It is easy to see why cryptocurrency is becoming an attractive alternative to traditional currencies, especially in economies beset by double-digit inflation and economic uncertainty. Bitcoin and other altcoins’ promise to give individuals more financial autonomy and can be significantly less restrictive and and more accessible than traditional financial channels. Keeping this general context in mind, this article tells the story of how Nigerian has become one of the fastest rising crypto economies in the world.
Nigeria Makes a Splash in the Global Crypto Market
Africa has the potential to emerge as one of the world’s most dynamic regional markets for cryptocurrencies. A combination of factors contribute to this, including persistent currency inflation, a youthful population, hikes in the costs of everyday goods and services and a high number of underbanked or unbanked individuals and communities.
It therefore comes as no surprise that a handful of African countries have consistently featured on the list of nations with the highest interest in Bitcoin. At the forefront of Africa’s crypto renaissance is Nigeria, currently leading the continent in terms of Bitcoin peer-to-peer trading volumes. The country accounts for almost 50% of the continent’s trading activity, with over $8 million worth of Bitcoin trades averaged weekly on LocalBitcoins and Paxful. The naira, Nigeria’s fiat currency, was also the first African currency to be launched on Binance P2P.
Nigeria’s dominance in Africa’s crypto economy is further indicated by the fact that Nigerians contribute the highest number of Bitcoin-related searches on Google. Note that Nigerians’ interest in cryptocurrency, in general, tends to trail the price gains of various digital assets.
The 2020-21 bull market has therefore undoubtedly had a positive impact on the adoption of crypto in Africa’s largest economy. However, we can’t attribute Nigerians’ interest in crypto to price movements alone. Other factors are also behind the country’s soaring rates of cryptocurrency adoption.
Despite the unprecedented growth of Nigeria’s crypto market, there are currently no Bitcoin nodes operating in the country (this man running a Bitcoin node in 2017 seems to have gone offline). What this indicates is that there is no Bitcoin mining economy to speak of in Nigeria. Some attribute this to the absence of a stable power supply, whereas others hold that it reflects a lack of in-depth crypto education in the country.
Why Is Cryptocurrency Exploding in Nigeria?
In the immediate term, the foremost factor is the economic uncertainty brought about by the impact of the Covid-19 pandemic and the concurrent crash in the price of oil. As the continent’s largest oil producer and exporter, Nigeria has borne the brunt of unprecedented volatility in the global oil market, as worldwide lockdowns slashed demand and brought oil prices to historic lows.
This, coupled with a host of other socioeconomic challenges amid the pandemic, has had a devastating effect on the country’s economy. Nigeria’s unemployment rate rose to 33% — the second-highest on a global list monitored by Bloomberg — in the fourth quarter of 2020. Inflation rose to 17.33% in February 2021, the highest in four years.
Both figures reveal the precarious reality that Nigerians face at present and why they are increasingly looking to alternative financial paradigms, such as cryptocurrencies. For many, Bitcoin appears to offer a viable investment that can help them ride out the worst effects of persistent inflation.
To make matters worse, Nigeria’s central bank moved to devalue the naira by 24% in 2020. With the currency projected to experience a further 10% devaluation rate in 2021, the budding crypto community of Nigeria has all the more reason to see Bitcoin and other cryptocurrencies, including stablecoins, as a reliable route to preserving the value of their savings.
Another contributing factor is the existence of forex restrictions imposed by the Nigerian authorities in a bid to reduce the outflow of U.S. dollars. In most cases, bank customers are restricted to $100 transactions via debit cards per month. Bitcoin can therefore offer a way to circumvent these restrictions when it comes to cross border transactions.
This also holds true for those receiving funds from outside the country. Since major payment networks like PayPal do not allow Nigerian residents to receive U.S. dollars, and other available channels charge astronomical fees, cryptocurrencies are becoming an increasingly attractive remittances option for Nigerians in the diaspora.
In demographic terms, crypto adoption in Nigeria is no doubt also helped by the predominance of a young, vibrant and tech-savvy population and the increasing use of smartphones. The median age in Nigeria is 18, and the country is on track to exceed 151 million internet users by 2025. The widespread adoption of new technologies and cryptocurrencies among youth was apparent in October 2020, when nationwide protests against police brutality were partially funded via crypto donations.
Is Cryptocurrency Legal in Nigeria?
As with the majority of African countries, no definitive rules govern the issuance and trading of cryptocurrency in Nigeria. Although there is little to lean on in terms of a transparent regulatory framework, the country’s central bank has at least established that it does not consider cryptocurrency to be legal tender.
In February 2021, the central bank gave a directive to financial institutions operating within its jurisdiction to shut down accounts associated with crypto transactions. However, as officials clarified, this does not mean that the institution has banned cryptocurrency outright. Nigerians can still trade crypto, yet it is impossible to facilitate deposits or withdrawals via banking channels.
In the aftermath of this regulatory setback, Nigerian crypto exchanges halted debit card payments, pushing users to search for other means for exchanging crypto to fiat. Consequently, the demand for peer-to-peer trades has increased, with Binance, Paxful and LocalBitcoins emerging as the platforms of choice for crypto traders.
Notably, the central bank’s action against crypto seems to have been fueled by the drop in the use of traditional financial institutions for remittances. After clarifying banking rules in relation to crypto transactions, the central bank went on to implement a scheme that offers a five naira rebate on every dollar remitted to Nigeria via regulated and recognized money transfer operators.
Unlike the central bank, the Nigeria’s Securities and Exchange Commission (SEC) had previously opted to regulate digital assets and to provide a framework aimed at reducing the risks involved in crypto investment. However, the SEC later announced the suspension of its regulatory plans following the central bank’s directive to financial institutions.
Interestingly, these events do not seem to have fazed Nigerian’s burgeoning crypto community. On the contrary, trading activities, now on P2P platforms, have continued to thrive since the imposition of restrictions on banks’ facilitation of crypto transactions.
There is a strong indication that the crypto market in Nigeria will continue its upward trajectory. The country’s rising crypto adoption rate stems from the profound need for an alternative financial system that can shield citizens from the adverse impact of an unstable fiat currency, prohibitively expensive remittance infrastructures, and persistent inflation in the national economy.