With the Naira devalued four times within a year, it’s no surprise that interest in cryptocurrency has exploded in Nigeria. But while the youthful population embraces the potential of a stable store of value, Nigeria’s desperate government has tried to curb adoption. So how is this tension likely to play out? Can the genie be put back in the bottle or is the importance of cryptocurrency to Nigeria just too strong to be controlled?
It is only natural that in a strong bull cycle, a developing nation like Nigeria, struggling with severe socio-economic problems, poor governance and a weak currency, should become a fertile ground for cryptocurrency. The sub-Saharan nation is crypto’s perfect storm. .
Nigeria suffers from structural economic failure from years of financial maladministration by its political class. For context, the Nigerian government has devalued its currency four times within a year, the natural consequence of printing vast amounts of money out of thin air. The declining value of the Naira, relative to the US Dollar, has caused untold financial hardship for an import-driven country with a growing informal sector.
The number of times the Nigerian Naira has been devalued in the last year
Small businesses with a constant need for USD to source their goods or raw materials. It is precisely these pain points that cryptocurrencies like Bitcoin and, most recently, stablecoins, were created to solve.
As Nigeria’s government devalues her currency, a typical entrepreneur would not only need to grapple with the bureaucracy of sourcing dollars from banks to conduct his or her business; he would always need more naira than before to source those dollars".
Many small businesses have had to fold, resulting in an even more dire unemployment situation in Nigeria. For context, the jobless rate about the 69 million strong workforce is 33%, while unemployment for people aged 15 to 24 stood at 53.4%. Per a Bloomberg report, Nigeria’s jobless rate has more than quadrupled over the last five years with the economy suffering two recessions.
The Nigerian government has devalued its currency four times within a year, the natural consequence of printing vast amounts of money out of thin air. The declining value of the Naira, relative to the US Dollar, has caused untold financial hardship for an import-driven country with a growing informal sector.
In this context, the case for crypto couldn’t be stronger. Bitcoin can act as a store of value for most Nigerians, effectively shielding them from the constant devaluation of their local currencies
Stablecoins present the typical Nigerian entrepreneur with the opportunity to transact with cross-border partners anywhere in the world, and pay in a stable dollar substitute at market rate, without needing to use banks. The use case couldn’t be clearer and more progressive.
Stablecoins like USDT or USDC make it extremely easy, fast and cheap for Nigerian businesses to move money to their foreign partners as a typical import-dependent country.
In addition, Nigerian nationals abroad, seeking to remit money into the country to their friends and relatives, have glady adopted the crypto option. The recent boom in indigenous startups offering these services lends credence to this claim. It’s faster, cheaper and exposes their relatives to the vast opportunities within the cryptocurrency industry.
Given the demand for dollars, and the desperate need to shore up the Naira, Nigerian banks have always had to impose a dollar spending restriction on their customers as directed by the Central Bank of Nigeria - CBN.
As a result, Nigerians face difficulties to access even essential online products such as software subscriptions or shopping on sites like Amazon.
Most Nigerians can now bypass these punitive measures by using cryptos to pay for their products, especially with the growing wave of cryptocurrency global adoption as payment options.
Unsurprisingly, rather than roll out the red carpet to crypto, the Nigerian government has taken the prohibition route.
In February 2021, the Central Bank of Nigeria issued a press release warning against the dangers of cryptocurrencies like Bitcoin, reiterating that it is not legal tender in Nigeria.
Characteristically, most commercial banks servicing crypto entities, like exchanges and other crypto investment solutions, revoked their support for them immediately.
While many decried CBN’s policy as an attempt to suffocate its growing local crypto sector, Nigerians showed how hard it is to stop the tide once it turns; they simply reverted to their old means of trading cryptocurrency - peer to peer.
According to data from a recent publication by Bitcoin.com, Nigerians now trade an average of $1.5 billion weekly, pushing sub-Saharan Africa as the second most active peer-to-peer region in the world.
Peer to Peer Bitcoin Trade Volume, Source: Useful Tulips
Legacy fintech solutions like PayPal have only recently opened up to Nigeria. As most payment options are sticky, Nigerian freelancers and migrant workers found a haven in cryptocurrencies as they do not have to resort to slow and expensive wire transfers.
And now that PayPal has implemented checkout with crypto, it only further strengthens the case for cryptocurrencies that even Nigeria’s government will at some point accept that this is a battle they cannot win, and will start crafting crypto-friendly policies.
Nigeria’s legislators have also expressed concerns about Bitcoin and other cryptocurrencies favouring the growing rise of Ponzi schemes in its borders.
As valid as that concern may be - with get-rich-quick examples such as OneCoin - it is only a symptom of a bigger problem plaguing Nigeria’s economy.
As nature does not allow a vacuum, these shoddy investment opportunities have only been thriving due to the lack of a straightforward regulatory approach to cryptocurrencies.
There are signs that the hardline stance of Nigeria’s government toward crypto might be softening. Following CBN’s ban, Nigeria’s Vice President advocated for knowledge-based actions that will prove beneficial for crypto adoption rather than punitive measures, which has largely been counter-productive.
On May the 26th, 2021, CBN Governor, Godwin Emefiele added to the positive vibes.
We are committed in the CBN [Central Bank of Nigeria] and I can assure everybody that digital currency will come to life even in Nigeria.
The change in tone was underlined by reports that Nigeria has been actively looking at digital currency solutions. Perhaps they've realised that you can't beat crypto, so you might as well join the revolution.
This suspicion turned to reality in late September when Nigeria's Central Bank launched their eNaira website, complete with wallet. The speed of turn-around highlights how concerned they are at the adoption of cryptocurrencies, but doesn't address the fundamental weakness of the Naira, despite the blurb on the website.
eNaira is a Central Bank of Nigeria-issued digital currency that provides a unique form of money denominated in Naira. eNaira serves as both a medium of exchange and a store of value, offering better payment prospects in retail transactions when compared to cash payments.
Besides Nigeria’s VP, entrepreneurs in Nigeria’s budding crypto industry are banding together to form advocacy groups and policy think tanks. SiBAN, BNUG, BicCON are examples of such bodies seeking to canvas favourable regulation towards the sector.
Although many Nigerian crypto traders use global cryptocurrency exchanges like Binance, OKEx, Kucoin etc., local crypto exchanges built by innovative Nigerian tech founders are proliferating at an insane speed.
Some of these exchanges are Bundle, BuyCoins, Roqqu, Quidax etc. Even fintech solutions like Bitnob that encourage savings in Bitcoin was founded by one of Nigeria’s local entrepreneurs.
Many more are springing up, signalling enormous prospects for the nation’s cryptocurrency sector and its pivotal role in Africa. Nigeria is already the top destination for investment funding in Africa, so if the government decides to embrace the potential for crypto, rather than ban itself from the huge potential it offers the outlook for cryptocurrency in Nigeria and the long term benefits to its fragile economy could be enormous.
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