The Urgent Need for Policy and Investor Caution in Kenya's P2P Crypto Ecosystem

Kenya's peer-to-peer (P2P) cryptocurrency market has emerged as a global leader, driven by a confluence of economic pressures and technological adoption. According to Chainalysis, Kenya topped the world for P2P crypto trade in 2021, a position reinforced by the country's 6.3% depreciation of the Kenyan shilling against the U.S. dollar since January 2021, as reported by a QZ article. This volatility, coupled with high international money transfer costs, has pushed Kenyans toward crypto as an alternative to traditional financial systems. However, the rapid growth of this ecosystem has exposed critical vulnerabilities, underscoring the urgent need for robust policy frameworks and heightened investor caution.

Regulatory Reforms: A Step Forward, But Gaps Remain

Kenya's 2025 regulatory overhaul marks a significant shift in its approach to digital assets. The Finance Act 2025 replaced the controversial 3% Digital Asset Tax on transaction values with an excise duty on platform fees and commissions, as noted in a Cryptonewsland report. This change aligns with the revenue models of crypto platforms and has been praised for its fairness. Simultaneously, the Virtual Asset Service Providers (VASP) Act formalized oversight of crypto businesses, requiring registration with the Central Bank of Kenya (CBK), implementation of Know Your Customer (KYC) procedures, and adherence to anti-money laundering (AML) standards, as reported by a Business Insider Africa article. These reforms aim to position Kenya as a regional hub for digital finance while mitigating systemic risks.

Yet, the VASP Act explicitly excludes P2P transactions from its licensing perimeter, as explained in a Bitcoin Magazine legal guide. While this law targets intermediaries like exchanges, it leaves P2P trading-often conducted through platforms like Bybit P2P-unregulated. This gap has allowed fraudulent actors to exploit the system, as seen in the 2025 CBEX scandal, where an AI-powered trading platform vanished with millions of investors' funds, as described in a LinkedIn post. The lack of oversight for P2P transactions highlights a critical flaw in Kenya's regulatory architecture.

Fraud and Investor Vulnerabilities: A Cautionary Tale

The CBEX case is emblematic of broader risks in Kenya's P2P crypto ecosystem. Scammers have increasingly used social engineering tactics, such as fake testimonials and influencer endorsements, to lure victims into high-yield investment schemes, as described in a LinkedIn post. A recent incident saw a businesswoman lose Sh15 million (approximately $120,000) to a crypto fraud, further eroding public trust, as reported in a Facebook post by NTV Kenya. These cases are not isolated; Kenya's greylisting by the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) in 2025 underscores systemic weaknesses in combating financial crime, as reported in a Business Daily Africa article.

The 2025 Finance Act and VASP Act aim to address these issues by enhancing transparency and compliance for licensed entities. For instance, the Finance Act introduces a 1.5% tax on digital asset transfers, while the VASP Bill mandates AML reporting and capital adequacy requirements, as reported in an EY tax alert. However, these measures primarily target institutional players, leaving retail investors exposed to scams in the P2P space.

The Path Forward: Balancing Innovation and Risk Mitigation

Kenya's policymakers face a delicate balancing act: fostering innovation while safeguarding investors. The country's alternative lending market, projected to grow to $389.2 million in 2025, as noted in a Global Newswire report, demonstrates the potential of P2P platforms but also highlights the risks of unregulated growth. To mitigate fraud, regulators could expand the VASP Act's scope to include P2P platforms or introduce a licensing regime for P2P service providers.

Investors, meanwhile, must adopt a cautious approach. Diversifying exposure, verifying platform credibility, and leveraging KYC-compliant services can reduce risks. Platforms like Bybit P2P, which offer incentives for long-term merchants, as reported in a Global Newswire report, may provide safer avenues, but due diligence remains paramount.

Conclusion: A Call for Vigilance

Kenya's P2P crypto ecosystem is a testament to the country's financial ingenuity, but it also serves as a cautionary tale. While regulatory reforms like the VASP Act and Finance Act 2025 have laid a foundation for oversight, gaps in P2P regulation persist. Investors must remain vigilant, and policymakers must close these gaps to prevent Kenya from becoming a haven for fraud. The future of Kenya's digital finance sector hinges on this delicate balance between innovation and caution.