The prolonged slowdown in the crypto market in the past two quarters has seen many completely abandon the digital assets, significantly driving down global crypto adoption index.
A report by American blockchain analysis firm, Chainalysis, shows that the global cryptocurrency adoption index has fallen by nearly 30 percent in the past one year, to levels not recorded in close to two years.
This, the report says, is a result of the persistent slump in the crypto market in the past three quarters, that saw total global capitalisation of the market fall from over $3 trillion in November last year to just over $900 billion currently.
“Data shows global adoption levelling off in the last year after growing consistently since mid-2019,” the firm said in an excerpt released last week ahead of the full publication of the report.
The adoption index uses five different metrics to rank countries in terms of the number of people who invest the biggest share of their money into cryptocurrencies, based on assessment of activity on crypto exchange platforms.
The metrics include the value of cryptocurrency received on exchanges; total retail value received; and the value of peer-to-peer (P2P) transactions, all weighted against countries’ purchasing power parity (PPP) per capita.
The other two are the total value of cryptocurrency received from decentralised finance (DeFi) protocols and the total retail value of the same, both also weighted against PPP per capita.
Analysts argue that the recent meltdown and slump witnessed in the crypto market was triggered by inflation jitters as countries moved to raise interest rates to contain rising commodity prices.
The drop in adoption globally was ultimately inevitable given the bear market, argues Rufas Kamau, the lead market analyst at financial markets broker, FXPesa in Nairobi.
“With central banks tightening policy around the world, inflation rising higher, and commodity prices skyrocketing, household budgets are stretched and little is left for investments in volatile assets like crypto and stocks,” Mr Kamau told The EastAfrican.
“Investors have been treating digital assets as risk assets similar to equities. So, when the market conditions are positive and they switch to risk-on mode, bull markets happen in both equities and crypto.”
Mr Kamau, once the tight economic conditions start loosening and authorities start relenting on their monetary and fiscal policies, the market will revamp and adoption could improve.
“Users in lower middle and upper middle-income countries often rely on cryptocurrency to send remittances, preserve their savings in times of fiat currency volatility, and fulfil other financial needs unique to their economies,” the excerpt states.
In Kenya, some crypto research firms estimate that there are about six million crypto owners and 12 million in East Africa, but some analysts argue that the number is significantly lower.