This month, commentators were abuzz after an exchange launched with a pan-African focus. MARA became the official partner of the Central African Republic with $23 million of funding, and commentators began speculating. So, what is the future of African cryptocurrency exchanges?
“The CAR is the second country to make Bitcoin legal tender, but the conditions are all wrong for success. If you look at the demographics and the technological infrastructure, the move was symbolic more than economic,” said Richard Gardner, CEO of Modulus, a US-based developer of ultra-high-performance trading and surveillance technology that powers global equities, derivatives, and digital asset exchanges.
“If you’re looking to build a pan-African exchange, I don’t think that doubling down on the CAR is the best course of action. The country wanted to make a political statement, but whatever launch issues we saw in El Salvador, they will be extrapolated beyond recognition in the Central African Republic. It is going to be extremely resource-intensive to make this project fly, especially given the recent economic downturn,” noted Gardner.
“Success here revolves around expertise, resources, and jurisdictional issues. Is Africa ready for a pan-African exchange? Well, the continent has a wide array of laws and regulations. For an exchange, that functionally means that they need the legal and compliance resources to service more than fifty individual countries. It also means that they need the financial resources to advertise to each of those markets. That’s not even considering that some countries, such as South Africa have several different unique markets, complete with different priorities,” explained Gardner.
Modulus is known throughout the financial technology segment as a leader in the development of ultra-high frequency trading systems and blockchain technologies. Modulus has provided its exchange solution to some of the industry’s most profitable digital asset exchanges, including a well-known multi-billion-dollar cryptocurrency exchange. Over the past twenty years, the company has built technology for the world’s most notable institutions, with a client list which includes NASA, NASDAQ, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays, Siemens, Shell, Yahoo!, Microsoft, Cornell University, and the University of Chicago.
“A pan-African exchange would need to ably market to those who are primarily investing for inflationary reasons, as well as those who are interested in growth. They need to be able to work with governments taking a stiff-arm approach to crypto, as well as those which embrace it — and all those in between. They need to be able to put in place the kinds of KYC and AML protocols which are required, implementing them on a jurisdiction-by-jurisdiction basis. Meanwhile, they would also need to simultaneously compete with all existing and emerging competitors, which would also change based on the markets. In order to be truly competitive as a pan-African exchange, one would need the expertise and financial resources, certainly significantly more than $23 million worth, necessary to launch such a campaign,” opined Gardner.
“The only upside to the CAR being the guinea pig for Bitcoin as legal tender is the country’s economic instability. It makes sense that the electorate would look for an alternative, but the country just doesn’t have the tech infrastructure and capabilities necessary to allow for widespread usage. And, whatever critical mass may have been built by local instability, the near-term downward trend in the overall market will depress it significantly,” said Gardner.
“There are a lot of good things to be said for Bitcoin and bringing a decentralized monetary offering to the world. Bitcoin and other digital assets will bounce back once the current set of macroeconomic factors at play are dealt with. However, this particular project started at the wrong time, in the wrong location. If I were considering how to deal with the many moving parts associated with a pan-African exchange, I’d consider looking regionally, in the east, south, and west. All regions pose unique challenges, but the upside of Ghana/Nigeria, Kenya/Tanzania, and South Africa make them worthy targets for consideration in such an endeavor,” said Gardner.