…As US rate to boost Nigeria’s equities market
It was bumper harvest time for Bitcoin (BTC) traders as the digital currency surged to new highs to close at $88,701 on Monday, jumping 28 percent since Donald Trump’s United States presidential win last week.
This surge led to the growth of the global crypto market capitalisation to almost $3 trillion ($2.96 trillion). Since Trump’s win, the best-known cryptocurrency has rallied to nearly $90,000. The digital currency has risen by 27.89 percent since November 5 to close at an all-time high of $88,701.49 on Monday, according to CoinMarketCap. It traded at $87,173.81 as of 07:03 p.m. Nigerian time.
Read also: Bitcoin surges, dollar strengthens as CNN projects Trump winner of US election
Its market cap surged 27.91 percent to $1.76 trillion on Nov 11 from $1.37 trillion on Nov 5. The market reacted to expectations that Trump’s administration will be crypto-friendly. Although Trump was skeptical about crypto during his first term, he made a U-turn during the 2024 election campaign. For instance, at a major Bitcoin conference in Nashville, he promised to keep the crypto market largely unregulated and to make energy cheaper for the power-hungry mining of cryptocurrencies.
He promised to make the US the ‘crypto capital of the planet.’ He proposed policies such as building a national Bitcoin reserve and appointing regulators to support the industry.
Cynthia Lummis, a US Senator from Wyoming, tweeted on November 6, “We are going to build a strategic Bitcoin reserve.” These pledges have boosted investor confidence, with analysts predicting Bitcoin’s next rally to $100,000 before the end of the year.
This is not the first time BTC has rallied under Trump, Oladayo Adenubi, a financial analyst noted. “During Trump’s first term, crypto rallied after a massive correction in 2017. It exploded in 2020. Generally, the Trump tax cuts were favourable to risk assets, and once the expansionary fiscal stimulus policy started in 2020 to address COVID, it helped push the market,” he said.
He explained that outgoing president Joe Biden’s government, through the US Securities Exchange Commission, is known to be anti-crypto through hardline laws and inconsistent interpretation of securities laws, which have derailed progress.
According to Bidemi Oke, chief executive officer of FlashChange, a digital asset solution platform, traders are optimistic that Trump’s pro-business stance will favour the digital asset market.
“This optimism has driven a rally as investor confidence grows with the promise of a more business-friendly environment. We’re seeing a similar reaction across other financial markets as stocks and other asset classes also respond to the new administration,” he said.
He noted that before the election, the market was volatile as it reacted to uncertainty about future policies. “With the election settled, investors can make more informed predictions about the economy’s direction and, by extension, the crypto market,” Oke stated.
Read also: Bitcoin riding wave of Trump win to record high
Obinna Iwuno, president of the Stakeholders in the Blockchain Technology Association of Nigeria (SiBAN), highlighted because Trump’s stance has been a green light signal for the ecosystem as he is the first pro-crypto and pro-BTC president of the US, and the position it occupies in the world’s economy.
“For the future of crypto, it means growth and bigger adoption, and we might even see the US take the number one position in crypto globally. More crypto companies will arise, more investments will come in, more institutional interest, and a complete integration of the banking industry into crypto,” he said.
US rate cuts could boost Nigeria’s capital market
One day after the US election, the Federal Reserve met and cut benchmark rates for the second time this year. Jerome Powell, the Fed chairman, even hinted that the bank may still cut rates in December.
The US’ benchmark borrowing rate is currently within the 4.50 percent -4.75 percent band. The country’s headline inflation fell by 50 basis points in October 2024 to 3.2 percent, from 3.7 percent as of September. How do these metrics affect Nigerian markets, and Nigerians in general?
Following the rate cuts on November 6, yields on US treasury have been on a declining run, hitting 4.16 percent. The US three-year treasury rates also declined to 4.14 percent, from 4.18 percent the day before. Essentially, these yield rates serve as benchmarks for a number of investment assets domiciled in the US.
While rates are coming down in the US, the benchmark rate is appreciating in Nigeria. This year, the Central Bank of Nigeria (CBN) has hiked interest rates five times, by about 850 basis points cumulatively to reach 27.25 percent. This policy shift is visibly impacting the fixed-income market.
This year, Nigeria’s one-year treasury bill has reached an all-time high of 22.1 percent, with 91-day yields hitting as high as 18.5 percent. Yield on one-year T-bill hit a record high of 29.87 percent last Wednesday.
The CBN’s one-year Open Market Operation (OMO) bills have also witnessed incredible yield rates, hitting as high as 24.28 percent in November.
The contrasting situation in Nigerian and American fixed-income space has seen a surge of cash influx into the Nigerian fixed-income space. Between January and October 2024, the CBN witnessed a total T-bill subscription of N33 trillion, marking a 94 percent growth from the N17 trillion subscriptions received during the same period in 2023.
On the OMO side, the CBN witnessed N11.6 trillion OMO bills subscriptions between January and November 2024.
Oluwaseun Magreola, head of Investment Management at STL Asset Management, highlighted the categorisation of Nigeria as a frontier or pre-emerging market.
He noted, “Nigeria is usually categorised as a frontier or pre-emerging market. Essentially, a frontier market is a country with an illiquid stock market (undeveloped stock market with low capitalisation in USD) composed of thinly traded stocks, which is typically too small and risky to be regarded as an emerging market. It is less established than an emerging market.”
He continued, “A frontier market screams high risk, and it makes investors very weary to invest in such markets.”
On how the rate cuts impact Nigerian markets, he noted, “In the international capital market, once there is a rate cut by the US Fed, it makes instruments traded by emerging and frontier economies very attractive as the yields become higher compared to what is obtainable in the US market.”
Magreola, a portfolio manager with a special interest in the fixed-income space, highlighted that in periods when the U.S. Federal Reserve cuts interest rates, it becomes more feasible and appealing for emerging and frontier markets to raise capital by issuing new debt.
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