• Friday, March 29, 2024
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BusinessDay

Nigerians turn to crypto market as second recession in 5 years takes toll

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Nigerians who may not have taken the cryptocurrency market seriously in the past seem to have every reason to do so as the economy of Africa’s most populous country entered its second recession in five years. The price of one bitcoin (BTC), the world’s largest cryptocurrency, is currently trading at over N9 million (N9,024,043) in Nigeria.

The Gross Domestic Product (GDP), which measures the total monetary value of goods and services produced in the country within one year, contracted by 3.62 percent in the third quarter of 2020, data from the National Bureau of Statistics (NBS) showed on Saturday.

According to experts, bitcoin is growing in Nigeria because individuals and businesses are using BTC to get around government restrictions on foreign exchange; to reinforce personal freedom, and product innovation, and better user interfaces.

“Last September, I did some commission work for a client in Nigeria and they paid me in bitcoin. (I) completely forgot about it, never withdrew (it). (I) just helped my sister open a Coinbase account as she’s ready to trade live and I also logged into mine. It’s grown by over 100 percent,” says an investor who does not want to be named.

Share of respondents in selected countries who use or own cryptocurrencies
SOURCE: Statista

Nigeria’s economy is at its weakest as it faces the worst recession in five years with the third-quarter GDP released on Saturday. The twin impact of the Covid-19 pandemic and the dwindling oil economy has seen three contractions hit the country dubbed the ‘Giant of Africa’. The oil sector had grown by 5.5 percent in Q1 2020 but contracted by 6.6 percent in Q2. As for the non-oil sector, it was a 1.5 percent growth in Q1 and a 6.1 percent drop in Q2.

With a weak economy, the country’s currency has gone on a free fall, exchanging N480 as of last Saturday against the dollar in the parallel market.

The naira’s free-fall has seen the Central Bank of Nigeria retracing some of its fiscal policy steps in a last-minute attempt to stem the tide of recession. On Friday, it released a circular saying importers can open bills of collection in favour of agents and third parties to import goods. This meant that the ban on companies from sourcing imports from third parties other than manufacturers was lifted, albeit temporary.

While the CBN grapples with the consequences of its missteps in regulating the fiscal environment, for most average Nigerians embracing bitcoin and other cryptocurrencies, it is part of desperation not to be caught up in the headwinds and escape the poverty net. It is also a consequence of declining rates on conventional investment assets like the treasury bills, which have dropped to 0.09 percent from over 14 percent recorded two years ago. The stock market has also not lived up to expectations with stocks constantly returning losses in recent times.

BusinessDay reported that since the surge of bitcoin and other cryptocurrencies, sentiments in the market have gone from Greed to Extreme Greed as fear of missing out (FOMO) grips investors. Nigeria is a major contributor to the cryptocurrency ecosystem. Nigeria ranked eighth among the top 10 countries with the most crypto-currency adoption in the world, according to a a report by Chainalysis.

Cryptocurrency Adoption Index
SOURCE: Chainalysis

To buttress the use case of cryptocurrencies in Nigeria, Ray Youssef, CEO of Paxful, a peer-to-peer exchange, recalls a user who ran a business importing video games from China to sell in Nigeria. When his bank would not let him transfer money to his supplier in China, he decided to sell his bitcoin to receive yuan (CNY) in a major Chinese digital wallet and send it directly to his counterparty in China.

A survey of 65 countries conducted by Statista in August found that Nigerians were the most likely to say they used or owned cryptocurrency in the world. According to the survey, almost a third of Nigerians said this applied to them due to the high cost of sending money across borders the conventional way.

Owenize Odia, country manager of Luno Nigeria, said the growth in crypto-currency activities in Nigeria was an indication of the maturity the market had reached. However, with many companies coming into the market to offer different cryptocurrency services, the challenge for investors would be identifying which platforms are genuine and are out to scam them of their hard-earned money.

“There is a need to increase education in the market,” Odia said. She recommends that new investors do their due diligence before committing to an investment.

“There are few ways to identify scams; Bitcoin Ponzi or MLM (multi-level marketing) schemes. These schemes lure people with low or no subscription fees and promises of huge returns on their deposits. They mostly rely on existing customers signing up new ones, which is the only source of revenue. Little or no verifiable information on company and owners,” said Odia.

Experts also say regulation of the space will protect Nigerians and give investors more confidence to carry out their transactions, it would also earn revenue for the economy in dire need of diversified portfolios. The government seems to be paying attention in recent times. The National Information and Technology Development Agency (NITDA) had in early November said it was planning to earn about $6 billion from blockchain technology by 2030. Hence, it released a draft adoption and invited stakeholders to review it.

But in September, a regulatory document released by the Securities and Exchange Commission of Nigeria is thought to be a step in the right direction, but operators in the space say it raises new challenges.

Lucky Uwakwe, CEO of SaBi Exchange, describes the SEC’s document as “generic” lacking in specificity or precision to the various players or sections in the industry.

“And it focuses mainly on one use case of blockchain which is a cryptocurrency,” Uwakwe said, saying, “Some will argue that the SEC lacks the power to regulate cryptocurrency. Some will call it Crypto Asset and therefore sec has the power to regulate assets that are traded on an exchange, even though the product and method of how the assets are created and distributed are somewhat different from the traditional stock.”

Given that cryptocurrencies are just a part of blockchain technology some experts believe it is going to take more than one government agency to fully regulate the blockchain space in Nigeria.

Paul Ezeafulukwe, President of Stakeholders in Blockchain Technology Association of Nigeria (SiBAN) said each of the regulatory agencies will be expected to regulate blockchain applications in their respective sectors and industries based on their mandate under the law.

“So for example, while CBN will be expected to regulate blockchain applications involving payments and remittances, SEC will be expected to do the same for investments and securities, just as FIRS will regulate from a tax angle. I don’t see a single regulatory agency or entity doing it all. At best, any single entity can only supervise all the relevant regulators,” Ezeafulukwe told BusinessDay.