Egyptian user registrations on U.K.-based cryptocurrency exchange CEX.IO rose 250% in January from the previous month.
According to the firm’s executive director, Konstantin Anissimov, bitcoin trading volumes in Egypt on CEX.IO were also up more than 400% from December to January, reflecting trends seen by other crypto platforms in the country. CEX.IO is a regulated cryptocurrency exchange with over 3 million users worldwide, according to its website.
“For Egypt, I haven’t seen anything like that on our exchange,” Anissimov told CoinDesk, referring to the spike.
For peer-to-peer crypto trading platforms like LocalBitcoins and Paxful, the rise was more gradual. Public trading data shows volume on the platforms rose relatively steadily through 2020. On LocalBitcoins, new user registrations and trading volumes were up 100% between 2019 and 2020 in Egypt, according to the firm’s chief marketing officer, Jukka Blomberg.
Both in terms of new Egyptian users and trading volumes, Blomberg said January 2021 was “the best month within the last three years.”
The dramatic jumps in bitcoin transactions are all the more striking given the regulatory uncertainty on crypto use in Egypt. Crypto trading has been forbidden in the country under Islamic law since 2018. Although a religious decree is not legally binding, new amendments to Egypt’s banking laws in September 2020 prohibits the issuing, dealing or promoting of cryptocurrencies without an applicable license from the central bank of Egypt (ECB).
The ECB has yet to issue a crypto licensing framework or guidelines. Nonetheless, in late February, local media reported authorities had arrested a man from Egypt’s Menoufia Governorate for promoting the circulation of virtual digital currencies like bitcoin on social media. Trading volumes on peer-to-peer platforms LocalBitcoins and Paxful dipped in the week following the incident, though it is unclear whether the arrest was the cause for the drop.
“There are no easy ways of purchasing crypto in Egypt. So any volumes that we see of people actively buying bitcoin is even more memorable given how difficult it is to acquire it … they’re buying it in this really painful way,” Hany Rashwan, Egyptian entrepreneur and founder of crypto technology platforms Amun and 21Shares, told CoinDesk.
In 2018, Shawki Allam, the Grand Mufti (the most senior religious authority) of Egypt, declared the use of cryptocurrencies forbidden under Islamic Law, citing the volatility and anonymity that could facilitate tax evasion, money laundering, terrorist financing and other illegal activities. The law was passed in the form of a fatwa.
However, the new banking laws reflect Egypt’s desire to move towards a more digital and inclusive financial system because the laws cover both payment processors and fintech firms in great detail.
“The government has stated time and time again that financial inclusion and elevating our financial system for all Egyptians is a high priority,” Rashwan said.
Egypt has a large unbanked population. A 2018 World Bank report on financial inclusion revealed that up to 67% of the population above the age of 15 do not have bank accounts. Egypt was also one of the top five receivers of remittances globally (behind India, China, Mexico and the Philippines) receiving around $29 billion, according to a 2019 World Bank report, and unbanked adults in Egypt received domestic remittances via cash or over-the-counter services.
“As a country, despite its size, despite its economy, despite its importance, it’s really underbanked, which is something that the government is actively looking to fix,” Rashwan said.
In addition to laying out regulatory requirements for fintech, the new laws define cryptocurrencies as electronically stored currencies that are not denominated in any currency issued by the authorities and are circulated over the internet. The laws also define electronic money as a monetary value that is backed by an official currency issued by a licensed entity.
The banking laws state that the issuing, trading of and promoting cryptocurrency and electronic money are prohibited, along with the “creation of operation of platforms for trading or carrying out activities related to them” without obtaining a license.
“The central bank gave itself the power of regulating and potentially establishing an Egyptian stablecoin, or essentially a central bank issued currency. I think that’s very positive. They’re likely doing it because they want to make remittances easier and payments in general cheaper. And this, hopefully will be the first real crypto regulations within the country from the top,” Rashwan said.
Behind the demand
The ECB prohibition clearly hasn’t stopped Egyptians from buying more crypto, and a number of factors may be driving the demand.
According to Blomberg, when a country faces economic or political turbulence, that typically drives up the demand for bitcoin. The COVID-19 pandemic has put a lot of countries under unusual economic pressures.
In certain emerging markets like Argentina and Nigeria, where high inflation and restrictions on foreign currency exchange in 2020 drove the value of local currencies downward, people turned to cryptocurrencies like bitcoin in search of a more stable asset to store their wealth.
“What we usually see across our platform is that in countries which are prone to inflation, there’s a direct correlation between inflation and an increased interest in cryptocurrencies,” CEX.IO’s Anissimov said.
But inflation in Egypt has remained well below its target of 9% in the last few months according to Bloomberg. A World Bank report suggested inflation has remained low in Egypt because of subdued demand thanks to the pandemic slowing down the economy.
However, World Bank data also showed Egypt’s economic growth slowed from 5.6% in 2019 to 3.5% in 2020, and is projected to drop further this year. The pandemic caused unemployment to rise to 9.6% in the second quarter of 2020 compared to 7.5% in the previous year.
According to Blomberg, it has increased the need for alternative income streams for Egyptians.
“Most of our Egyptian users are relatively young (under 34) who are looking for additional income by trading or hodling,” LocalBitcoins’ Blomberg said in an email to CoinDesk.
An Egyptian bitcoin miner told Al Monitor back in September that “thousands of Egyptians” who are unemployed or working from home are attracted to bitcoin mining and trading “since they do not require huge capitals [sic] to start”
Those who truly believe cryptocurrency is the new frontier of financial systems will always find ways to get their hands on crypto, Anissimov said.