The Kenyan cryptocurrency market has seen significant growth in recent years. Studies by blockchain analysis firms, such as Chainalysis, estimate that at least four million Kenyans own cryptocurrencies. Further, between 2021 and 2022, Kenya’s cryptocurrency market transacted about Ksh2.4 trillion, representing nearly 20% of the country’s GDP.

Cryptocurrencies are digital currencies that are not issued by any central monetary authority. 

Despite their impressive growth, cryptocurrencies’ laissez-faire nature has exposed them to numerous challenges, such as cyberattacks. This makes them vulnerable to hacking, fraud, and other operational risks, which continue to grow as the sector’s value increases, attracting higher levels of illicit activity.

A notable example is the 2022 collapse of FTX, where allegations of fraud and mismanagement resulted in the loss of billions in customer funds. This highlights that even leading crypto platforms are vulnerable to threats, whether from internal mismanagement or external cybercrime in the cryptoverse.

It was due to these risks that former Central Bank of Kenya (CBK) Governor Dr. Patrick Njoroge issued a public notice cautioning against virtual currencies, noting that their untraceable nature makes them susceptible to abuse by criminals.

However, the Joint Financial Sector Regulators Forum (JFSRF), comprising the Capital Markets Authority (CMA), CBK, Insurance Regulatory Authority, Retirement Benefits Authority, and SACCO Societies Regulatory Authority (SASRA), later issued a communiqué recommending that the National Treasury and Economic Planning form a technical working group to develop recommendations on an oversight framework for crypto assets.

Against this background, the Kenya Revenue Authority’s plan to integrate a new revenue system with cryptocurrency exchanges and marketplaces presents a valuable opportunity to tackle key challenges in the crypto market. This system would enable real-time tracking and recording of transactions, allowing traders to better manage the risks, such as cyberattacks and fraud, associated with cryptocurrencies.

Aligned with its 9th Corporate Plan for the Financial Years 2024/25 to 2028/29, KRA aims to maximise revenue potential through technological transformation, service excellence, and integrity. By integrating with crypto exchanges, KRA can create a win-win scenario: enhancing transparency and trust within the sector and increasing revenue collection.

Real-time monitoring of transactions would make illicit activities like money laundering more difficult, ultimately boosting the confidence of investors, regulators, and other key stakeholders. However, robust cybersecurity measures must be implemented to ensure the success of this integration. KRA should collaborate with cybersecurity firms and conduct regular audits to protect sensitive data and prevent fraud. Secure systems will safeguard investor information and KRA’s revenue collection processes, instilling confidence in the cryptocurrency market.

By effectively tapping into the cryptocurrency market, KRA could significantly increase its revenue collection, which in turn could improve public services and infrastructure. This would create a more stable business environment, indirectly supporting the market’s growth.

Additionally, KRA, in collaboration with other financial regulators (such as the Central Bank of Kenya and the Capital Markets Authority), can help create a stable regulatory environment. A clear legal framework for cryptocurrencies can attract more participants—both local and foreign—by reducing uncertainty and aligning the market with global standards. 

However, for this integration to be successful, KRA must also establish clear tax regulations. Defining which transactions are subject to taxation, such as income from crypto mining or capital gains, will create certainty for investors and businesses. Well-defined policies, coupled with user-friendly compliance tools, will reduce the burden on traders and increase voluntary tax compliance.

If executed thoughtfully, this integration can create a supportive environment where both the government and the cryptocurrency market thrive. The dual approach of promoting market growth while ensuring tax obligations are met will help Kenya’s crypto sector and the broader economy succeed.