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Kenya is taking significant steps toward regulating cryptocurrencies by drafting a comprehensive legislative proposal, signaling a strategic departure from previous cautionary advisories issued by the Central Bank of Kenya (CBK). The proposal, titled “National Policy on Virtual Assets and Virtual Asset Service Providers”, is open for public consultation until January 24, 2025.
Kenya’s Policy Shift on Cryptocurrencies
Treasury Cabinet Secretary John Mbadi announced on January 10 that the Kenyan government is committed to establishing a legal and regulatory framework for digital assets. This marks a pivotal policy shift aimed at fostering innovation while addressing inherent risks in the cryptocurrency market.
“The primary goal of this policy is to promote a fair, competitive, and stable environment for virtual assets (VAs) and virtual asset service providers (VASPs) in Kenya,” states the draft. The policy aims to:
- Establish a comprehensive regulatory framework for VA activities and VASPs.
- Develop standards and procedures to govern virtual asset operations.
- Mitigate risks related to money laundering, terrorism financing, and consumer protection.
If adopted, the framework will place Kenya alongside nations like South Africa and Nigeria, which have already implemented crypto regulatory measures.
Kenya’s Crypto Evolution
Cryptocurrencies are not banned in Kenya, but the CBK has historically issued warnings about their use. In a December 2015 notice, the CBK cautioned citizens against transacting in Bitcoin and other virtual assets, citing fraud risks, lack of consumer protections, and links to illicit activities.
“Bitcoin and similar products are not legal tender nor regulated in Kenya. The public should desist from transactions involving such products,” the CBK warned.
A notable shift occurred in September 2023 when Kenya completed a risk assessment of virtual assets for anti-money laundering (AML) and counter-terrorism financing (CTF). The report recommended regulation to enhance Kenya’s financial security framework.
Kenya’s Role in Africa’s Digital Economy
Kenya ranks 21st globally on the 2024 Chainalysis Crypto Adoption Index. Stablecoins dominate cryptocurrency transactions across sub-Saharan Africa, driven by regional currency devaluations. In the period between July 2023 and July 2024, Kenya processed $3.3 billion in stablecoin transactions.
Nigeria leads the region with $21.8 billion, followed by South Africa with $13.5 billion and Ghana with $3.9 billion. Stablecoins account for 43% of total crypto transaction volume in the region, highlighting their growing importance in mitigating currency volatility.
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