ACR #5: Top 9 Predictions for Crypto in Africa in 2023
Welcome to 2023! This is Africa Crypto Report, a weekly newsletter and platform that guides you through the African crypto ecosystem. What does the year hold for crypto?
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There’ll be more unravelling in the first half of 2023. It already began in Q4 2022. With the money waves receding, we’ll discover many more crypto startups swimming naked in an ocean of cash in the last two years.
When the tide goes out, you see who is swimming naked - Warren Buffett
The past year was tumultuous and filled with significant upheavals. However, for the first/second/third time, the global spotlight shone on the African crypto space when the Central African Republic (CAR) became the second nation in the world (after El Salvador) to adopt bitcoin as a legal tender.
Later in the year, notable crypto startups like Quidax, Lazerpay and Nestcoin announced staff layoffs as the crypto winter hit harder. Nestcoin (a company that builds decentralised applications) remarkably lost millions of company dollars in the FTX collapse.
Into 2023, here are nine things that could shape the African crypto space.
1. Slowdown in crypto startup funding
The fundraising boom in Africa’s crypto space will likely diminish this year. Prominent startups like Bitmama, Mara, Afriex, Jambo, Hashgreed and others raised hefty figures, especially in H1 2022. However, those numbers might not be replicated in 2023 as funding slows down for risky/growth ventures.
Broadly, investors don’t have much appetite for risk right now. Risk-free assets have become much more attractive, with US treasury bills with a duration of less than 12 months yielding as much as 5%. Startups will have a hard time convincing US dollar investors.
We’re not ruling out early-stage crypto startups raising funding, but big rounds like 2021 and 2022 are unlikely.
2. CAR Sango project
After adopting bitcoin as a legal tender in April last year, CAR followed it up with the Sango Project around July 2022. The development could be interesting to watch in 2023.
The initiative, known as Project Sango, involves revamping CAR’s legal system, issuing a cryptocurrency (Sango coin) that is redeemable for e-government services, and creating a special economic zone in CAR’s capital, Bangui, to attract crypto firms. At a later stage, Sango holders will also be able to co-invest with the government in mining and infrastructure projects exclusively through Sango coin.
Although little has been heard recently about the development amidst reports that the CAR is facing severe challenges during implementation, there’s a huge possibility that this will get shut down completely.
This type of project only makes sense during a bull market.
3. Clarifications from Nigeria
Despite being at the forefront of crypto adoption in Africa, Nigeria does not have a clear regulatory stance.
Recall that the Central Bank of Nigeria (CBN) banned the participation of financial institutions in crypto transactions in 2021. However, the ccountry'sSecurities and Exchange Commission (SEC) released a regulatory framework for players in the crypto space in May 2022. In the second half of 2022, there was a report that the government plans to tax crypto transactions in 2023, neglecting that Nigerian banks still sanction accounts found engaging in crypto activities.
Going into 2023, depending on the result of the presidential election in February, there could be changes in the central bank, which could create a different stance from the apex bank. The Governor of the Central Bank of Nigeria is appointed by the President, subject to the confirmation of the Senate.
4. Startup shutdowns
Not a harbinger of bad news, but 2023 will see some African crypto startups shut down operations quietly. The crypto winter, marked by plunging bitcoin and other crypto prices, and the collapse of companies like FTX, Celsius, and Voyager triggered layoffs at Nigerian crypto companies like Quidax, Lazerpay and Nestcoin in late 2022. Still, there are indications that there's more to come.
Although many of these crypto startups raised big rounds in 2021 & Q1 2022, most of the dry powder is now non-existent. The contagion caused by the Terra crash, FTX debacle and crypto lenders’ troubles would fully manifest in 2023. Moreover, most crypto startups that raised significant funds do not have novel products, product-market fit or revenue.
Globally, we’ve started seeing shutdowns. Starting with Wyre, the billion-dollar crypto payments company is rumoured to be shutting down operations.
5. Currency devaluation
One of the biggest problems that plagued the continent in 2022 was the devaluation of currencies. Coupled with growing inflation and economic instability, the Zimbabwean dollar, Sudanese pounds, Nigerian naira, Ghana cedis, and many others crumbled against the United States dollar throughout the year.
Many crypto enthusiasts pushed saving in stablecoins like USDT, USDC and others. Through this, many were able to hedge against the plunging local currencies. They also got access to extra yields on their holdings through liquidity mining. Sadly, others lost their money saving in USD on FTX.
In 2023, currency devaluations could grow worse. And a plausible option Africans will continue to explore is to hedge with stablecoins.
There’s a massive opportunity for local crypto startups to take advantage of this with transparent, trustworthy and easy-to-use products.
6. More governments to tax crypto
Following the steps of Kenya and South Africa, Nigeria announced in late 2022 that it could begin taxing cryptocurrency and other digital assets in 2023 if the proposed Finance Bill 2022 is approved.
Although the controversial development has attracted varying views, with outrage surrounding the legality of taxing crypto in a country like Nigeria, there are indications that more African countries like Egypt, Zimbabwe and others will follow in the footsteps of South Africa and Ghana.
7. NFT buzz in Africa
Africa, as a continent with a high level of creativity and ingenuity, danced harder than ever in the global NFT party from late 2021 to H1 2022. We saw African digital creators like Osinachi and Anthony Azekwoh rise to international acclaim by selling artworks (digital collectibles) for millions of dollars.
Around March 2022, the popular Ghanaian coffin dancers of the covid-19 era sold their popular footage as an NFT for a mouthwatering price. The same week Adisa Olashile, a corp member, sold the picture of a certain Baba Onilu as an NFT.
However, in tandem with the general market direction, the NFT hype and buzz have been downward since the second half of 2022.
There are a few African NFT platforms & projects like NFTNG, Hashgreed (raised $1 million in July 2022), and the Afen blockchain NFT platform. It would be interesting to see how these products remain sustainable in a bear market. As of January 2023, transaction activities on these platforms have mostly dried up.
While global NFT platforms are betting on big brands like Starbucks and Disney making significant NFT investments, we’re yet to see signs of that in Africa.
8. More Crypto scams unravel
Without clear and strict regulations, the African craze for cryptocurrencies has also encouraged the rise of unscrupulous companies specialising in all kinds of scams.
There were various reports of elaborate crypto scams in South Africa, Kenya and a few others last year. You can read about them here.
We’ll definitely see more supposedly legit projects unravelled as Ponzi schemes and scams.
9. More sustainable product development and growth
Hopefully, the depressing funding and macroeconomic environment will force startups to build more sustainable businesses rather than “token projects” and the marketing expense excesses we saw in 2021 and early 2022.
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