Read the original article on Business Insider.

Since its invention, cryptocurrency has been a controversial novelty in the financial world. Originally adopted to sidestep bureaucratic barriers through decentralised, peer-to-peer transactions, cryptocurrency usage grew over 200% worldwide in 2022. By 2027, the crypto market is expected to grow by over 14% annually, and the overall user base to reach almost 1 billion

In the third quarter of 2022, nearly 12% of all Internet users aged 16-64 owned some form of cryptocurrency. In Nigeria, this percentage surpassed the global average, standing at 13%. By early 2023, the crypto ownership rate also exceeded the global average in other African countries, including South Africa and Kenya

This exponential surge in crypto popularity in recent years has generated considerable appeal for retail investors. With nearly 9,000 distinct cryptocurrencies, there are many options for those intending to profitably exchange fiat assets for cryptocurrencies. Q3 2022 saw an average retail investment of $135 globally. While the figures rose to $667 in the USA, in comparison,  four African countries, including Nigeria, Kenya, South Africa and Morocco, reported a combined retail purchase of cryptocurrency amounting to approximately $114. The gap can be attributed to lower wealth access, more challenging economic conditions and consequently a more cautious approach to high-risk investment in Africa. It is worth noting that cryptocurrency owners in Africa are typically high-earning millennials.

Understanding The Risks 

The 2022 “crypto winter” and its 2023 fallout have significantly eroded many retail investors’ confidence. In May 2022, the crypto market saw the rapid devaluation of $18-billion worth of stablecoin, leading to substantial losses in investors` equity. In November 2022, Bitcoin’s price, one of the world’s most actively traded cryptocurrencies, plummeted to almost $16,000, marking a  record low. This downturn was triggered by the bankruptcy of FTX, previously the third-largest global cryptocurrency exchange, resulting in crypto investors losing around $1 trillion. This considerable market volatility sparked a wave of layoffs in the crypto industry, leading to a reduction in the crypto exchange staff by over 26,o00 in Q3 2022. Unsurprisingly, this turbulence led to a decrease in market capitalisation, with a 65% year-on-year decline in the value of several thousand cryptocurrencies across more than 600 crypto exchanges by December 2022. 

In some regions, the global crypto winter has been exacerbated by local regulations and conflicts of stakeholder interests. In Africa, only a third of the 54 countries have formal regulatory policies on cryptocurrency usage and trading. Another six countries on the continent – Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo – have completely banned it.

The Crypto Wealth Opportunity 

Despite the inherent challenges, crypto investment remains a path to wealth creation if risks are anticipated and effectively managed. For middle-class Africans, who have historically struggled with “black tax” – supporting a high number of dependents, as well as barriers to accessing global investments, crypto is particularly enticing. Currently, middle-class Africans must accelerate their wealth creation rate by 7-10 times to match their counterparts in North America and Western Europe. In the diaspora, the racial wealth gap is measured in tens of thousands of dollars and pounds. 

Cryptocurrency presents a  more democratised investment asset with a lower entry barrier in this context. Higher returns within a shorter time frame are an attractive proposition for high-earning Africans with many dependents. Dependents are often young and require finance for their futures, such as tuition fees. Returns on well-calculated cryptocurrency investments can provide significant support for middle-class African families. But the risks of this asset class must be well understood and managed. One’s life savings should not be used for crypto investing.

Africans in the diaspora are also prolific senders of remittances — personal gifts to families and friends back home. If remittance funds are managed by licensed firms and responsibly deployed through registered global crypto funds, then the risks can be mitigated. Nigeria’s SEC-licensed Volition Cap helps turn remittances into investments through family offices.

Contrary to common misconceptions,  well-calculated cryptocurrency investment is not a quick path to wealth.  To ensure returns outweigh risks,  an in-depth risk assessment and a well-defined investment management strategy are key.  At Opportunik Global Fund, guided by our vision to reduce the wealth gap, we help hardworking Africans at home and in the diaspora make the most out of their investment with minimum risk. To assure the utmost credibility for our investors, we partner with trustworthy business intelligence firms to stay updated on key factors that can influence currency volatility and our investors` interests.

About the Author

Kola Oyeneyin, CEO of Opportunik Global Fund (OGF) and founder of Venia Group, is a purpose-driven entrepreneur and investor dedicated to reducing wealth inequality. With expertise in finance, investments, technology, and public policy, he builds impactful ventures that increase wealth access for Africans. Honoured as one of “The Most Influential People of African Descent” and nominated as a Tutu Fellow, he holds a master’s degree from Harvard University.

For more read How US Earnings and Inflation Data Can Guide African Investors

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