Argentinians lately.
Some magic internet blockchain money may just give central banks the challenge they need to start thinking about ways in which they could make money as a public good more efficient.
The announcement that the UK is to investigate creating its own “Britcoin” alongside the efforts towards digital yuan and euro, means the crypto and blockchain are here to stay.
Insights from the experts
For IC Intelligence Insight 4, I asked some of the leading experts in the space to provide us with their view on the above developments. The highlights of their articles are summarised below.
• Are cryptocurrencies the answer to Africa’s payments problem?
Owen Odia, country Manager for Nigeria at Luno, looks at how cryptocurrencies could provide an ideal antidote to Africa’s costly cross-border payments as well as mitigating currency instability and helping to extend financial inclusion.
“With the right infrastructure, cryptocurrencies could provide the gateway to a much-needed transformation of the financial systems of many African countries,” she says. Read more.
• Central bank digital currencies and the future of crypto and blockchain in Africa
Prof Monica Singer, South African Lead for Consensys Solutions, explores the reasons why so many Africans remain unbanked and underbanked.
“The time is now for African central banks to integrate the already present mobile phones and implement CBDCs supported by blockchain technology to bring financial inclusion and the safety privilege of e-commerce to all,” she says. Read more.
Listen to our podcast interview with Monica Singer:
• How NFTs will revolutionise Africa forever
Erikan Obotetukudo, the cofounder and president of Crypto for Black Economic Empowerment (CBEE), takes a deep dive into the value of non-fungible tokens (NFTs) for artists and fans.
“Without getting too technical, think of NFTs as a key that represents unique ownership for a digital asset. Assets can range from online media and intellectual property (like art, games, music, books, films), infrastructure (like titles, deeds), identity (like ID cards and passports), and more,” she explains.
“If Burna Boy released a song as an NFT today with a limited supply of only 1000 available for purchase, 1000 owners anywhere in the world could claim exclusive access to one of Burna Boy’s rare songs. This makes it a collectible. If one of the NFTs is purchased by many people, this is an example of ‘fractional ownership.’ This means that several people pool their money together to own one NFT. If Burna sells each NFT for the equivalent of $50, then he earns $50,000 for the one song that he released directly to his audience.”
She looks at four different value propositions of this NFT use case for Africans:
- Ownership & Wealth Creation
- Revenue & Royalties
- Liquidity, Collateral, and Financial Freedom
- Creator Economy, African Youth, and Global Perceptions. Read more.
• Some practical applications for blockchain and crypto in Africa
Oliver Oram,CEO of Chainvine, explains why he believes that Africa has the potential to be the world’s most exciting region for blockchain and crypto.
“This type of technology would boost trade exponentially in Africa… we have used the technology in the arts/media, industrial and legal sectors, reducing what I like to call the cost of trust and thereby increase business margins and… this could be used in many different sectors in Africa for economic gain. Not the least in the form of micropayments which will further drive trading across Africa and from Africa,” he says.
“At Chainvine and with our recent work with the UK government, we have seen that cross border trade regulatory burden can be reduced by up to 50 to 60% saving billions using technology such as Blockchain and tokenisation.”