The time is ripe to fast-track crypto regulation in Africa

Regulating a highly volatile and decentralized sector remains a challenge for most African governments, with many crypto enthusiasts vehemently opposing crypto regulation in Africa.

• The collapse of the third largest crypto exchange, FTX, has come before crypto investors could get to terms with the slump in the prices of major cryptocurrencies, including Bitcoin and Ethereum.
• The primary aim of financial regulation is to support financial stability, transparency, protection for consumers and investors and a level playing field for different market participants.
• Centralized institutions have no option but to step up crypto regulation in Africa.

Making a case for crypto regulation in Africa

The crypto sector has undergone various challenges in 2022. The collapse of the third largest crypto exchange, FTX, has come before crypto investors could get to terms with the slump in the prices of major cryptocurrencies, including Bitcoin and Ethereum. These challenges have prompted renewed calls for crypto regulation in Africa.

Regulating a highly volatile and decentralized sector remains a challenge for most African governments, with many crypto enthusiasts vehemently opposing crypto regulation in Africa. The main argument is that crypto regulation would hinder innovation and go against blockchain’s core principle, decentralization.

Africa remains one of the fastest-growing cryptocurrency markets globally. While many people utilize cryptocurrencies for financial payments, their volatility makes them unfit as a store of value.

Policymakers are also concerned that cryptocurrencies can be used to transfer illegal funds from the region and to sidestep local regulations against capital outflows. Many also argue that the widespread crypto adoption could undermine monetary policy effectiveness, creating risks for macroeconomic and financial stability.

With the IMF calling for better regulation of Africa’s growing crypto market, many people agree that the risks associated with digital assets have become too obvious not to require proper regulation. Thus, the time has come when crypto regulation in Africa needs a step up to mitigate risks and ensure consumer protection.

Crypto regulation benefits

The primary aim of financial regulation is to support financial stability, transparency, protection for consumers and investors and a level playing field for different market participants. And although cryptocurrency regulation can be controversial, many experts say crypto investors should embrace it.

Boosting crypto regulation in Africa can protect long-term investors, lock out fraudsters from the crypto ecosystem, and offer clear guidance for companies to innovate within the crypto economy.

READ MORE: BlockFi acquires court protection and sues FTX

Raising investors’ confidence and protection

Crypto investors in Africa currently have minimal or no protection in the market, as there are no clear-cut regulations for protecting assets. Most of the trading happening in the crypto space is not regulated, creating a considerable gap. The lack of regulation means investor protection on crypto exchange platforms remains much weaker compared to the securities or futures market.

With crypto like a risky investment, similar to individual stocks, investor protection could render the market less vulnerable and safer from external manipulation. A safer African crypto market raises investor confidence, often creating more value over time. Crypto regulation in Africa remains crucial for fundamental fairness and, ultimately, the industry’s growth.

Crypto regulation market stability

Regulation could prove a healthy development for the crypto industry, at least for everyday investors. If properly targeted, enhanced regulatory guidance could reduce the speculative nature of crypto assets. Lower speculation also raises investor confidence, drawing in more long-term investors who have kept off digital assets thanks to a highly speculative, volatile crypto market.

Nevertheless, even if it does not bring more people on board, it may change people’s current behaviour. Enthusiasts consider crypto as having numerous benefits over fiat currency and other asset classes. However, those benefits can only come to full fruition with proper regulation of crypto in Africa.

It remains hard to predict how the price-sensitive asset class will respond to regulation over the long term. The reaction will depend on whether regulators adopt stringent or lenient approaches. In the short term, adoption regulation could inspire knee-jerk investor reactions to the markets, suppressing crypto trading values.

For instance, cryptocurrency markets drastically dropped when China banned crypto transactions in September 2021. However, in the long run, regulation may help stabilize the market and reduce a certain level of risk for crypto investors.

The crypto regulation in Africa could tone down the rollout of those trying to get rich quickly by merely predicting ridiculous coins’ behaviour and trends. But that is a good thing for long-term investors. Regulation will stabilize the market even further.

Crypto ecosystem safety

The lack of policies and laws over this growing sector has created an avenue for market manipulation, widespread fraud, rug pulls, and scams, rug pulls.

Crypto is not subject to requirements to prevent fraud manipulation. The industry lacks standards on conflicts of interest. The sector remains devoid of the same regulations found in other markets. Essentially, that state translates to a ‘buyer beware’ warning.

Crypto crime has escalated dramatically over the previous two years. According to a survey by blockchain analytics company Chainalysis, fraudsters took $14 billion in cryptocurrency last year. This was a new record compared to the $7.8 billion taken by scammers in 2020. There are also over 17,000 altcoins, which are often more speculative and volatile than Bitcoin and have a more considerable risk of cryptocurrency scams and fraud. Even the most passionate and advanced cryptocurrency professionals acknowledge several new and emerging threats in the crypto realm right now.

However, there are various ways to safeguard cryptocurrency. Keeping an eye on typical red flags comparable to old money wire scams and credit card theft is essential. These include apparent misspellings in emails or social media postings, claims to make people wealthy, or even large-scale social media crypto schemes known as rug pulls.

Consumers must exercise good digital security practices. These include utilizing a hot or cold wallet or holding cryptocurrency on an exchange with solid security. The practices could help To keep hackers out of digital wallets. It is also critical to keep track of the crypto wallet key and not reveal it to anybody. If one loses or has their key stolen, they may lose all their crypto assets.

The decentralized nature and lack of government involvement in crypto remain admirable. However, crypto scams and frauds have become too rampant. Thus, centralized institutions have no option but to step up crypto regulation in Africa.

READ MORE: Crypto market insights: understanding Ethereum’s post-merge downturn