Sub-saharan Africa accounts for the least crypto transaction volume of any region studied by Chainalysis, with $100.6 billion in on-chain volume received between July 2021 and June 2022. This represents only 2% of global activity, and 16% growth over the year prior.
What is the crypto landscape in Sub-Saharan Africa?
However, numbers can be deceiving, as deeper analysis reveals that Africa contains some of the most well-developed cryptocurrency markets of any region, with deep penetration and integration of cryptocurrency into everyday financial activity for many users.
This is primarily seen in Nigeria and Kenya, which rank 11th and 19th on the Chainalysis Global Crypto Adoption Index respectively. Both countries see strong adoption when weighted for purchasing power and population, especially on peer-to-peer (P2P) exchanges, which expert interviews confirm are crucial to the region’s crypto economy. South Africa, which leads the region in raw transaction volume, also ranks high on our index at 30th.
Small retail transactions power crypto markets in Sub-Saharan Africa
Sub-Saharan Africa’s outsized usage of P2P platforms make it unique compared to other regions. Retail-sized transfers below $10,000 make up 6.4% of its transaction volume. The role of retail becomes even more apparent when we look at the individual transfers.
Retail transfers make up 95% of all transfers, and if we drill down to just small retail transfers under $1,000, the share becomes 80%, more than any other region. Our expert interviews suggest that this reflects the trend of many young people in Sub-Saharan Africa (SSA) turn to crypto to preserve and build wealth in spite of low economic opportunity, as opposed to other countries where we see many using crypto as a way to multiply their existing wealth.
Adedeji Owonibi, founder of Nigeria-based blockchain consultancy and product studio Convexity, told us more about this dynamic. “We see a lot of traders who are trading to make ends meet. We don’t have institutional-level traders in Sub-Saharan Africa,” he said.
“The people driving the market here are retail. Nigeria has a ton of highly educated young graduates with high unemployment rates, no jobs available — crypto to them is a rescue. It’s a way to feed their family and solve their daily financial needs,” he further said.
According to Adedeji, the volatility of the Nigerian naira also drives the need for crypto in the country, as users believe they can better preserve their savings with stablecoins like Tether.
Nigeria has continued to grow in regional dominance. In Q3 2021, Nigeria took 16% of total regional activity, and in Q2 2022 it has taken close to 25%. We have seen steady growth in many of the smaller regions in SSA. Ghana and Kenya have grown over the past quarters. Other countries growing in their regional dominance are Ethiopia, Senegal, Côte d’Ivoire.
Crypto usage driven by necessity, as opposed to speculation by the well off, could explain the phenomenon we saw in SSA this year. The number of small retail transfers grew starting at the onset of the bear market in May, while the number of transfers of other sizes fell.
If many of the people carrying out small retail transactions are trading cryptocurrency out of economic necessity — especially in countries where the values of local fiat currencies are dropping, as we’ve seen in Nigeria and Kenya, for example — then those people may be more willing to continue trading despite price drops. And of course, users buying stablecoins like Tether would be unaffected by drops in prices for Bitcoin, Ethereum, and the like.
P2P exchanges are a crucial part of the ecosystem
We’ve also seen heavy adoption of P2P exchanges. P2P exchanges account for 6% of all cryptocurrency transaction volume in Africa, more than double the share of the next-closest region, Central & Southern Asia and Oceania. According to Ray Youssef, CEO of P2P platforms Paxful, SSA is a major growth driver for Paxful, with 55% YoY user growth of remittance users in Nigeria — Paxful’s biggest market — and a whopping 140% in Kenya.
He explained to us how P2P platforms like Paxful initially took hold in Africa as some of the first services residents could use to buy crypto. “We had to get Bitcoin into Africa, which was difficult because it’s so hard to get money out of Africa. We needed a hack to make that happen. That hack ended up being gift cards. We connected Nigerians with Chinese gamers who wanted to buy app store gift cards, and a huge trade market was born,” said Ray.
“That got Bitcoin into Nigeria, and then the rest of Western Africa,” Ray further said. Strategies like the one Ray described allowed P2P platforms to drive early Bitcoin activity in Sub-Saharan Africa, and the services have proved to have staying power in the region.
Regulations limiting crypto activity can also drive P2P exchange usage. The Nigerian govt prohibited banks from transacting with crypto businesses in 2021, and while this action doesn’t appear to have dampened overall crypto transaction volumes, it has affected usage patterns. We spoke to an analyst at Nigeria’s Financial Intelligence Unit to learn more.
“Nigeria restricted the usage of the Naira for buying crypto in 2021 due to concerns around scams and tax evasion, and many people began trading peer-to-peer,” the analyst told us.
That activity goes beyond P2P platforms like Paxful though. Many in Nigeria are also trading crypto directly with one another, sourcing deals through group chats on apps like WhatsApp and Telegram. Our data doesn’t reflect this activity since it takes place through private wallet interactions, but our interviewees described it as a big part of Nigeria’s crypto ecosystem.
Adedeji Owonibi said, “These groups have thousands from all over the world — Nigeria, China, Dubai and more — trading crypto. The groups are where the volume is happening.”
Remittances power crypto adoption in Sub-Saharan Africa
In addition to trading and saving, there are two other use cases powering crypto adoption in SSA: remittances and commerce. Remittances from overseas have long been important for SSA economies, and inflows to the region grew 14.1% to $49bn in 2021 following a decline the previous year. However, these payments can be expensive and difficult to make.
Ray Youssef explained more. “Making an international payment in Nigeria, Cameroon, or Senegal is almost impossible. There’s no pan-African payment solution. There are thousands of payment networks in Africa, and only a fraction of them talk to each other,” he told us.
Ray described one Kenyan expat he knew who had to pay €200 for every €1,000 she tried to send home from Europe. Ray was able to help that woman use Paxful to buy Bitcoin, sell it to another user for Kenyan shillings via M-PESA, a payments network, which she could then transfer to her family. “She ended up making a 4% profit rather than paying 20% in fees because the user she transacted with was willing to pay a premium for the Bitcoin,” said Ray.
Commercial transactions are another use case. Adedeji Owonibi said that many businesses relying on global suppliers have turned to crypto for payments, as sending funds abroad is difficult due to Nigeria’s tight capital controls. “Companies need to buy materials from the US, but there’s no way to get the money there — they’re left with no option but to use USDT.” He cited China as a popular trading partner for these crypto-based commercial transactions.
Future growth in Sub-Saharan Africa
We expect crypto usage in SSA to continue growing as long as residents face issues crypto has proven it can solve for them, like preserving savings through economic volatility and enabling cross-border transactions in places with strict capital controls. Ghana is expected to achieve similar adoption levels to Nigeria and Kenya, based on current growth trends.
Kim Grauer is the Director of Research at Chainalysis.