US move on ETFs excites African crypto investors

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The United States’ securities regulator last week approved the first Bitcoin exchange-traded funds (ETFs). This is good news for crypto investors as it will allow the trade of the cryptocurrency on a regulated platform for the first time in history, but not everyone is happy about it.

An ETF is “a listed investment product, which tracks the performance of a particular index or basket of shares, bonds, money market instruments or a single commodity,” according to the Nairobi Securities Exchange.

Essentially, the Bitcoin ETFs, which are now listed on two of the world’s largest bourses — the New York Stock Exchange and Nasdaq — will allow investors to invest in popular crypto, without having to buy it or directly own it, hence avoiding the risks normally associated with buying cryptos.

Analysts say the move is a game-changer for crypto investors as it is set to raise demand for Bitcoin, occasioning a bull market for the digital asset that recently suffered a long bear run that left millions of investors disenchanted and counting losses.

Institutional money“It is good news for Kenyans and all crypto holders because the ETFs open the door for institutional money to flow into bitcoin. It can now be constituent of portfolios of large banks, insurance and investment firms,” said Mukiri Mwirigi, project manager at Africa Blockchain Centre, a think tank for decentralised ledger technologies.“With more money getting into Bitcoin through the ETFs, it means the demand will go up, which, hopefully, will see Bitcoin’s price go up. That is the expectation,” said David Gitonga, founder of blockchain consultancy firm Kanga Labs.“This impact will trickle down to anyone that holds Bitcoin, whether in Kenya or the US. Everyone who currently has a portfolio in Bitcoin is celebrating because the price has risen and it could rise further.”Indeed, within hours of the US Securities and Exchange Commission announcing the approval of the ETFs, Bitcoin’s price shot from $44,000 (Sh7 million) to over $48,000 (Sh7.6 million) and the market capitalisation grew by over 8 percent as at January 12.

In Kenya, it is estimated that about 6.1 million people own different cryptocurrencies, according to Singaporean crypto research firm TrippleA. Majority of these people hold Bitcoin, since it is by far the most popular crypto globally.

Across East Africa, an estimated 12 million people have put their money in cryptos, most of which is Bitcoin. For these people, Mr Gitonga says, the Bitcoin ETFs approval in the US is a cause for celebration as they will be able to sell their holdings for a much higher profit.

Bastian Blankenburg, chief technology officer of Nairobi-based blockchain infrastructure firm Utu Protocol, however believes that the celebration will only be for speculators, who use Bitcoin and other cryptos as inflation hedge and for wealth creation.

Majority of Africans who hold cryptocurrencies fall in this category. The 2022 Geography of Cryptocurrency report by American blockchain research firm Chainalysis showed that in Africa, majority of those who hold cryptocurrencies are speculators, who rely on the trade to make ends meet, by ‘buying low and selling high’.“For these people, who are in Bitcoin just for the money, anything that will make the price go up is good for them. Having an ETF enables a huge additional client base to buy Bitcoin and that can only help the price, at least in the shorter run,” Dr Blankenburg said.“But then, there are also the decentralisation idealists who don’t mostly invest in Bitcoin because of the value, but because they want to become independent from banks and have an uncontrolled decentralised currency. For some of them, the creation of centralised ETFs is bad news.”Government controlFor the “decentralisation optimists,” the approval of the Bitcoin ETFs will introduce more State control on Bitcoin, beating the entire purpose of their invention – a currency free from government control.

“The vision of revolution has been gutted from Bitcoin and while it remains an excellent store of value, there is no interest in it being a medium of exchange as originally intended,” said Ray Youssef, chief executive of NoOnes, a peer-to-peer (P2P) crypto exchange platform.“All the things that make Bitcoin great we shall lose in time as the old money players move into monopolise mining and self-custody becomes as archaic as the telegraph.”Like Mr Youssef, many that believe in the ‘Bitcoin dream’ of transforming the financial industry view the ETFs approval as a ‘trojan horse,’ a scheme meant to end P2P trade of Bitcoin by allowing institutional investors to dominate the trade.

According to Ms Mwirigi, as African investors celebrate the brief moment of victory from the Bitcoin price surge, a level of scepticism from some players in the industry is warranted as “you may not know the real intention.”As with most things coming from governments and large institutions there is a level scepticism and a layer of ‘veiling’. Also, there is the element of large institutions continually scooping up Bitcoin and continually manipulating the markets,” she said.