NOMPU SIZIBA: The State of Crypto Africa report released by Luno and Arcane Research has found that the African economic landscape lends itself nicely for the adoption of cryptocurrencies. It concludes that the adoption of cryptocurrencies is more likely on the continent in the context of high inflation rates, volatile currencies, and underdeveloped banking infrastructure across much of the continent.
Well, to unpack the issues further and to talk cryptocurrencies more broadly, I’m joined on the line by Marius Reitz, the general manager for Africa at Luno. Thanks very much, Marius, for joining us. So, when you look at the wider world and the adoption of cryptocurrencies, what have your observations been in this regard as a quantum or proportion of all recorded or legal transactions done? How much do cryptocurrencies actually account for?
MARIUS REITZ: Hi, Nompu. Thanks for the opportunity. Yes, good question. As a starting point, I think it’s worth mentioning that cryptocurrency is still very, very young, in its infancy. Bitcoin only came onto the scene back in 2009. So it’s only been around for 10 years, and if you compare Bitcoin to something like the internet, for example, it’s still very much at the early stages.
But we are seeing positive signs; we are seeing more people becoming familiar with Bitcoin and the technology, and more people understanding the risks associated with this new technology. We’ve seen people using it for payments, whether a micropayment or a cross-border payment, because it’s cheaper and faster to transact.
But we’re also seeing a new class of investors, if we can put it that way, buying Bitcoin for the first time – for example, as a hedge against inflation. That is as a result, more recently, simply of the packages announced by governments around the world. So I think, while it’s still very, very young, I think the adoption rate is on the increase and we’re seeing more and more people becoming familiar with the technology.
NOMPU SIZIBA: Now, the report your company and Arcane Research produced has found that the African continent is ripe to adopt cryptocurrencies for transactions. Why so?
MARIUS REITZ: I think African nations share some key similarities and trends which can become the catalyst for growth. These include things like economic problems, such as high inflation rates, volatile currencies, key financial issues such as capital control and also a lack of banking infrastructure making cross-border payments very expensive or impossible.
We see people using Bitcoin for payments, local and cross-border, as they are paying up to 19% in remittance costs for transfers. We also see people, as I just mentioned, buying Bitcoin as a hedge against inflation.
NOMPU SIZIBA: Yes.
MARIUS REITZ: So, looking at the different changes of positions to become the antidote of some of these economic and political challenges, and also Africa’s growing young and mobile native population is more likely to adopt a new financial system.
NOMPU SIZIBA: So, even if African countries decided – or, say, at an AU level it was decided – that there should be an adoption of these currencies to help circumvent current economic structural impediments, what are some of the challenges that would need to be addressed in order to make it viable?
MARIUS REITZ: There are some major challenges that are still to be overcome, but none of these prevent people from buying cryptocurrencies. We’ve seen this happen across the continent. But, to highlight some of these challenges, I think firstly inadequate internet coverage. We are currently seeing adoption, or people buying cryptocurrency, being basically in the major cities across East Africa, and West Africa specifically. We’ve seen competition from mobile money services, which I believe can also be a catalyst because of the level of morality that people have with digital payments, for example. But then I think more important also, in some cases we still have seen a zero-risk tolerance approach from governments and regulators, not understanding the technology and what it can offer, and so that is where companies like Luno operate in and across all markets in Africa, and then come into play to work with regulators to bridge that gap.
But I think a good thing is that we have data points showing that we’ve made progress in all these fronts, and, more importantly, the industry will grow and is growing from the grassroots level. So when people see value in Bitcoin, whether it’s a store of value or whether as a payment system, people will use it if it’s easier and cheaper and faster and more secure than the existing system.
NOMPU SIZIBA: Yes. If the confidence was there, which you’ve just talked about – a lack of government confidence, which ultimately will be quite crucial for this whole thing to gain some trajectory – if indeed there was some infrastructure built and the confidence was there, what sort of jobs could be created in the process, if at all?
MARIUS REITZ: Firstly, I think it’s about can cryptocurrency enable individuals and businesses, for example, in across-border trade. So, for example, it would be possible for someone with a small business in rural Africa to conduct business with someone in a neighbouring country. That will become easier. So I think it will empower individuals and businesses to utilise Bitcoin or cryptocurrency in their daily lives, whether it’s for saving, whether it’s for transacting, whether it’s to facilitate donations for which Bitcoin, for example, is ideal, because it’s decentralised and as it can stand nature as well. So I think it’s more from the consumer perspective than jobs jobs. But what I can say, and we’ve seen that, where a lot of talent is flocking to the cryptocurrency in Blockchain –we’ve seen this in Silicon Valley, as well as in South Africa, in Cape Town, where we’ve grown our team that we know. We’ve seen qualified accountants and people with law backgrounds joining this new sort of ecosystem and industry. And that is a positive sign to us that the industry is growing, and that there’s interest upside.
NOMPU SIZIBA: Marius, at a broader global level, how have the cryptocurrencies or, let’s say, Bitcoin – how has it fared during the Covid-19-induced market crisis?
MARIUS REITZ: Since the week of March 11/12, we saw the price of Bitcoin also drop, the same as many other international markets, and I think all financial assets across the world. But I think it’s important to point out that Bitcoin’s price, the Bitcoin control figure, [dropped] at a far lower rate than many of the other investments. And even S&P, for example. And frankly, we’ve been on an upward curve over the past eight to nine weeks, and Bitcoin recovered most of, actually all of its initial losses – and it’s currently trading at around R164 000-R170 000.
So I think we are seeing new buyers, and potentially Covid-19 created the situation where we could potentially see inflation in the medium to long term, and that is due to stimulus packages and governments’ printing extra units of currency. And so Bitcoin’s fixed and predictable supply rate there is attracting the attention of new investors. We’ve seen a lot of new investors entering the market and showing interest.
NOMPU SIZIBA: And then, just one last thing. We’ve been hearing about the Bitcoin halving, so that there’s less Bitcoin in circulation. Just explain that concept to us, and why it is that the Bitcoin price really didn’t change that much thereafter – the halving.
MARIUS REITZ: Firstly, the Bitcoin halving is one of the most anticipated events on the cryptocurrency calendar, and I think what makes it even more significant this year is because of the timing in the middle of the Covid-19-induced crisis. But Bitcoin halving is a recurring event, in which the number of Bitcoin awarded to miners is cut by half. So, to give an example, where fiat currencies like the rand or any other fiat currency is issued by central banks, there is no central body issuing new Bitcoin. Instead, it is written into the Bitcoin protocol that new Bitcoin be issued as a reward for miners …… dating transactions.
So what this means is that Bitcoin operates on a model of deflation, being that gradually less and less Bitcoin will be released until Bitcoin supply stops completely, and that’s estimated to take place in the year 2114. So it’s a predictable supply. What made it significant this year is that for the first time Bitcoin’s annual inflation rate dropped below that of gold and that of peer currencies. And this is fundamental to Bitcoin’s principles of being a scarce form of digital money.
The Bitcoin price didn’t react to this event. If you look back over the past Bitcoin halvings, we’ve only had two of these halving events since Bitcoin’s founding back in 2008. So we’ve really only had two data points to work with, and what we’ve seen historically is that over the one to 1.5 years after the halving event, we’ve seen bull markets. So, while the short-term impact is very uncertain, if you go by historical events, we should see a higher Bitcoin price over the next year or so.
NOMPU SIZIBA: Many thanks, Marius, for your time this evening.