Kenya Moves to Legalize Bitcoin and Cryptocurrencies: A New Era for Digital Assets?

Kenya comprehensively planning to embark on the legalisation of Bitcoin and other digital currencies through a new legislation.

Treasury Cabinet Secretary John Mbadi made it known in a recent statement, declaring this move as a new policy change away from the  government's earlier stance against the decentralized online currency.

Experts believe that a pro-Bitcoin legislation will build a solid foundation for the growing digital asset industry in the East African nation.

Kenya’s Changing Stance on Cryptocurrencies

In December 2015, the Central Bank of Kenya published a public notice against the use of Bitcoin, stating that digital assets were not legally acceptable as a medium of exchange in the country. Also, no legal entities had permission to offer related services in cryptocurrency.

However, the illicit use of cryptocurrencies remained rampant, and according to a 2022 United Nations report, 8.5% of Kenyans owned cryptocurrencies. 

Key Features of the New Crypto Legislation

Mbadi noted that the government remains keen on leveraging the opportunities of virtual assets (VAs) and virtual asset service providers (VASPs).

He said, “The Government of Kenya will therefore engage in putting up measures of a legal and regulatory framework in an effort to tap VAs and VASPs opportunities while dealing with reluctant risks.”

A preliminary policy was made in December regarding the propositions for a fixed market for players in the crypto trading business.

Key objectives of the policy include; encouraging innovation, financial education, and reducing risks like money laundering fraud, and terrorism financing among others.

It also targets establishing ethical practices and supporting investor confidence in the developing market.

This policy change brings Kenya at par with other African countries such as South Africa and the Central African Republic that have adopted cryptocurrency.

It is a way through which micro-publishing will bring digital assets into the mainstream financial systems in Kenya.

Economic Potential of Cryptocurrency in Kenya

The announcement to allow the use of cryptocurrency is born out of the need to unlock the economic value of digital assets in Kenya.

Cryptocurrencies have particularly been employed in the informal sector to circumvent financial controls and become a means of payment for the financially excluded.

Currently, approximately 9% of the population owns or has used some form of cryptocurrency meaning that Kenya will greatly benefit from a regulated market.

Through the regulatory measures, the country’s government intends to lure investments in the newly emerging financial technology subsector.

The draft legislation seeks to help Kenya position itself as the trading and innovation center for the region’s digital assets and blockchain.

Impact of Legalization on the Cryptocurrency Market

The expansion of a legal framework to allow cryptocurrencies is believed to impact the Kenyan market in the following ways.

Legal tender status for digital assets will ultimately raise the use of assets that are digital for purchases, savings, and investments.

It will also spur the growth of blockchain-centered products in almost all industries with a focus on finance, healthcare, and supply chain.

However, its success would depend on the extent to which the government is able to enforce the structures put in place by this reform.

Business people in the industry are positive that the legalization will curb most of the unlawful activities that are linked to the use of cryptocurrencies and embrace the system.

Kenya Legal Framework Proposed to Follow the Global Trend as Other Countries Seek to Regulate the Cryptocurrency Industry. The introduction of laws in the Kenyan market makes Kenya a pioneer in the East African market for digital finance.

Future Developments in Kenya’s Crypto Regulation

Thus, the draft legislation is at present being considered; its final measures are to be proclaimed soon. Market participants continue to track the development and impacts, if any, on the local blockchain industry.

The legalization of Bitcoin and cryptocurrencies should be viewed as a major turning point in Kenya’s financial policy. The shift is also evidence of an increasing acceptance of digital assets as genuine members of the global economy.

To this end, the central idea is that Kenya has embraced cryptocurrency as an attempt to open new horizons for the people of the country and to promote itself as an innovative hub in the African continent.