The Central Bank Governor is quoted saying that bitcoin is a bubble and the public should steer away.
A few months ago, the first bitcoin ATM was installed in Kenya, making it the first digital currency machine in East Africa.
This step demonstrates the rising demand for Bitcoin as well as digital currency (cryptocurrency) in general. According to a recent Citibank study, the estimated accumulated holding of bitcoins in Kenya to be more than Sh160 billion, 2.3 per cent of GDP.
The largest bitcoin holdings as a percentage of GDP is Russia (5 per cent), New Zealand (4 per cent), Nigeria (4 per cent), Ukraine (3 per cent) then Kenya followed by South Africa.Due to the significant rise of bitcoins and cryptocurrencies trade in general, uncertainty surrounding their rise has seen many regulators consider them threatening risk.
Central Bank of Kenya (CBK) is one of them and the governor has been vocal warning against accumulation of bitcoins saying its impact poses financial instability and inherent risks.
There is no doubt that regulatory and legal landscape associated with Bitcoin and digital currencies across the world is still fraught with uncertainty but CBK’s concerns are based on passive knowledge on digital currencies.
First, since the invention of the first peer-to-peer digital currency Bitcoin launched in 2008, cryptocurrencies have moved from the fringes of financial market activity to a $300 billion asset class traded on exchanges and owned by mainstream investors.
In its entirety, Bitcoin had managed to break ground for a global decentralized payment network with a distributed and publicly owned infrastructure, operating as a permissionless system. In short, one can send and receive bitcoins, easily converted into cash, anywhere in the world without having to go through any intermediaries or regulators like banks.So far more than 10 million people own bitcoins and its expected that one or two billion people will own bitcoins in the next 20 years, if the cryptocurrency remains successful.
It’s also estimated that more than a thousand startups have been created to leverage Bitcoin and blockchain-related technologies since the Bitcoin payment system was launched. In the financial services sector, large companies are actively investing in exploring its wider applications. Therefore, bitcoin and digital currencies are here to stay and regulators can do little about their disruptive adoption.
Second, the Central Bank Governor is also quoted saying that bitcoin is a bubble and the public should steer away. Now, it may be true that bitcoin is a bubble but that is not because there is a spiraling out-of-control demand for it that always lead to a crush. It is because its supply is fixed and capped making its value appreciate.
There are around 17 million bitcoins in circulation today, by January 2025 there will be 20,343,750 bitcoins and there will never be more than 21,000,000 bitcoins.
This fixed supply will always make Bitcoin prices increase significantly, making it a deflationary currency since people prefer a currency that increases in value over time, as compared to normal government backed currencies.
With the Bitcoin ecosystem growing bigger, hundreds of large companies and dozens of governments and universities actively involved in researching, testing, and prototyping protocols, platforms, and applications, this will provide it with the needed stability to mainstream it as an alternative currency.
It’s worth noting that Bitcoin is poised not be to be a normal currency but a global digital currency of the internet.Third, since Bitcoin just like all digital currency don’t go through intermediaries and regulators, that makes it the most important feature which drives its inherent value.
At the same time those features of Bitcoin being permissionless, censor-resistance and unseizability makes it prone to fraud and money laundering activities and this is the main regulatory concern across the world.
There is need for better consumer protection as well as anti-money laundering clampdown. And not about it being a bubble that public should steer clear as Central Bank has been advocating.This concerns on cryptocurrencies therefore can be addressed without shutting down this promising new asset class that are here to stay.
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