The Central Bank of Kenya (CBK)issued a warning six days after Bitstream Circle, a Ponzi scheme advertised as a crypto trading platform that failed with over a billion shillings in investor funds.
CBK Governor Patrick Njoroge warned financial institutions that facilitate bitcoin transactions that they risk losing their licenses during his speech at the World Consumer Rights Celebration Day in Mombasa in March.
“There are people who are excited about cryptocurrencies because they see it as an investment they can make money from, for every person who wins something, there are hundreds who lose,” said the governor.
Though it’s unclear whether the governor was aware that Kenyans had recently lost Sh1.18 billion in cryptocurrency trading in the week prior his to talk in Mombasa, this was not the first time Njoroge had cautioned Kenyans against dealing in an unregulated digital currency.
However, no one has ever been prosecuted in Kenya for engaging in bitcoin fraudr eality, the CBK first came out firmly against cryptocurrency trading in December 2015, when the Bitcoin mania was just getting started in Kenya.
Safaricom was mired in a legal battle at the time after discontinuing the exchange of Kenyan shillings for bitcoins via the Lipisha platform.
Lipisha worked as a payment processor for Bitpesa, a Pan-African Nairobi-based Bitcoin trading platform whose board of directors included Joe Mucheru, who had recently been appointed as the ICT Cabinet Secretary by President Uhuru Kenyatta.
Following his appointment to the Cabinet, Mucheru resigned from Bitpesa and listed his stock for sale. However, according to Safaricom, Bitcoin was banned in Kenya at the time.
While the case was being heard in court, CBK revealed a bombshell.
“Domestic and international money transfer services in Kenya are regulated by the Central Bank of Kenya Act and other legislation. In this regard, no entity is currently licensed to offer money remittance services and products in Kenya using virtual currency such as Bitcoin,” said CBK in a circular.
In brief, licensed financial institutions were no longer permitted to swap Kenyan money for cryptocurrencies and vice versa.
Kenyans were also urged not to trade cryptocurrency because they risked losing their money with no recourse. In brief, cryptocurrency trading is prohibited within Kenyan territory.
The CBK’s advisory and the eventual prohibition on regulated financial firms allowing their customers to convert Kenyan shillings to cryptocurrencies and vice versa only served to drive the business underground.
With a high unemployment rate, a young population, strong smartphone penetration, and a good financial services infrastructure powered by mobile money, the number of enthusiastic Kenyans willing to try their luck trading in virtual currencies has increased.
Thousands of young Kenyans were inspired by the extravagant lifestyles exhibited on the internet by early cryptocurrency investors in the west such as Cameron Winklevoss (Sh351 billion), Michael Sawyer (Sh269 billion), Tim Draper (Sh176 billion), and Brian Amstrong (Sh760 billion).
Thus according to an analysis, Kenyans were so keen to trade in cryptocurrencies that the country now leads Africa in crypto adoption and ranks sixth in the world, ahead of some of the most developed countries such as the United States, China, Russia, Germany, and the United Kingdom.
According to the firm that conducts an annual analysis, the top four nations in terms of crypto acceptance are Vietnam, India, Pakistan, and Ukraine.
As per another survey conducted by the American Business Finder, 16 percent of Kenyan adults, or an estimated 4.8 million people in the country, possess some type of cryptocurrency or have attempted to trade in cryptocurrencies, which is higher than the global average.
Furthermore, according to the Mastercard New Payments Index poll, 43 percent of Kenyans “intend to utilize cryptocurrencies in 2022, with more than 69 percent stating they are more open to adopting cryptocurrency than they were a year ago.”
This frenzy over cryptocurrency trading has piqued the interest of not only Kenyan investors, but also scammers who have set up get-rich-quick ponzi scams disguised as cryptocurrency trading platforms. The losses have been enormous.