Nigeria’s exchange rate crisis is pushing many business owners towards bitcoin (BTC) as a preferred means of buying goods from manufacturers outside the country.
The pressure on naira is projected to be heading towards N480 per dollar later this week. On Monday the dollar was trading at N477, representing an N2.00k depreciation compared to N475 sold the previous day on the black market. The weakening in the value of the Naira is said to be due to high demand by end-users amid dollar scarcity.
For businesses, the weakening means more pressure as they are unable to get dollars to buy new supplies or order necessary equipment abroad. While the queue in the official market gets frustratingly longer, Bureau De Change (BDCs) operators which are usually the better alternatives are also unable to meet up with demands for dollars despite selling it at very high rates.
Thus, in recent times a few BDCs have tried to take an education in bitcoin operation.
“Many of them are coming to ask us how it works, and the ones that already know are switching to BTC for international trade,” a source in one of the exchanges in Nigeria told BusinessDay on condition of anonymity.
Bitcoin has been attracting institutional attention since the beginning of the year. The COVID-19 pandemic which has affected the economies of many countries negatively has also served to cement the importance of the cryptocurrency as an alternative means of exchange. Peer-to-peer trading volume in bitcoin in countries like Argentina, Chile, Venezuela, and Morocco peaked marking new all-time highs in the month of April.
Read more: More Nigerians flock to cryptocurrencies as COVID-19 bites income
A study released in May by the Tokenist, showed that there was a growing trust in bitcoin over traditional investments like gold, stocks, and real estate. The market researchers leveraged a survey that was taken in April 2020 (5,421 participants in 24 countries) and collated several surveys from 2017 as well.
In Nigeria, demand for bitcoin has continued to set records. According to a report by Blockchain.com Nigeria was the leading country in the second quarter of 2020 in peer-to-peer bitcoin transactional trades valued at $34.4 million on the African continent. Following Nigeria was South Africa; Kenya ($7.8 million); Ghana ($640,000); and Tanzania ($600,000).
“There are certainly a lot more use-cases for bitcoin in Nigeria,” Yele Badamosi, CEO of Bundle, an Africa-focused social payments app for cash and cryptocurrencies, told BusinessDay. “I still think for most people it is a speculative asset especially with the fact that our stock markets are not performing as well as they should be or if you were a treasury bill buyer and now you are hearing the returns in naira is 3 percent annualised, when inflation is higher, you will be looking for other means to generate returns. That will probably be the biggest and primary used-cases. We then have remittance and a medium of exchange between other currencies.”
Exchanges who spoke to BusinessDay said there has been a spike in remittances. Tomiwa Lasebikan, co-founder and head of Products at BuyCoins said most of the growth could allude to the naira depreciation which has seen more people willing to hold and trade in bitcoin.
“They are using it to buy stuff abroad, especially the people doing business in China because it is lucrative there despite the fact that the Chinese government is clamping down on transactions using cryptocurrencies,” said Rume Ophi, Partner and Brand Strategist of Vorem Nigeria, a blockchain company transacting digital assets to fiat, also known as over the counter (OTC) trade market, “All you need to do is have a VPN, you are on the internet, you can do your transaction. Bitcoin is not censored so it is difficult for them to control. The number of people spending bitcoin now in Nigeria is increasing like wildfire. I get all sorts of questions these days like ‘How can I start?’ ‘How can I trade?’”
Some experts say the spike also comes with familiar challenges one of which is the poor education of the market. Earlier in the year, a Luno report showed that while more Nigerians were aware of cryptocurrencies many are not adequately educated.
Gaius Chibueze, founder and CEO of Abit Mobile Application Limited, the company behind the cryptocurrency, Tatacoin, told BusinessDay that poor education is responsible for people not accepting bitcoin as a medium of payment because they are afraid of volatility.
Users are also wary of exchanges because of fear of fraud and issues around converting bitcoin to fiat. The high exchange rate means that the price of converting bitcoin to Nigerian naira is slightly higher than in other markets. For instance, the world’s largest cryptocurrency rose as much as 5.3 percent to around $12,473 in New York, the highest since July 2019. In Nigeria, the price of the same bitcoin was exchanging hands at N5.829 million on the Luno exchange, which is closer to the rate at the parallel market. Although the naira exchange rate fluctuation has little bearing on the decisions of investors, it does affect those who would want to convert their bitcoin asset to the local currency as the exchange – as well as the fee per transaction – may have to be subject to the existing currency rate to the dollar.
“The FX crisis affects BTC price because it is quoted in dollar and the local exchange would have to deal with the naira rate,” said an expert who spoke on conditions of anonymity.
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