The Growth of Investment In African Crypto-Based Startups

The cryptocurrency space has become a hotbed for investments of all kinds. From regular people hedging against inflation by buying Bitcoin to major investors betting on the future of finance by providing capital for startups, a lot of money is pouring into crypto. The African continent has had its fair share of investments into new and innovative companies built for crypto. This article zooms in on the funding landscape in the crypto industry in Africa. 

How Much Money Is Coming into Africa? 

Research conducted by blockchain investment firm Crypto Valley Venture Capital (CV VC) and Standard Bank indicates that blockchain investment in Africa grew eleven folds (11x) in Q1 2022. 

African blockchain companies raised $91 million in the first quarter of 2022. This means that the first quarter of 2022 saw a 1,668% year-on-year increase in cash inflow compared to last year. 2021 recorded a growth of 149%, showing how impressive the influx of capital in 2022 is. 

The second quarter of 2022 saw even more money pouring in as companies on the continent raised $ 213 million, according to the latest data. This brings the total amount raised so far in Q1 and Q2 2022 to a staggering $340 million, more than twice the $ 127 million raised last year. 

Who Is Getting The Crypto Funding In Africa? 

Major fundraising announcements in recent times provide a picture of where the funding is going. Fintech apps and crypto exchanges have consistently led the charts of sectors with the most investments as venture capitalists line up to fund innovators building essential infrastructure for crypto adoption. 

Fintech apps are responsible for the most funding rounds as several developers attempt to fix the broken financial system. The plan is to replace traditional finance alternatives with crypto-powered applications to cater to things such as remittance, internal payments, and lending. 

The CV VC Blockchain African report suggests that FinTech attracted roughly 60% of all crypto VC funding in Africa. 

Exchanges are also becoming a major place of interest for investors. Trading platforms usually serve as the initial applications new users interact with, making them direct beneficiaries of the heightened interest in crypto on the continent. 

Despite the recent decline in crypto prices, cryptocurrency usage has seen a boost as more people look to take a chance on the opportunities presented by lower prices. 

CoinGecko, a cryptocurrency price tracker and data aggregator, published a list of countries that have maintained an interest in the crypto industry since the downtrend in the market in April 2022. Nigeria topped the list, with Kenya placing 15th. Nigerians searched the term “cryptocurrency,” “invest in crypto,” and “buy crypto” the most among the 15 countries that were part of the research and had a total search score of 370. Such search terms show an interest in trading cryptocurrencies, further illustrating the essential role exchanges play as the onboarding interface for new users. 

Investors have poured record funding into African-based crypto exchanges this year. KuCoin, a Seychelles-based startup, recorded Africa’s first “mega deal” in a $150-million in pre-Series B funding round. Moreover, the round pushed the trading platform’s valuation to $10 billion, making it Africa’s first blockchain unicorn and “decacorn.”

A new name in the crypto industry is Mara, another exchange that raised $ 23 million in a seed round from high-profile Web3 investors such as Alameda Research (FTX), Coinbase Ventures, and Distributed Global.

In an exclusive interview, Brenton Naicker, Director of Capital Formation & Growth, CV VC (Africa), said a move away from funding mainly exchange platforms would signal maturity of the industry on the continent. Naicker said: 

“This is actually quite typical of nascent markets. A few years ago, if we look at some of the mature markets like the U.S, the majority of funding was going into the foundational/core infrastructure i.e exchanges, wallets and the like. The same is now happening in Africa – where in the last year, we saw close to 70% of African funding in the blockchain and crypto industry go to exchanges, wallets and fintech companies. As this core infrastructure matures – evidenced by things such as multiple liquid African crypto markets – we will start to see more of the “exotic” types of applications and companies start to take more of a lions share of funding – which will signal even further maturation of the African blockchain and crypto industry.” 

Is More Funding Expected?

As interest and adoption increase, it is almost assured that more money will be invested in cryptocurrency projects on the continent. Despite the great numbers, Africa is responsible for less than 1% of the total amount invested in blockchain startups globally. 

Beyond interest and adoption, regulations have been a major hurdle for projects looking to build solutions that use crypto and have caused several investors to adopt a wait-and-see attitude with getting into the industry in Africa. 

Recently, Nigerian crypto users received some great news as the Security and Exchanges Commission released a set of rules on the issuance, exchange, and custody of digital assets. This is a positive development that is much different from the outlook of the Central Bank of Nigeria, which asked all licensed companies to stay away from doing business with cryptocurrency businesses.

In South Africa, regulators have hinted at releasing formal guidelines on crypto in 2023. Mauritius, the Virtual Asset and Initial Token Offering Services Act 2021 was passed into law last year, providing a comprehensive legislative framework for the blockchain sector.

Another development is the series of meetings between the CEO of Binance and the leaders of states in francophone Africa. In the last month, CZ has met with the President of the Central African Republic (CAR), Senegal, and Côte d’Ivoire.

Perhaps, with the increased development of central bank digital currencies (CBDCs) in countries like Ghana and Nigeria, positive regulation could be on the way. 

Brenton Naicker believes that the big investors have taken notice of the trends on the continent and will continue to fund African crypto startups. He said: 

“If you look at the challenges that plague the African continent – lack of financial inclusion, limited access to capital, opaque processes that need transparency etc. blockchain and crypto are perfectly positioned to flip these challenges into business opportunities – which is why certain African countries exhibit some of the highest crypto adoption rates globally. The big players have taken notice of this and are trying to get it on the action.”

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