In August 2017, when the plan to launch the first bitcoin exchange in Egypt was announced, it had more than 300 pre-registrations from interested Egyptians.
The enthusiasm was unprecedented, considering the government’s stand on the idea of cryptocurrency.
A year earlier, the Central Bank of Egypt (CBE) had issued a warning statement to Egyptians about cryptocurrency trading.
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“In light of its monitoring of the recently circulated news about cryptocurrencies, such as Bitcoin and others, the Central Bank reiterates its stern warning against trading in all kinds of cryptocurrencies, mainly Bitcoin, due to the extremely high risk associated with them,” the CBE said in the warning statement.
Just like many other central banks, the CBE expressed concern about “fluctuations and significant price volatility” of cryptocurrencies, and the fact that they are “not issued by central banks” and therefore, “not regulated.”
“Cryptocurrencies are not backed any tangible assets and are not supervised by any regulators worldwide, and consequently they lack the official governmental guarantee and support enjoyed by the other official currencies issued by central banks.
“In this regard, the Central Bank of Egypt calls on traders within the Egyptian market to use extreme caution and care not to engage in any trading in these high-risk currencies,” the CBE warning concluded.
Years after this warning, Egypt’s bitcoin market has witnessed tremendous growth spurred by the defiance of Egyptians who embraced cryptocurrency as a way out for millions of its unbanked population, and thousands of others who had no jobs. A 2018 World Bank report on financial inclusion revealed that about 67% of the population above the age of 15 has no bank accounts.
“Cryptoassets are happening whether (the Egyptian government) joins in or not. And by not joining they’re missing out on a very big market,” Bitcoin Egypt founder Rami Khalil said then in 2017.
In 2018, a year after the first bitcoin exchange was launched in Egypt; there were more drastic steps to limit the use of cryptocurrency in the Middle-East country. An Islamic degree was made in the form of a Fatwa, prohibiting the use of cryptocurrency in Egypt.
Shawki Allam, the Grand Mufti (the highest religious rank) of Egypt, declared the use of cryptocurrencies forbidden under Islamic Law, on the same excuse cited by the CBE but in addition said that its anonymity could facilitate tax evasion, money laundering, terrorist financing and other illegal activities.
Although the Islamic Law is not legally binding, the central bank augmented it with new amendment to Egypt’s banking laws. In September 2020, the government announced the amendment which declared dealing, issuing or promoting of cryptocurrencies without an applicable license from the CBE illegal.
The new law became a setback to the momentum that has been garnered through the bitcoin awareness campaign spearheaded by crypto enthusiasts like Khalil.
“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 are buying it in this really painful way,” Hany Rashwan, Egyptian entrepreneur and founder of crypto technology platforms Amun and 21Shares, told CoinDesk.
However, while the new laws limit cryptocurrency transactions in Egypt, as many who wish to trade and use it cannot do so freely, and people are not allowed to promote it, the volume of transactions recorded recently in the country shows unprecedented growth.
Trading volumes on peer-to-peer exchange platforms like LocalBitcoins recorded steady growth in 2020. Chief marketing officer of Local Bitcoin, Jukka Blomberg said new user registrations and trading volumes were up 100% between 2019 and 2020 in Egypt. He said that January 2021 was the best month within the last three years in terms of new registrations and trading volumes.
P2P crypto exchange service is a decentralized platform whereby two individuals interact directly with each other, without the need of a middleman to broker the deal. Instead, the two individuals negotiate their bitcoin selling and buying rate, and deal directly with each other.
For other exchange platforms, registrations and trading volumes have been up too between December 2020 and January 2021, with some recording up to 250% new users and trading volumes rising up to 400%. Egypt’s cryptocurrency activities moved in par with global trends in the reference period.
The push behind the surge
The defiance of Egypt’s crypto miners, traders and exchanges is baffling. According to 2020 Geography of Cryptocurrency report compiled by blockchain analytics firm Chainalysis, Egypt ranked 64th out of 154 countries on the firm’s global cryptocurrency adoption index.
The growth has been attributed to the high unemployment rate and recession that have been aggravated by COVID-19 pandemic.
“Unemployment and recession resulting from the spread of the coronavirus and the precautionary measures taken are the main reasons behind the youth’s inclination toward bitcoin trading and mining,” Wael al-Nhhas, Egyptian economist and financial adviser, who is also a bitcoin miner said.
More than half a million of Egyptians lost their jobs as the country’s economy came under the weight of COVID-19, shooting its unemployment rate up to 9.6% in the second quarter (Q2) of 2020.
Egypt’s unemployment rate recorded a positive shift from 7.3% in the third quarter of 2020 to 7.2% in the fourth quarter of the same year, according to data from the Central Agency for Public Mobilization and Statistics (CAPMAS). The state’s statistics agency also reported an annual inflation decline that puts Q4, 2020’s rate at 5.2%.
The shift indicates that more people got a job toward the end of 2020, a large number of them, by investing in cryptocurrency.
“Many young Egyptians started investing in small amounts despite the increase in the value of the bitcoin. They started mining satoshi, which is 100 millionth of a bitcoin, and on a daily basis they are making profits of 4% to 5% from the difference between buying rates during the timing of demand decline and selling rates at the time of peak demand,” Wael al-Nhhas said.
The Central Bank of Egypt is yet to start issuing licenses for bitcoin operations, and its unemployed population clearly cannot wait on the financial regulator.
While Egypt’s bitcoin market anticipates regulatory framework from the CBE soon, the traders have been growing the market’s trade volume using exchange platforms, particularly the likes of Local Bitcoin who provide P2P services.
The price showcase of Egypt’s bitcoin traders on Local Bitcoin indicates that bitcoin has been selling at premium in Egypt, their prices are more than $2,000 compared with other countries.