Contrary to assumptions that kicking out cryptocurrency exchanges from the formal banking system in Nigeria would stunt the growth of the Bitcoin market, recent data have shown that trading volumes via Peer-to-Peer (P2P) platforms have continued to grow.
Since the prohibition on February 6, 2021, the country’s P2P bitcoin trading volume over the last three months peaked, reaching over $100 million, which is estimated to be a 27 percent increase since the Central Bank of Nigeria (CBN) directive.
Bitcoin trade volumes across P2P platforms in Nigeria have surpassed other African countries, suggesting that Nigerian investors and bitcoin users are fully utilising P2P platforms.
A number of factors such as the growing young population, the need for a store of wealth besides real estate, growing internet adoption, the ease of transactions across P2P platforms that bypass bureaucratic intermediaries, low transaction fees when compared to traditional banks, have increased the growth of Bitcoin transactions besides the central bank’s directive against cryptocurrencies and rising inflation that erodes the value of the naira.
To give context, many Nigerian banks charge 1–2.5 percent. For a $1 million offshore transfer, bank charges may go up to $10,000, but with the flagship crypto, transfer of such amount would not exceed $300, even at peak periods.
The Bitcoin market globally continues to surge with major organisations such as Paypal, which now allows it users to buy, hold and sell bitcoin. Elon Musk of Tesla also indicated that the company would soon start accepting bitcoin as payment as well as some other major organisations like Microsoft and Mastercard.
Read Also: What makes Nigeria the No.2 Cryptocurrency Market?
The scepticism about the currency is still very much alive, however, this has not stopped its value from climbing, and making some bitcoin enthusiasts predict that its value climb may even reach the point of one bitcoin being values at over a hundred thousand dollars.
Despite the speculations and the prohibitions by not only the Nigerian central bank but also the South African government making the trade in South Africa very stringent, a large number of Nigerians remain unperturbed.
So far, the crypto currency trade in Nigeria has surpassed in performance every Nigerian-based financial asset, and many Nigerians are willing to pay a premium to access and engage in their crypto currency trade regardless of the ban by the apex financial institution.
The yield on the 91-day T-bill dropped below zero in November, before its slight recovery into positive territory. However, recent results from the primary market auction revealed that Nigerian Treasury Bills Yield held the 91-day and 182-day constant at 2.00 percent and 3.50 percent, respectively. While the 364-days Bill increased by 100 base points to 9.00 percent from its previous 8.00 percent interest.
Nkemdilim Nwadialor, an equity research analyst at Chapel Denham Hill in Lagos, says these yields still indicate returns well below the rate of inflation. “It will be a ‘long climb’ before T-bills start producing positive inflation-adjusted returns, and it’s not going to happen in the next 12 months,” she states.
Nigerians are fully aware of the fact that equities are likely to suffer, as hitting the inflation target will be the central bank’s overriding priority this year. Hence, investment in the leading crypto-asset (Bitcoin) seems to be the next best alternative amid the low interest rate environment.
When the CBN issued a circular in early February warning banks and financial institutions that “facilitating payments for cryptocurrency exchanges is prohibited” and that they needed to identify and close accounts associated with them, it set the country’s crypto community alight.
However, a representative for Nigeria’s central bank chief, Godwin Emefiele, reportedly sought to clarify the February 5 directive last month, telling reporters that it was not aimed at discouraging people from trading in cryptocurrencies like Bitcoin, but served to enforce orders in place since 2017 banning crypto transactions in the country’s banking sector.
But the 2017 directive did not prohibit crypto exchanges from using banking and payment channels. It simply required banks and financial institutions to ensure that their crypto-exchange customers have effective anti-money laundering and “anti-terrorism” financing controls in place.
The backlash and confusion echo a crypto-drama unfolding around the world as virtual currencies like Bitcoin grow in popularity and scale new heights during a time of unprecedented financial uncertainty stemming from the coronavirus pandemic, as well as uniquely domestic challenges.
