Rising inflation and naira depreciation has prompted more Nigerians to invest in cryptocurrencies, according to a new report by Chainalysis, a New York-based blockchain research firm.
The report shows that the country’s volume of crypto transactions grew year-over-year by nine percent to $56.7 billion between July 2022 and June 2023.
“Nigeria is one of only six countries in the top 50 by size globally whose crypto transaction volume grew year-over-year in the time period we studied,” the report said.
It said bitcoin and stablecoins have generally risen as the naira’s value has decreased, particularly during the most recent extremely steep drops in June and July this year.
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“The country’s uncertain economic climate has encouraged many citizens to seek financial alternatives, increasing the value proposition of cryptocurrency,” it added.
Cryptocurrency is any form of currency that exists digitally or virtually and uses cryptography to secure transactions. Some popular cryptos are bitcoin, ethereum, tether, cardano and litecoin.
Moyo Sodipo, co-founder and chief product officer at Busha, said when the company gained popularity around 2019 and 2020, there was a big frenzy for bitcoin.
“A lot of people were not initially keen on stablecoins. Now that bitcoin has lost a lot of its value, there is a desire for diversification between bitcoin and stablecoins,” he said.
According to him, market shifts are not dampening activity as people are constantly looking for opportunities to hedge against the devaluation of the naira and the persistent economic decline since COVID-19.
The Central Bank of Nigeria (CBN) in June merged all segments of the foreign exchange market into the Investors and Exporters window, and reintroduced the willing buyer, willing seller model.
As a result, the official exchange rate increased from N463.38/$ to N738.00/$ as of Thursday. At the parallel market, the naira depreciated to 990/$ from 762/$.
The high cost of sourcing FX was one of the major factors that pushed Nigeria’s inflation rate to an 18-year high of 25.80 percent in August from 24.08 percent in July, according to the National Bureau Statistics.
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According to Coinbase, a global cryptocurrency trading platform, the price of bitcoin was N20.5 million ($26,665.4) per BTC as of 12 noon Nigerian time on Thursday, compared to N8.39 million ($10,866.7) a year ago.
A recent article by Cointelegraph, a global independent digital media firm, said the FX policy could have several implications for crypto traders.
“Foreign currency traders can now exchange at rates set by the market instead of those set by the Central Bank of Nigeria. This move follows the president’s decision to implement a 10 percent crypto tax on capital gains and could be a game-changer for Nigeria’s crypto industry, positively or negatively,” it added.
Abiodun Keripe, a Lagos-based crypto trader, who uses stablecoins to trade, said he had around N900,000 in his crypto wallet last February when the exchange rate at the parallel market was around N500-N600 per dollar. “But when the naira was devalued, I made close to N1.8 million.”
“Crypto is priced in USD. And you can use stablecoin as a store of value against a depreciating currency,” he added.
The Federal Government recently passed a nationwide blockchain policy with the aim of institutionalising blockchain technology in the economic and security sectors of the country.
According to a PwC report, blockchain technologies could boost the global economy to $1.76 trillion by 2030 through raising levels of tracking, tracing and trust.
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The future of cryptocurrency in Sub-Saharan Africa looks bright, with large countries like Nigeria already taking their place as global leaders in crypto adoption, analysts at Chainalysis said.
“Increasing regulatory clarity throughout the region also appears to be bolstering growth, which local crypto operators appear primed to take advantage of,” they added.
