4 million Kenyans suffer due to crypto crash

The ongoing meltdown in the cryptocurrency industry has pushed an estimated four million Kenyans who hold the digital assets deeper into losses.

By Anna B Kiwanuka

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As the top cryptocurrency Bitcoin struggles to maintain its position above the crucial level of KSh2.3 million ($20,000), the ongoing meltdown in the cryptocurrency market has driven an estimated four million Kenyans who possess the digital assets deeper into losses. In spite of warnings from regulators like the Central Bank of Kenya (CBK) that the emerging assets can be highly risky, mainly young and small traders that recently resorted to cryptocurrencies in the promise of quick gains, have been affected.

Since November of last year, the cryptocurrency market, which is famed for its extreme price swings, has lost more than half of its value, and investors have gradually taken money out of riskier assets due to concerns about increasing interest rates and surging inflation.

Blockchain analytics firm Chainalysis, which relies on web-traffic data to P2P platforms to track crypto usage and adoption in different countries, revealed that Kenya has about four million crypto-investors. It also emphasizes that Kenya is among the top dealers in peer-to-peer cryptocurrency platforms, which allows traders to transact directly with one another without the need for a centralized third party to facilitate the transactions.

“Kenyan investors buy cryptocurrencies to preserve their savings, and carry out international transactions either for individual remittances for those working in places like Europe and North America or for commercial use, such as purchasing goods to import and sell,” adds Chainalysis.

The payment of imports through cryptocurrency is seen as convenient and quick because the traders no longer have to buy dollars using the Kenya shilling or fork out fees to money transfer firms like Western Union. However,  the recent turmoil is inflicting pain on these retail investors.

The fact that the four million figure is higher than the 3.07 million Kenyans who hold formal employment suggests that investors are primarily students and workers of the informal sector.

The lack of regulation in the industry makes it difficult to estimate the value of the digital assets held by Kenyans, who tend to be tech-savvy, but the figure seems to be in billions.

Bitcoin dropped on Saturday to as low as $17,592.78, falling below the key $20,000 level for the first time since December 2020. It later picked up slightly yesterday, at around $20,510. But it has still lost 55 percent of its value this year and 35 percent this month alone in the cryptocurrency sector’s latest meltdown.

Additionally, market players have said that further declines could have a knock-on effect and other crypto investors will be forced to sell their holdings to meet margin calls and cover losses. This has made it difficult to gauge the scale of retail investors’ pain from the crypto plunge and the effects on future appetite given the cloudy nature of the market.

However, George Mwakisha, Kenya’s Lead Representative for Binance, the world’s biggest crypto exchange has continued encouraging Kenyan crypto investors saying, “The sell-offs should not really worry crypto investors. What is happening is that some are moving their cryptos to less risky assets, just like what we have seen in the traditional financial markets.” 

“Cryptocurrencies are new and so most people are operating and commenting from a point of little knowledge. But for millions of unemployed young Kenyans including university students, it is an investment and earns them an income,” Mr. Mwakisha added.

Although crypto assets have proved popular and useful in Kenya, the Kenyan Central Bank Governor, Patrick Njoroge has a different opinion about them.

He says, “Cryptocurrencies pose risks to financial stability, arguing that digital currencies could solve problems such as bringing the poor into the financial system or cutting transaction costs.”

He also recently emphasized at a virtual event moderated by the International Monetary Fund’s Africa Director, Abebe Aemro Selassie, that there was a lot of hype for cryptocurrencies.

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