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As cryptocurrency continues to evolve from a niche interest to a significant financial tool, we are beginning to see the potential for how it could help reshape traditional global economic hierarchies.
Tensions are running high and tectonic shifts are already underway as we see the world’s major superpowers compete for security, prosperity, and influence. From sanctions to seizures and the general weaponization of financial infrastructure, to the legalization of Bitcoin (BTC) and the acceptance of cryptocurrencies for global trade settlement, the global financial system is changing as we speak and will never be the same again.
As is often the case, in the midst of these socio-economic turmoil and uncertainties, there is an opportunity to create something new. The adoption of Bitcoin as legal tender in El Salvador is the clearest example, but even in the Greater Bay Area of China, under the banner of web3, we are witnessing the emergence of a new financial paradigm.
Interestingly, while equally significant transformations are happening on the African continent, the world is paying little attention. For example, in terms of attracting venture capital, Africa’s share of global blockchain venture capital funding was just 1.3% in 2023 and just 0.6% in the first half of 2024. In contrast, the US, where it dominates Wells’s views, captured 47% of the global blockchain venture capital pie. Of course, the size of economies must be taken into account here, but with African countries accounting for about 3% of global GDP and the US about 25%, the picture of underinvestment in Africa remains true.
As robust regulatory frameworks continue to develop across the continent, should Africa be at the top of the list for venture capitalists looking to capitalize on the long-term blockchain opportunity?
Economic progress through blockchain in Africa
The complexity, diversity and often innate challenges facing many African economies make them fertile ground for crypto-backed innovation.
The core principles of blockchain – efficiency, transparency and disintermediation – are powerful tools to address some of these challenges. Blockchain offers a unique opportunity to leapfrog traditional systems and circumvent infrastructure inefficiencies that have held the continent back in many ways.
The potentially revolutionary impact of blockchain can be felt particularly acutely in the financial services sector.
Many individuals and businesses are unbanked or underbanked on the continent, and cryptocurrencies are increasingly bridging this gap. They help boost local economic activity while enabling informal sectors to integrate into the formal economy. The result is better access to credit, better business practices, and greater economic stability.
Traditional financial service providers, as well as fintechs themselves, are also increasingly looking to provide cryptocurrency services to their customers, turning to cryptocurrency exchanges to provide liquidity and infrastructure. If we extrapolate the trend, it won’t be long before millions of people across sub-Saharan Africa will have easier access to stablecoins such as USD Coin (USDC), allowing them to save in a stronger currency than is typically available locally. The impact cannot be underestimated.
Stimulating start-up innovation
Across the continent, innovative startups are working hard to harness the full potential of cryptocurrencies and address some of the challenges that are holding back their widespread adoption. However, scaling these solutions remains a daunting challenge without adequate venture capital.
The journey we have been on at VALR is just one example of how venture capital can have a positive influence not only on Africa’s crypto landscape but also on the broader economy.
By securing the largest crypto venture fundraising round ever in Africa, VALR has been able to invest heavily in cutting-edge technologies that are now offered to over 1,000 corporate clients as well as over 800,000 individual clients worldwide, with some of our largest clients located outside of Africa. Our experience is a testament to the ability of startups that begin their journey in Africa to compete on the global stage. With the right financial support, more African blockchain projects can contribute to local economies while sharing their expertise with the world.
The importance of regulatory clarity
While the potential for blockchain and cryptocurrencies in Africa is vast, regulatory uncertainty has undoubtedly been a significant barrier to greater venture capital funding on the continent.
But this trend is not universal. South Africa, in particular, has taken a proactive and collaborative approach to regulating the sector. Thanks to a clear regulatory framework, South Africa has over 100 licensed cryptocurrency companies. Even before the licensing, regulatory clarity was a positive factor for investor sentiment. In 2023, South Africa secured 21% of all blockchain-related venture capital funding in Africa.
It is clear that African countries that embrace crypto with clear and forward-looking regulations are reaping the benefits at all levels of economic activity. South Africa’s licensed crypto companies, for example, generate significant tax revenues and provide employment opportunities not only in Africa but around the world. The remote work ethic of blockchain companies creates a valuable export opportunity, opening up South Africa’s technological innovation and financial services expertise to a global audience.
For Africa to increase its share of funding for global blockchain companies and drive innovation, more countries (and not just African ones) need to follow South Africa’s lead. Clear and forward-looking regulations are essential to create an enabling environment for blockchain to thrive.
The Way Forward: Seizing the Cryptocurrency Opportunity
Africa’s challenges and complexities mean that the continent has more to gain from blockchain innovation than any other continent globally. Yet the level of venture capital funding is not yet commensurate with the opportunities.
Venture capitalists should not overlook the African continent in favor of more developed markets like the United States. Despite the challenges, there is vast potential for investing in blockchain projects that could transform the continent’s growth trajectory while generating profits.
At the same time, African regulators will need to embrace the opportunity presented by cryptocurrencies rather than oppose them. There is no doubt that many local currencies, such as the Nigerian naira, are losing their value and are at risk of becoming worthless. Cryptocurrencies are not a threat, but a real opportunity for African countries to gain a foothold in global economic rankings, much like El Salvador.
By providing a clear and enabling regulatory environment, African countries can attract the venture capital needed to scale blockchain innovations, create jobs and ultimately drive economic progress across the continent.
