The U.S. bitcoin ETFs have arrived – and since their introduction, there has been a reliable uptick in the price of bitcoin. Ever a typical (and therefore not completely rational) market, what will likely happen, just as in years past, the price of other cryptocurrencies without affiliation to Bitcoin or the new ETFs will rise as well. This price boost across different assets generates a huge amount of interest in digital currencies. Where available, retail investors will be joining brokerages and platforms that allow them to invest in financial products related to cryptocurrency, like the new ETFs. Where the products are unavailable, but regulation is clear, retail investors instead join cryptocurrency platforms to buy, sell, and trade. And in regions where neither products are available nor regulations are clear – crypto trading remains. The lack of financial products available to consumers for diversifying into cryptocurrency does not stop cryptocurrency investment, but it does prevent them from having reliable partners from which to choose from.
For this reason, it is imperative that all African economies should be introducing clear regulation on cryptocurrency and digital assets. Clear regulation, even if strict, is what makes it possible for financial institutions, investors, and citizens to have the choice to diversify into digital assets without putting them at risk of being taken advantage of by non-legal players.
The benefit of acting now is three-fold. First, there’s clear “signoff” from the United States agencies on at least one asset class being suitable for retail financial products. For any regulator that wanted to ensure that their jurisdiction would not be seen as going against US policy, there is now a strong example of why and how digital asset investment can be done in an approved way. This doubly serves as an answer to any international development organisation or NGO that would point to cryptocurrency acceptance as a disqualifying characteristic for economic initiatives. Cryptocurrency is now a “whitelisted” financial technology with institutional support.
Second, letting the United States be the first-mover in this regard means African markets can benefit from the data generated by the performance of these ETFs, apply the research invested in creating and approving these products, and let the U.S. be a regulatory example from which to develop approaches or products that work best for their citizens. There is a much lighter burden and therefore a much faster timeline for introducing cryptocurrency rules.
Third, and most importantly: It brings into the light (and into taxable activities) the cryptocurrency trading that is happening all over Africa with unregulated, untrusted partners. Statistics vary, but with Chainalysis reporting last year that Sub-Saharan African was the recipient of $117.1 billion in on-chain value, there’s only an upper limit on the GDP growth that can be captured with legitimate digital asset regulation.
It’s tempting to avoid having the cryptocurrency regulatory discussion, and instead just explore ways that African retail or professional investors can access U.S. bitcoin ETFs through cross-listing on African exchanges. But having worked with African businesses for more than ten years who were left unserved by Western banks and fintechs – Africans do not need Western solutions. Access to U.S. crypto ETFs solves one problem, but it prevents Africa from its rightful place as the global leader and expert voice on new financial technology. The continent that created mobile money (which underpinned an entire generation of digital financial exchange, leading to digital currency itself) should be the first voice listened to about digital value exchange.
Certain African markets are ensuring the continent is not last to the table, with powerhouses like Nigeria and South Africa taking cryptocurrency regulation incredibly seriously. Nigeria’s increase in application and registration fees, as well as the minimum of paid-up capital (as reported by CoinDesk) is one way of ensuring cryptocurrency issuers, exchanges and custody are in Nigeria for the long-term benefit of the market. And from more than 355 applications to date, the Financial Sector Conduct Authority (FSCA) of South Africa has moved ahead with licences to 59 businesses in cryptocurrency so far. Even if the percentage of approved applications doesn’t rise much above this 16% early precedent, it reflects a reliable and lawful approach to compliance for companies involved in digital assets.
Without clear guidelines, consumers are left in the dark, vulnerable to exploitation and misinformation. Establishing stringent oversight is far preferable to no oversight at all. And if African markets can set an example of well-informed, strict, and comprehensive regulations for digital asset companies, we prove a crucial point. Namely, that a cautious approach, far from stifling economic growth, can unlock incredible value while protecting our businesses and our communities. In that case, there is no need for the U.S. ETF to be the proof point for digital currency investment in Africa, nor for it to be the only route for African investors to invest their capital in digital assets. Africans can be served by African companies abiding by African regulations and developing products for the African market.