Currency devaluation fears drive Kenyans into Bitcoin
Kenyans could be shifting savings, remittances and assets into cryptocurrencies to mitigate against the shilling devaluation and launder dirty money, a new report shows.
A study titled “The 2020 Geography of Cryptocurrencies” shows that Kenya has the highest grassroots adoption by everyday bitcoin users in Africa and ranks position five globally.
The data shows that in January when the shilling was trading at 101 units to the US dollar, Kenya’s peer to peer volume of bitcoin trades were at Sh50 million a day, however, when the currency sank to Sh108 units to the dollar the volume of bitcoin trades rose to Sh200 million a day in May.
It indicates a strong correlation between currency devaluation and increased transactions in cryptocurrencies.
Countries with intense devaluations like Venezuela depicted a lot of crypto trades.
Cryptocurrency activities are also associated with growing lack of public trust in the government due to bribery, cronyism and other forms of corruption.
Corrupt officials weary of their bank accounts being frozen shift their funds into bitcoins.
“When the native currency loses value, P2P trading volumes rise soon after. We believe this reflects users’ strategy of mitigating currency devaluation by shifting savings and possibly even remittances and other payments to cryptocurrency assets,” said the report.
The Kenya shilling has depreciated by nearly eight units against the US dollar in the last eight months driven by heavy government demand for US dollars to pay debt and corporate demand for imports.
The shilling is now trading at Sh108.5 according to the Central Bank but dealers say that demand is so high some transactions are going at Sh112 per dollar.
Kenya has in the recent years attracted investments in the crypto ecosystem including multiple bitcoin exchanges and several cryptocurrency mining operators, even though high prices of electricity in Kenya has checked the trend.
Kenya’s high volume of remittances in Africa is also a major factor as it is cheaper to use bitcoins to send money across borders than traditional means.
World Bank data shows that Kenya, Nigeria, Egypt and Ghana are the largest recipients of remittances on the continent.
The Central Bank of Kenya in 2016 issued an advisory warning Kenyans and banks against dealing in bitcoin businesses, saying it is not provided for in the law and people dealing in the crypto trades have no government backing.
“This is to inform the public that virtual currencies such as bitcoin are not legal tender in Kenya and therefore no protection exists in the event that the platform that exchanges or holds the virtual currency fails or goes out of business,” CBK said.
However, players in the sector aver that the Central Bank statement did not have a negative impact because it actually defined how a cryptocurrency should operate.
“Bitcoin exchanges like Bitpesa are legally registered businesses, bitcoin and other cryptocurrencies are not meant to be regulated, they are decentralised currencies, so what Central Bank was saying is but a characteritics of cryptocurrencies,” said Arlene Mugambi, a Kenyan crypto evangelist who mines bitcoins.
Kenya is struggling to repay heavy domestic debt after large scale corruption activities denied it the cashflow it needs to honour debt obligations.
East Africa’s largest economy has ramped up tax measures that may cripple the economy.