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It is now about three months since the Central Bank of Nigeria cut-off Bitcoin and broad cryptocurrency from its banking networks. The adoption of Bitcoin had earned Nigeria the Bitcoin Nation within the African continent. But instead of the crypto market cooling as a result of the bank, the thing has ramped up significantly: “Data retrieved from Usefultulips (a Bitcoin analytic data provider) shows that the usage of Bitcoin’s peer to peer trading in Nigeria surged by 27% since the CBN directive took effect about 85 days ago, as Nigerians moved about $103 million worth of Bitcoins on just Paxful and LocalBitcoins channels alone.”
The robust bitcoin trading activity in Nigeria has earned the country the title of Africa’s Bitcoin Nation. A 27-year-old Nigerian office worker who was spotlighted by the AFP, Chigoziri Okeke, described how he first invested in cryptocurrencies five years ago with the intention of just making a payment. When his crypto wallet’s value increased by 10% in a few short days, however, he was hooked and started directing a percentage of his salary toward the market. Today, this investor’s crypto portfolio is worth USD 50,000, comprising various digital assets.
Nigeria’s apex bank had effected two huge policies: (1) ban of cryptocurrency exchanges in Nigeria (2) introduction of Naira4Dollar where people get N5 for every dollar wired from outside Nigeria. But besides these two, there is another one: you cannot receive $10,000 within your domiciliary account in any Nigerian bank account in a month, provided that payment is initiated within Nigeria, teller deposit or bank transfer.
Yes, despite these changes, Naira has not found its moments. Why? It has to do with market frictions. The use of cryptocurrency “override the political complications of official channels. The global reach of cryptocurrencies avoids the inflation risk inherent to official currencies, especially in politically unstable countries reliant on fickle foreign investors” as Association of Bureau De Change Operators of Nigeria (ABCON) noted.
In the review, ABCON pointed out that cryptocurrency transactions were faster than conventional transfers, which require passing through SWIFT, the interbank messaging system that handles cross-border payments.
“These exchanges override the political complications of official channels. The global reach of cryptocurrencies avoids the inflation risk inherent to official currencies, especially in politically unstable countries reliant on fickle foreign investors.
“Thus, while we commend the CBN for introducing the package of N5 for $1 transfer, it can be seen that the challenges exceed non-payment of foreign currency by the IMTCs and the exchange rate.
“Strategies that satisfy the most sensitive of these advantages of cryptocurrency exchanges must be introduced to redirect flows to the official channel,” it stated.
ABCON also expressed concerns over the country’s unemployment rate, stressing: “The government must apply radical approaches with the use of conventional and unconventional economic and political tools to redress the trend.”
Yet, you can do everything but people will continue to find the path to least friction. If you live in the US and want to wire $10,000 to Nigeria, good luck. The official channel will ask for a social security number, employer name, etc. But with Bitcoin, no one asks for those. That complicates the whole system as Bitcoin can indeed make money laundering possible since the transactions are out of the official channels.
From what is happening, it is now evident that exchange friction overweighs the benefits associated with being paid in US dollars via IMTOs in Nigeria. Why that has removed exchange float, it has not changed much in the system since people continue to use Bitcoin and transfer via non-official channels.
Nigeria’s biggest mistake is to make everything more non-official by pushing the cryptocurrency exchanges to peer-to-peer where they become more opaque to the government’s high voltage searchlights. Ideally, the government could have embraced the new crypto startups and use regulations to shape them. Your dollar-for-dollar remittance is not doing it. Your Naira4Dollar has not helped. What could help is bringing the banned channels to come under your regulatory domain so that the participants can enjoy whatever that system gives them, while you exert more controls. Unless we do that, we will continue to struggle on this.
And CBN does not need to listen to the Association of Bureau De Change Operators of Nigeria (ABCON) which has has asked the “Central Bank of Nigeria (CBN) to introduce measures that will neutralize the positive effects of cryptocurrencies as a channel for diaspora remittances”. The fact is this: CBN does not have the power or capacity to do just that. The ABCON industry is being disrupted and they need to advance to be relevant.
No matter what the government does via financial engineering to help the Naira, there is only one thing that will boost the Naira: economic diversification, and that will likely come via improved productivity. Unfortunately, productivity will not happen without fiscal federalism. In other words, Nigeria needs to produce and make things, and unlock comparative advantages within states. It is only when we can do that would we see the Naira ramp up. Anything less will be gimmicks which will fade over time.
By: Gerelyn Terzo of Sharemoney
Bitcoin, the leading cryptocurrency, has seen its value balloon by more than 100% year-to-date, soaring to an all-time high of more than USD 60,000. Nigerians, many of whom are battling poverty, would be hard-pressed to miss out on those gains. This is especially true considering that the unemployment rate in the most populous African nation was 33.3% as of last quarter, with more than 23 million Nigerians out of work.
Enter bitcoin, which has been a safe-haven investment as well as a faster and cheaper payment method for the growing segment of the population that is catching on. In fact, Nigeria last year rose to the top of the heap for bitcoin trading at USD 400 million in volume, surpassing transactional volume in nearly every other jurisdiction — with the exception of the United States and Russia — as traditional asset classes lose their appeal in comparison and the local currency, the naira, remains under pressure. Nearly one-third of Nigerians who participated in a Statista poll said that they used or owned cryptocurrencies, more than any other country represented in the survey.
