• Fraud and wild swings in value dog perceived return on investment
Popularly known as bitcoins, cryptocurrencies continue to amass interest among young Kenyan investors despite the hiccups of recent months. Why has cryptocurrency become so popular among Kenyans?
Andrew Muli, a 43-year-old ICT expert based in Nairobi, is investing in cryptocurrency because he believes it is a worthy venture. "Cryptocurrencies will gain value with time. If you invest now, your cryptocurrency will be worth much more money in future," Muli says. This could be useful as mainstream currencies face an uncertain future due to wars, food shortages and low economic growth.
As of July this year, about 4.5 million Kenyans had cryptocurrency accounts. The data is in a report by the United Nations Conference on Trade and Development. The number means that 8.5 per cent of the country's population is active in cryptocurrency.
In percentage terms, Kenya leads Africa with the highest portion of its population involved in cryptocurrency. South Africa came second with 7.1 per cent of its population in cryptocurrency, while Nigeria was third at 6.3 per cent.
Globally, Kenya ranked number five, putting us ahead of the United States, which has 8.3 per cent of its population involved in cryptocurrencies. In August 2021, Kenya was listed as the world's top country in person-to-person cryptocurrency trading.
Most people call cryptocurrency Bitcoin, but Bitcoin is just one of almost 10,000 different types of cryptocurrency created across the world. Notable ones include Avalance, Binance, Dogecoin, Ethereum and Terra.
Critics say cryptocurrencies are not regulated by any government and are, therefore, a risky investment. Cryptocurrencies are not supported by hard assets, such as gold and oil. The Central Bank of Kenya has in the past discouraged banks from dealing with cryptocurrency because it is not recognised as money.
Furthermore, the law does not protect users in case the virtual currency fails. Then ICT CS Joe Mucheru told a public forum in March that Kenyans lost Sh14 billion to cryptocurrency fraudsters between 2020 and 2021.
One of the worst examples of the lack of regulations was the fate of QuadrigaCX, a Canadian cryptocurrency exchange. In December 2018, the owner of the company suddenly died of a rare illness. He was the only person with the password to retrieve cryptocurrencies from the exchange. Without the password, his 115,000 clients lost cryptocurrencies worth $137 million (Sh15 billion).
The operations of cryptocurrencies can be opaque. In April, investors across the world lost US$60 billion (Sh7.2 trillion) when Luna coin collapsed. Suicides were reported in several countries as Luna coin's value suddenly fell from Sh14,000 a coin to one shilling. A 29-year-old man in Taiwan allegedly took his own life after his investment in Luna coins lost value from $2 million (Sh241 million) to only $1,000 (Sh120,000).
When investing, don't put all your money in cryptocurrency. This is to ensure you don't lose everything in case something goes wrong with your digital coins. As with any other investment, one has to think long-term and gather as much information as possible before making a decision. Avoid cryptocurrency dealers, who make promises which are too good to be true.