/ 2 August 2022

Why Africa’s crypto wave attracts funding

Cryptocurrency Mining In Africa As Poor Sheperdherder Proves A Point
Cryptocurrency mining in Africa. (Luis Tato/Bloomberg/Getty Images)

The fundraising boom in Africa’s crypto space shows no sign of abating. Venture Capital flows into crypto ventures in the first half of this year surpassed the total for all of last year – $127-million – reports show.

In the first quarter of this year alone, $91-million was raised, with this fundraising streak spilling over into the second quarter which saw four fundraising rounds deliver another $213-million.

In May, Seychelles-based startup KuCoin raised a record-shattering $150-million in a pre-Series B funding round, pushing its valuation to $10-billion, not only delivering Africa’s first blockchain “mega deal”, but also its first blockchain unicorn, as well as the first “decacorn”.

Mara, a pan-African crypto exchange platform, raised $23-million, while Jambo, a Congo-based startup, raised $30-million, and Nigerian startup Afriex raised $10-million during the second quarter of this year.

The funds raised and disclosed so far in this space stand at $304-million, more than double the $127-million raised for the whole of last year. 

Cryptocurrency payment value in Africa surged by 1 200% to $105.6-billion in June last year from July 2020, according to data from blockchain data platform Chainalysis.

However, despite the continued investment in the crypto ecosystem in Africa, the continent accounted for just 0.5% of total global blockchain funding, offering plenty more upside to potential investors.

“Although Africa’s blockchain and cryptocurrency funding numbers are still small compared to other regions, they are certainly growing,” according to The African Blockchain Report 2021.

The report, published by Crypto Valley Venture Capital and Standard Bank, shows a 1 668% year-on-year first quarter growth in funding – rising from $5.1-million last year to $91-million in Q1 this year.

Last year, Nigeria, Kenya and South Africa – three of the “big four” startup ecosystems along with Egypt – bagged most of the venture dollar inflows in the crypto space and, together with Seychelles, accounted for $122-million.

Nigeria topped the 2021 list, raising $49.6-million, followed by Seychelles at $33.8-million, showing the island nation was already punching above its weight, considering it does not even feature in the top 100 in Global Startup ecosystems. 

Kenya ($20-million) and South Africa ($18.8-million) finished third and fourth last year.

Even Cameroon ($4.1-million) and Burkina Faso ($300 000) raised more than Egypt’s $200 000 US dollars. Ghana’s crypto space attracted $125 000.

The high crypto adoption rates on the continent are being fuelled by an increased interest in regulated digital currencies from central banks as well as the urgent need to include unbanked populations – all making blockchain startups attractive to investors.

“The lack of common legacy financial systems and an enormous population, primarily unbanked, all contribute to the popularity and growth of cryptocurrencies on the continent,” said the authors of the report.

From peer-to-peer payments facilitating trade in informal and small business ventures, as well as opportunities to lower the considerable costs of logistics and remittances on the continent, the report showed Africa is openly embracing blockchain to revolutionise finance and trade and to bolster financial inclusivity.

“Countries like South Africa, Kenya, Nigeria and Ghana have seen a rapid uptake of crypto assets to access more efficient payment trails provided by blockchain networks and yield returns on income with assets like Bitcoin or stablecoins pegged to the value of the US dollar,” said Standard Bank Blockchain Research Institute Africa regional director Ian Putter. 

A sustained rise in investment inflows, the sealing of Africa’s first mega blockchain fundraising deal and the birth of a decacorn have raised prospects for even bigger deals – and more unicorns – in the coming few years.

“We expect to see these begin to emerge within the next two to three years,” the report said.

A joint report by Boston Consulting Group, Bitget and Foresight Ventures projects further significant growth in Africa’s crypto trade, thanks to another factor – the opportunities for crypto-linked derivatives trade.

The report sees a rise in derivative trading in South Africa and Nigeria – but with a caveat. 

“We expect strong growth in crypto adoption in Africa. However, derivatives may lag, given their limited use in traditional markets,” said the report.

The report, titled “What Does the Future Hold for Crypto Exchanges?”, shows the global crypto trade stood at $54-trillion last year.

  • This article was first published in bird story agency