Strategic investment: VCs are missing out on Africa’s blockchain boom

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As cryptocurrencies evolve from a niche interest to a major financial instrument, we are beginning to see the potential for how they can help reshape traditional global economic hierarchies.

As we see the world’s major superpowers vie for security, prosperity, and influence, tensions are rising and tectonic shifts have already begun. From sanctions, seizures, and the general weaponization of financial infrastructure to the legalization of Bitcoin (BTC) and the acceptance of cryptocurrencies for global trade agreements, the world’s financial system is changing right now and will never be the same again.

As is often the case, amidst such socio-economic unrest and uncertainty, there is an opportunity to create something new. El Salvador’s adoption of Bitcoin as legal tender is the most obvious example, but even in the Greater Bay Area of ​​China, we are seeing a new financial paradigm emerge under the web3 banner.

Interestingly, while equally impactful transformations are taking place on the African continent, the world is not paying much attention to it. For example, in terms of attracting venture capital, Africa’s share of global blockchain VC funding was only 1.3% in 2023 and only 0.6% in the first half of 2024. In comparison, as Wells points out, the US secured 47% of the global blockchain VC pie. Of course, the size of the economies should be taken into account here, but the picture of underinvestment in Africa remains true, as African countries represent around 3% of global GDP and the US around 25%.

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?

Blockchain-powered economic progress across Africa

The complexity, diversity and often inherent challenges facing many African economies make them fertile ground for crypto-enabled 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 bypass legacy systems and overcome the infrastructural deficiencies that hold the continent back in many ways.

The potentially revolutionary impact of blockchain is being felt particularly keenly in the financial services sector.

Many individuals and businesses across the continent are unbanked and underbanked, and cryptocurrencies are increasingly filling this gap. They provide a link for informal sectors to integrate into the formal economy while helping to drive grassroots economic activity. The result is better access to credit, improved business practices, and enhanced economic stability.

Traditional financial service providers and fintechs themselves are also increasingly looking to offer crypto services to their customers, turning to crypto exchanges to provide liquidity and infrastructure. If we generalize the trend, it won’t be long before millions of people in Sub-Saharan Africa will have easier access to stablecoins like USD Coin (USDC) and thus be able to save in a currency that is stronger than what is generally available locally. The impact cannot be underestimated.

We power startup innovation

Across the continent, innovative startups are working hard to harness the full potential of crypto and address some of the challenges that have prevented its wider adoption. However, scaling these solutions remains a significant challenge without sufficient venture capital.

The journey we have embarked on at VALR is just one example of how venture capital can have a positive impact not only on Africa’s cryptocurrency landscape, but also on the wider economy.

Securing Africa’s largest ever crypto VC raise has enabled VALR to invest heavily in industry-leading technologies that are now available to over 1,000 institutional clients and over 800,000 retail customers globally, with some of our largest clients based outside of Africa. Our experience is a testament to how startups that start their journey in Africa can compete on the global stage. With the right financial backing, more African blockchain projects can contribute to local economies while also sharing their expertise with the world.

The importance of regulatory clarity

While the potential for blockchain and crypto in Africa is huge, regulatory uncertainty undoubtedly poses a significant barrier to greater venture capital funding across the continent.

But this is not a universal trend. South Africa, in particular, has taken a proactive and collaborative approach to regulating the sector. With a clear regulatory framework, South Africa has over 100 licensed crypto companies. Even before licenses were issued, regulatory clarity was a positive factor for investor confidence. In 2023, South Africa secured 21% of all blockchain venture funding in Africa.

It’s clear that African countries that embrace crypto with forward-thinking and clear regulation are reaping the rewards at every level of economic activity. For example, South Africa’s licensed crypto companies are generating significant tax revenue and providing employment opportunities not just within Africa but globally. The remote-first philosophy of blockchain companies is creating a valuable export opportunity and opening up South Africa’s technological innovation and financial services expertise to a global audience.

For Africa to increase its share of global blockchain venture funding and empower innovators, more jurisdictions (and not just those in Africa) need to follow South Africa’s lead. Clear, forward-looking regulations are essential to creating an environment where blockchain can thrive.

The way forward: Embracing the crypto opportunity

Africa’s challenges and complexities mean it could benefit from blockchain innovation more than any other continent globally, but the level of VC funding has yet to match the opportunity.

VCs should not ignore the African continent in favor of more developed markets like the U.S. Despite the challenges, there is huge potential to invest in blockchain projects that can transform the continent’s growth trajectory while delivering returns.

At the same time, African regulators will need to embrace the crypto opportunity rather than resist it. Certainly, many local currencies, such as the Nigerian Naira, are falling out of favor and will likely become worthless. Crypto is not a threat, but a real opportunity for African countries to gain a stronger foothold in the global economic rankings; not unlike El Salvador.

By providing a clear and supportive regulatory environment, African countries can attract the venture capital needed to scale blockchain innovations, create jobs, and ultimately accelerate economic progress across the continent.

Ben Caselin

Ben Caselin is the chief marketing officer at Pantera-backed cryptocurrency exchange VALR. Headquartered in Johannesburg and the largest exchange by volume on the African continent, VALR serves over 1,000 institutional and professional investors and over 800,000 traders worldwide. Drawing on years of experience in the digital asset space, primarily in Hong Kong and the United Arab Emirates, and focusing primarily on driving Bitcoin adoption in emerging markets, Caselin is frequently quoted and published in top-tier media and is an enthusiastic speaker at global conferences.