The future of cryptocurrencies and the growing importance of ETFs in Africa

The rise of digital assets in Africa marks a significant shift in the continent’s financial landscape, offering both promising opportunities and inherent risks. As cryptocurrencies continue to gain traction across the continent, understanding their impact and potential, particularly through the lens of investment vehicles like Exchange-Traded Funds (ETFs) is becoming increasingly important for investors and regulators alike.

This is especially true when you consider that Africa is emerging as a significant player in the global cryptocurrency market. The continent’s unique socio-economic challenges, like limited access to traditional banking services, continued currency devaluation and a youthful, tech-savvy population, are driving the rapid adoption of digital currencies, both as a transactional enabler, but more recently also as a sought-after store of value. The cryptocurrency market in Africa is projected to generate revenue amounting to a local currency equivalent of over $3 billion in 2024 alone, with an anticipated user penetration of 4.13% by the end of 2024 and a projected 53.89 million users by 2025 (Statista).

This surge in adoption is especially evident in countries like South Africa, where an estimated 5.8 million people are crypto users (Emurgo), which represents almost 10% of the total population, and Kenya – often referred to as the “Silicon Savannah” – which is seeing growing interest in blockchain and crypto technologies potentially transforming the country into a tech hub in Africa.

Apart from the increasing relevance of digital assets to individual and institutional investors, crypto has a vital role to play in safeguarding African economies against the volatile nature of fiat currencies and inflation. The decentralised nature of crypto assets has been shown to foster a sense of security and independence, particularly in countries like Nigeria, where record inflation rates have led to widespread adoption of stablecoins as a hedge against Naira depreciation. Similarly, Ghana’s reliance on Bitcoin has grown amid liquidity shortages in the cedi, highlighting the role of cryptocurrencies as a financial lifeline in times of economic uncertainty.

As has always been the case, though, one of the biggest hurdles that crypto has to overcome to unleash its full potential in Africa is the still uncertain, and vastly disparate, regulatory environment across countries. This is a natural knock-on effect of the very diverse economic and political contexts that characterise the continent. That said, there are beacons of regulatory progress hope. South Africa stands out with its proactive regulatory framework, including the recognition of crypto assets as financial products and a progressive licensing regime for cryptocurrency exchanges This has provided much-needed clarity, reducing uncertainty and encouraging more responsible market participation.

We are witnessing a proactive regulatory framework in countries like Ghana, South Africa and Kenya, with the government collaborating with blockchain platforms to develop a more comprehensive regulatory framework (ALN).

Despite these regulatory advances, crypto still has a long and possibly arduous journey to make before it becomes widely accepted and trusted as an investment asset class. So, while the cryptocurrency market in Africa is undoubtedly maturing, rather than flocking to make direct crypto investments, investors are increasingly looking for safer and more accessible ways to participate. This is where ETFs offer a significant opportunity. Crypto ETFs offer diversified exposure to digital assets, mitigating some of the risks associated with direct investment, such as market volatility and security concerns.

Crypto ETFs also allow investors to gain exposure to digital currencies through a regular brokerage account, bypassing the need to directly purchase and store the tokens, which still makes many prospective investors nervous. Spot ETFs, for example, trade crypto tokens directly on behalf of investors, offering a straightforward way to invest in cryptocurrencies without the complexities of digital wallets or exchanges. As such, ETFs could represent a pragmatic solution for crypto-curious Africans, offering an uncomplicated and risk-managed way to tap into the digital asset market once they become available.

As more African countries develop their regulatory frameworks, the role, and appeal, of crypto ETFs is likely to grow, providing millions more people on the continent a structured entry point into the world of cryptocurrencies. That said, the future of cryptocurrencies in Africa still hinges on governments achieving that all-important, but often elusive, balance between innovation and regulation. On one hand, the potential for cryptocurrencies to finally deliver financial inclusion and drive sustainable economic growth is immense. On the other hand, the risks, volatility and regulatory uncertainty remain. This is why ETFs may just be the crypto investment solution Africa has been waiting for. 

By Hannes Wessels, Binance Country Head for South Africa