The price of one bitcoin in Nigeria is currently more expensive than in many other countries in the world.
On the Luno exchange, one bitcoin is exchanging hands for about N40.9 million, nearly double the current price on global exchanges. On other exchanges like Binance the local currency rate is over N500 to a dollar and this affects the amount of one bitcoin on those exchanges. Quidax also experienced this price inflation.
The global price as of Friday evening was $58,905. When converted at the new official exchange rate at N410, the price should be at N24.1 million or N27.09 million at the black market rate. But the price has instead ranged from N40 million to N41 million. In essence, while the bitcoin price recently surged up to $60,000 across most of the world, in Nigeria it super-surged to $86,000.
So what is responsible for the huge difference?
The answer lies in the very nature of bitcoin as a currency rather than manipulation from an exchange. Regulated exchanges do not set the price of bitcoin or any cryptocurrency – no cryptocurrency exchange does. All an exchange does is provide a platform to facilitate people buying and selling cryptocurrencies between themselves.
Read Also: Bitcoin isn’t the ultimate face of cryptocurrency
Bitcoin and any cryptocurrency operate by the laws of demand and supply. When there are more people on a platform willing to sell bitcoin than there are to buy, the price will go down. If demand is higher than supply, the price will go down.
One of the main selling points of bitcoin is that it is fixed at 21 million and it is released at a consistent and known rate until it reaches that number. Bitcoin supply varies on different exchanges, however, the impact on price is not much. Price volatility is mainly a factor of movement in demand. That movement or change can be a result of many things including the introduction of new regulations and fear of missing out (FOMO), to mention a few.
In the case of Nigeria, the recent prohibition placed on financial institutions from supporting cryptocurrency transactions by the Central Bank of Nigeria (CBN) affected the demand for bitcoin and other cryptocurrencies.
“The price of bitcoin is therefore determined by what traders are willing to pay for it,” Luno said in a recent post. “The traders you find on each platform will be different, and will therefore set different prices. The price you see on Luno will subsequently not be the same as the one you see on another exchange, in the same way, that if you go on ebay or Amazon and look for the latest iphone, the prices will be slightly different.”
Following the CBN order, some exchanges reported a significant drop in deposit activities at least for the first few weeks. Quidax saw daily volume drop from about 25,000 to nearly 5,000. The exchange has now integrated P2P on its platform which will see more users return to the platform.
The surge in prices of cryptocurrencies to over $60,000 after the order has also seen more Nigerians wanting to buy the coins, especially through the peer-to-peer market. Apart from Quidax, Bundle, a Binance-backed platform, has also created P2P for their users.
Demand for bitcoin in Nigeria is among the highest in the world because Nigeria is an inflationary country, and citizens have turned to bitcoin to weather value drops in naira and protect their wealth by harnessing the power of a global economy.
This usually means that Nigerians pay a small premium for bitcoin than many parts of the world. In that light, the recent premium will not be considered a surprise.
While the price of bitcoin surged to $61,000, the price on the local market moved to N41 million.
According to Luno, because buying bitcoin is the only way for Nigerians looking to send the naira they still have in their accounts, the CBN directive created a power imbalance that favours the seller over the buyer.
The ban also created market inefficiencies that remove the correlation between different crypto exchanges, resulting in significant price differences from one exchange and another. To understand this, think about the way an iPhone will cost you roughly the same on Jumia and Konga though, market forces also mean that the price of bitcoin remains roughly similar between crypto exchanges.
“Traders can, after all, still see price movements on multiple platforms at once and move between them. There are correlations created by events such as arbitraging, for instance, whereby traders will buy bitcoin on one platform where it’s cheaper, then send it to another platform where it’s more expensive and sell it there. These usually keep the prices on exchanges broadly aligned,” Luno said.
Many buyers’ funds are now stuck on crypto platforms and because withdrawals are no longer possible, the naira that they currently have sitting on cryptocurrency platforms can either sit there to depreciate or it can be used to buy bitcoin or another cryptocurrency.
“Buying bitcoin is basically the only option for people looking to store their money, and the only means they have for sending money somewhere else. As a result, they’re willing to pay a higher price for it so they can use their capital. Sellers have a lot more power than is normal, so there’s an imbalance and they’re charging more,” the London
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