Is anyone really using crypto? That is the question. Over the last three years, the largest asset managers in the world have changed their tune regarding cryptocurrencies by giving their clients direct and indirect exposure to Bitcoin and Ether, the two largest cryptocurrencies by market cap and arguably the two most valuable cryptocurrencies. In sub-Saharan Africa, currency devaluations and high remittance costs have driven the adoption of cryptocurrencies.
Episode Highlights
Helpful links
BlackRock, Fidelity, and JPMorgan Chase
Cryptocurrency adoption
Hi. Welcome to Decentralized, a podcast on the crypto space where I'll be talking about the crypto landscape, the crypto infrastructure, crypto assets, and the crypto market as well as factors that affect it. My name is Lorraine Mutyaba, and I am the host of Decentralized.
I love Reddit. It is hands down my favorite social media platform, and although it has the same filth you'll find on other platforms, there is very good information on there and very good advice. So a few months ago when I was on crypto Redd it as I usually am, and I came across this post that was a response to a question regarding crypto adoption. This internet stranger, let's call him Julian, argued that crypto was never going to be adopted. It's just too complicated it. We want technology to make our lives easy as possible with minimal efforts in our part. Julian had a point. Crypto is a bit complicated. The learning curve is a bit steep. You are your own bank. There is no recourse if anything goes wrong. No one's head is going to roll, your head will roll, and so I can understand where he was coming from, but they are data showing that crypto is slowly being adopted in different parts of the world for different reasons. And so the focus of this episode is going to be crypto adoption as well as the, the reasons or the drivers of this adoption in different parts of the world.
So in 2017, the CEO of BlackRock, one of the largest asset managers in the world, which as of January, 2022, had about $10 trillion in assets under management, a one Larry Fink said that Bitcoin was the index of money laundering. His exact words were that “Bitcoin just goes to show you how much demand for money laundering there is in the world.” That very year, the CEO of JPMogan Chase, Jamie Dimon said anyone holding Bitcoin is stupid. Four years after this, JPMorgan Chase began to quietly offer crypto exposure to its institutional investors.
This year, BlackRock changed its tune and began offering exposure to the price of Bitcoin to its institutional investors and Fidelity, one of the largest asset managers in the world, has provided exposure to Bitcoin since 2018. On October 28th of this year, it allowed its institutional investors to buy, hold, and trade.
And it's not just these firms that are indirectly or directly dipping their toes in the crypto space, its hedge funds and banks. How the winds change! What this seems to suggest is that crypto is being seen as a legitimate asset class, although the focus is primarily on Bitcoin and Ether. There are retail investors that are holding crypto because they are speculating on its price.
So that is one way that crypto is being adopted. I'm not sure if this is a good thing that institutions or traditional finance is interested in crypto. I'm not sure if it's going to change the space for the better. But the added legitimacy does help.
So you could be saying, Okay, so yeah, people are speculating on the price of Bitcoin, but is anyone actually using it? Is it really being adopted? Measuring adoption by those who measure it is challenging. And various metrics have been used to measure adoption by different outfits over the years. One metric is the number of wallets holding Bitcoin or cryptocurrencies. In July, 2012, there were about 30,000 active Bitcoin wallets. In the last 24 hours, more than 1 million Bitcoin wallets have been active. Chain analysis reported that between the second quarter of 2021 and the second quarter of 2022, the number of people holding crypto or the number of crypto wallets increased, and between 2019 and 2022, that number has grown by more than 23 times.
So there is adoption there. The question is, what is driving it? Let's look at sub-Saharan Africa. What is driving crypto adoption on our part of the world? Data show that Kenya, Ghana, and Nigeria are leading crypto adoption on the continent. The number of people using peer-to-peer marketplaces in these countries has grown exponentially over the last years. What is driving this? One driver is the devaluation of currencies. According to John Hanke, a professor of Applied Economics at Johns Hopkins, several African currencies have depreciated by more than 20% against the US dollar since January 2020. The South Sudanese pound and the Sudanese pound have depreciated by more than 80%.The Zimbabwean dollar is down more than 97%, and the Nigerian naira is down more than 45%. Because of this depreciation, in Nigeria, particularly, stable coins are being held because unlike other types of cryptocurrencies, their price remains more or less stable, and people are seeing them as a store of value and as a way of protecting their savings against local inflation.
Bitcoin, despite being down more than 60% from its November high, is still considered a store of value. If you look at the Bitcoin chart and you just zoom out, between January, 2020 and today, Bitcoin is still up more than a hundred percent. In January, 2020, at the beginning of the year, it was about, it was worth about $7,500, and today it's worth about $20,500.So Bitcoin is still seen as a store of value. What these data show is that, in countries that are experiencing hyperinflation or that have unstable national currencies, Crypto is being held as a hedge against inflation and as a store of value to preserve people's wealth. Not all countries have experienced hyperinflation, not on the continent and not in the world. So what is driving crypto adoption in those countries. Well, remittances costs are driving crypto adoption.
Sub-Saharan Africa has always had some of the highest remittance costs of any region in the world based on the available data. And although the number of players in this space has reduced this cost considerably, there are still corridors where it's very expensive to send money from one place to another. And there are remittance corridors where the only means of transferring value is through informal networks. This is where crypto comes in. At minimal cost, almost zero cost, I can send money to anyone anywhere in the world in under a second or in under 12 seconds depending on what cryptocurrency I use. If I had a cousin in the Central African Republic or in the DRC in a hard-to-reach area, as long as my cousin or my friend had an internet connection and a crypto wallet, I could send crypto to that cousin at zero cost in under 12 seconds. We also have to remember that 60% of the people in Africa are not banked for various reasons. Crypto is giving them a way of transferring value from one place to another. It's not perfect and there are challenges there and there are other drivers of, um, adoption in other parts of the world and even in Sub-Saharan Africa. But these are just some of those drivers.
So going back to Julian, yes. Crypto is complicated. It is not the most user friendly of technologies. And it's not the most accessible of technologies, especially for the people who would derive the greatest value from it, the unbanked. But it is gradually being adopted as an asset class, as a store of value, and as a tool for transferring value from one place to another. Like any other technology, as long as it can make the lives of people easier in one way or another, and if it can perform those functions better than the status quo, then its
complexity will not deter people from adopting it. Of course, we can always make it more user friendly and we can make it more accessible, but its complexity is not a deterrent. Will it continue to be adopted? Will it continue to meet the needs of the people who use it? I don't see why not, but I am a believer, so who knows what the future holds.
That's all I have for you this week. Oh, by the way, we are in Twitter now, so look for us at @decen_podcast. Our first newsletter dropped last week, and one will be dropping in the next couple of weeks. It is on Substack and is called “The Decentralized Newsletter.” So check that out as well. But that's all I had for you today. Thank you so much for listening. Until next time, take care of yourselves.