Kenya moves towards a regulated crypto market
Kenya is drafting legislation to regulate cryptocurrencies, signalling a shift from the Central Bank of Kenya’s (CBK) earlier cautious stance. Treasury Cabinet Secretary John Mbadi announced on 10 January that the government is committed to establishing a legal and regulatory framework for virtual assets and service providers.
The proposed policy, titled the National Policy on Virtual Assets and Virtual Asset Service Providers, aims to foster a “fair, competitive, and stable market” while addressing risks such as money laundering, terrorism financing, and consumer protection.
Comprehensive framework outlined
The draft policy outlines plans to create a regulatory framework governing virtual assets (VAs) and virtual asset service providers (VASPs). It also aims to establish standards and procedures for their activities. According to the draft, the policy’s primary objective is to ensure a secure and competitive environment for cryptocurrency transactions in Kenya.
The public has until 24 January to provide feedback on the draft. If implemented, Kenya will join countries like South Africa and Nigeria in regulating the crypto market.
Kenya’s crypto journey: from warnings to regulations
Cryptocurrencies are not banned in Kenya, but the CBK has historically warned against their use. In December 2015, the CBK issued a public notice highlighting risks associated with fraud, lack of legal protections, and the potential use of digital currencies for illicit activities.
The statement cautioned, “Bitcoin and similar products are not legal tender nor are they regulated in Kenya. The public should therefore desist from transacting in Bitcoin and similar products.”
However, the tide began to turn in September 2023, when Kenya completed a risk assessment on money laundering and terrorism financing linked to virtual assets. The report recommended regulation to mitigate risks and strengthen anti-money laundering (AML) measures.
Kenya’s role in Africa’s crypto adoption
Kenya ranks 21st globally on the 2024 Chainalysis Crypto Adoption Index, reflecting its growing involvement in digital assets. In sub-Saharan Africa, stablecoin transactions dominate, accounting for 43% of total transaction volume.
This trend is largely driven by widespread currency devaluation, with stablecoins providing a more stable store of value. Between July 2023 and July 2024, Kenya received $3.3 billion worth of stablecoin transactions. While Nigeria leads the region with $21.8 billion in stablecoin volume, South Africa and Ghana follow with $13.5 billion and $3.9 billion, respectively.
Looking ahead
If the draft policy is enacted, Kenya is poised to become a key player in regulating cryptocurrencies in sub-Saharan Africa. By addressing critical risks while fostering market stability, the country could pave the way for increased crypto adoption and innovation within the region. Feedback on the draft will shape the final policy, which may herald a new era for Kenya’s digital asset ecosystem.
