Long derided as useful only to money launderers and scammers, bitcoin has come of age. Some leading crypto and blockchain experts examine opportunities for Africa.
Cryptocurrency exchange Coinbase's listing on Nasdaq at $ 86 billion 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 along with prices stellar for those based on blockchain digital assets such as non-fungible tokens (NFT).
Bitcoin's extreme volatility is often cited as a reason not to invest, but this is a nascent rise class and, as such, its volatility is understandable. However, with speculative alternative investments like these, you probably shouldn't be playing with the house money anyway; You should only invest with what you can afford to lose.
In fact, seeing the asset class's unprecedented flows and returns, the UK Financial Conduct Authority (FCA) issued a warning to investors on January 11, 2021 that they could lose some or all of your money investing in bitcoin.
The FCA is concerned that consumers are not protected against money laundering given the incomplete regulatory framework for crypto assets; price volatility puts consumers at risk of extreme losses; the complexity of the products, particularly with crypto derivatives, makes it difficult for consumers to fully understand the risks; and there may be liquidity problems when trying to convert cryptocurrencies into cash.
However, while the regulator is right to defend consumers and market integrity, the recent developments mentioned above mean that the asset class is certainly becoming professionalised. It is also slowly becoming a more accepted means of payment. Companies like PayPal allowing payment in bitcoins and altcoins will only accelerate this.
Bitcoin's potential in Africa is particularly good, with the world's 60% of mobile money already passing through the continent, and Nigeria being the world's second-largest bitcoin market after the United States.
The next frontier: central bank digital currencies
The next frontier for cryptocurrencies is central bank digital currencies. Sovereigns are already positioning themselves to create digital fiat currency in the form of central bank digital currencies (CBDCs) as cryptocurrencies begin to challenge bank-issued currency.
In fact, cryptocurrencies perform particularly well in those countries with macroeconomic headwinds. This is the point really, in economics the concept of “monetary illusion” has existed for a long time.
If you believe fiat money is real or well-governed, you clearly haven't thought through quantitative easing or spoken to any Zimbabweans or Argentinians lately.
Some magic money from the Internet blockchain may give central banks the challenge they need to start thinking about ways they could make money as a public good more efficiently.
The announcement that the UK is going to investigate creating its own “Britcoin” along with efforts towards the digital yuan and euro, means that crypto and blockchain are here to stay.