Source: Statista
Nigeria also stands out in all of Africa, as the top peer-to-peer bitcoin trading nation on the continent based on bitcoin trading volume. Nigeria’s P2P BTC trading volume surpassed USD 99 million in the first quarter of 2021. Kenya is a distant second at USD 34.8 million followed by Ghana and South Africa at USD 27.4 million and USD 25.8 million, respectively.
Source: Business Insider/Useful Tulips
The robust bitcoin trading activity in Nigeria has earned the country the title of Africa’s Bitcoin Nation. A 27-year-old Nigerian office worker who was spotlighted by the AFP, Chigoziri Okeke, described how he first invested in cryptocurrencies five years ago with the intention of just making a payment. When his crypto wallet’s value increased by 10% in a few short days, however, he was hooked and started directing a percentage of his salary toward the market. Today, this investor’s crypto portfolio is worth USD 50,000, comprising various digital assets.
In addition, Google searches of bitcoin in Nigeria surpass that of any other jurisdiction, according to Nairametrics.com. Bitcoin appeals especially to the West African nation’s millennial generation, who are looking to the flagship cryptocurrency as a store-of-value asset as well as a way to circumvent the hoops they must jump through to open a traditional investment account. With the bitcoin price most recently hovering at USD 60,000, Nigerians have reason to be excited. At this price, one bitcoin could reportedly buy someone a three-bedroom apartment in Lagos’ Ajah neighborhood.
A big part of bitcoin’s popularity is due to Nigeria’s unstable naira. The International Monetary Fund (IMF) has drawn a line in the sand, stating that Nigeria’s fiat currency is “overvalued” by more than 18%. The IMF wants Nigeria to devalue its fiat currency, but the African nation’s government has said no way.
Nigerian President Muhammadu Buhari blames “global outflows” triggered by COVID-19 for the unstable naira and believes that devaluing it further after doing so twice in 2020 would only exacerbate the already sky-high inflation rate, which is currently in the double-digits at more than 17%. This would weaken Nigerians’ purchasing power even more. Nigeria’s central bank slashed the naira’s value by close to one-quarter last year.
Meanwhile, not only has bitcoin been generating returns hand over fist, but it has also been thrust into the global spotlight amid the SARS-related protests in Nigeria. According to reports, Nigeria thwarted financial payments toward police brutality protests, which only led the supporters to donate bitcoin instead. Twitter and Square CEO Jack Dorsey backed this movement, which only brought more attention to the country and cryptocurrencies.
Source: CoinGecko/TradingView
Nigeria’s central bank has been highly critical of bitcoin, warning as recently as February that “cryptocurrencies are largely speculative, anonymous and untraceable.”
Nonetheless, the Central Bank of Nigeria can’t stop the population from accessing the flagship cryptocurrency, thanks to the peer-to-peer nature of bitcoin, which was inherently designed to circumvent third-party service providers like banks. Bitcoin creator Satoshi Nakamoto, whose real identity remains a mystery, defined the first cryptocurrency in the whitepaper, which was published in 2008, saying:
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.”
The Central Bank of Nigeria has since backtracked from its remarks slightly, maintaining that it has not placed a blanket ban on cryptocurrency trading. It is a tangled web, however. The central bank instead said that it is doubling down on a 2017 law that bans institutions supporting cryptocurrency transactions.
Even though institutions might be banned from supporting cryptocurrency trading, individuals are still free to trade them. The central bank is sending mixed signals, to say the least, as local banks were instructed by the central bank to refrain from doing business with customers who transact in cryptocurrencies.
“The CBN did not place restrictions from use of…cryptocurrencies and we are not discouraging people from trading in it. What we have just done was to prohibit transactions on cryptocurrencies in the banking sector,” stated Adamu Lamtek, according to Decrypt, citing Today NG.
Since the restrictions were imposed on Nigeria’s crypto trading industry, rather than disappearing, the industry has flexed its muscle for its nimble nature. In a few short months, they have been quick to build P2P exchanges that circumvent the crypto ban on financial institutions. The restrictions have funneled more activity to over-the-counter (OTC) venues while a makeshift P2P market is similarly expanding. Danny Oyekan, founder of global social payments application Coins App, is cited by Decrypt as saying,
“So basically, the ban only forced the fiat channels underground.”
Source: Twitter
In Nigeria, cryptocurrencies are regulated by the country’s own Securities and Exchange Commission, which last year stated that it would classify cryptocurrencies as securities unless they are proven otherwise by the asset’s issuer or sponsor. In February, Nigeria’s SEC said that crypto regulation was going to be placed on the back-burner amid the central bank’s crypto crackdown.
Despite the uncertainty, Nigerians are showing no signs of relenting in their pursuit to own bitcoin and are increasingly relying on P2P trading platforms to do just that.
The top feedback on the Board is this: “ I love this week’s lesson”. WE AGREE. Our three faculty members did an amazing job. Grace Akinosun, CEO of smepeaks, explains “Media, Communications, and PR” amazingly. Watch it and understand what matters in modern media. The advertising zen-master, Akachi Ngwu, COO of Luzo Digital Network & Media Limited, deepens our understanding of “Branding and Advertising”.
Then, in her engineering design brilliance, Kemisola Oloriegbe of Nigerian Breweries Plc, explains “Product Design and Packaging”. The session has been up since Monday. Kemisola’s work is an industrial design excursion at best.
Tekedia Institute Mini-MBA – learn from the best.