5 Key Digital Asset Trends Shaping the Finance Industry in Africa

Leading industry experts are discussing the growing adoption of cryptocurrencies throughout Africa. From the drivers behind it, to the opportunities that asset tokenization can bring, let's dive into the five key digital asset trends shaping up throughout the region.

As leading industry experts gathered to discuss the growing adoption of cryptocurrencies throughout Africa, five key digital asset trends emerged, shaping the landscape of the region.

1. Surging Retail Participation in Digital Assets

Retail participation in cryptocurrency markets has soared across Africa, with major sub-custodians estimating that around 8.5% of Kenya's population and 10% of South Africans (equating to 5.8 million people) currently own cryptocurrencies.

Moreover, a 2022 report by crypto exchange KuCoin revealed that 33.4 million Nigerians, corresponding to roughly 35% of the population aged between 18 and 60, either own cryptocurrencies or have traded them in the previous six months.

In contrast to cryptocurrencies, inflows into tokenized assets have been somewhat muted. However, experts believe these financial instruments could bring major benefits to investors in Africa.

Tokenization is when an asset—such as a deposit, a treasury bill, a commodity such as gold, or even a piece of real estate—is represented as a digital token issued on a blockchain. This allows assets to become more accessible to a wider range of participants, including those in frontier or emerging African markets.

“We recently saw BlackRock launch a tokenized money market fund and this has lowered the barrier to entry for investors,” said Maximilian Ruf, Director of Global Client Solutions at Ripple.

In less than a week after its initial debut, BlackRock's tokenized fund had already attracted $240 million.

Beyond money market funds, there is nothing to prevent alternative investment funds such as venture capital or private equity from being tokenized, said the executive at the sub-custodian on the panel. These types of illiquid products have only ever been sold to large institutions, but tokenization could allow them to be distributed to mass retail.

If tokenization takes off, people in Africa—many of whom have historically been excluded from financial markets altogether—will become increasingly empowered to make investments.

2. Cryptocurrencies Continue to Attract Flows as a Risk Mitigation Tool

Cryptocurrencies are being used extensively as a risk mitigation tool. As cryptocurrency price movements are broadly uncorrelated with those of equities and bonds, Ruf said these assets have become a safe haven for many in Africa and elsewhere.

“Some, including BlackRock, have said that Bitcoin could be an effective hedge against inflation risk. Bitcoin could potentially be a complement to gold as a store of value,” he continued.

There are other reasons for these inflows beyond just returns and hedging, particularly in Africa. A lack of liquidity in certain African equity and fixed-income markets is pushing a number of people away from traditional asset classes towards alternatives, including cryptocurrencies.

And finally, the practical benefits of holding cryptocurrencies are more obvious in Africa than in developed markets. “They can solve a number of real-world challenges in Africa. Cryptocurrencies will give ordinary people access to financial services and can support them with cross-border payments with limited friction,” said Ruf.

3. Regulators in Africa Take the Lead in Crypto Regulation

The rollout of crypto and digital asset regulation is helping to accelerate flows, especially from institutions, into cryptocurrencies. And a handful of African markets are making excellent headway on regulation.

“Having confirmed that crypto assets such as cryptocurrencies are financial products and are therefore subject to regulations aimed at protecting customers and preventing money laundering and terrorist financing, South Africa's Financial Sector Conduct Authority (FSCA) recently approved licences for 75 Crypto Asset Service Providers (CASP), including the likes of Luno and VALR, but with the expectation that a move from traditional banks into the market is imminent,” said Bradley Johnson, Custody Sales Director for Africa at Ripple.

Mauritius is also widely considered to be at the forefront of digital asset regulation. The country's Virtual Assets and Initial Token Offering Act (VAITOS) came into play in February 2022, and creates a regulatory framework for digital assets, including cryptocurrencies, together with virtual asset service providers (i.e. digital asset custodians) and issuers.

한편, 케냐를 포함한 이 지역의 다른 국가들도 암호화폐 규제를 개발하는 초기 단계에 있습니다. 국가들이 점점 더 건설적인 암호화폐 규제를 도입함에 따라, 역사적으로 자산 클래스에 대해 상당히 위험을 회피했던 기관들은 더욱 편안해질 것입니다.

4. 커스터디는 기관의 디지털 자산 유입을 촉진합니다

기관은 오늘날 시장에서 활동하는 더 많은 엔터프라이즈급 서비스 제공업체와 글로벌 디지털 자산 관리인 덕분에 디지털 자산 게임을 강화하고 있습니다.

“커스터디는 모든 것의 기초입니다. 디지털 자산 시장에 진입하기 위한 조건에 대해 기관에 문의할 때 가장 먼저 원하는 것은 강력한 보관 네트워크입니다.”라고 Johnson은 설명했습니다.

몇몇 현직 관리인이 디지털 자산 보관 솔루션을 탐색하고 구현하기 시작했습니다. 기존 자산 서비스 사업. 세간의 이목을 끄는 예로는 프랑스 최초이자 유일한 은행인 Societe Generale FORGE가 있습니다.

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