Nigerians continue to bet on crypto despite fall in value

By Harry Clynch
Posted on Tuesday, 2 August 2022 17:02

Representations of cryptocurrency Bitcoin plunge into water in this illustration taken, May 23, 2022. REUTERS/Dado Ruvic/Illustration

The value of prominent cryptocurrencies has fallen sharply this year. The price of Bitcoin has more than halved, and Ethereum is down by more than 60%. And major stablecoin Terra has collapsed altogether. And yet for many Nigerians, digital assets remain a good bet.

Nigeria has seen one of the largest uptakes of digital assets in the world, with one survey estimating that 35% of adults have invested in crypto. Indeed, Nena Nwachukwu, chief operations officer at digital collectables marketplace Ayoken, says that transaction volumes “have actually gone up slightly during the bear market”.

Digital assets have been perceived as an attractive option for many Nigerians for a range of political and economic reasons, and there are indications that they remain attractive despite the recent downturn.

This is partly because, even though cryptocurrencies have posted steep losses this year, many Nigerians still consider them to be a safer option than the persistently weak domestic currency. In July, the naira fell to its lowest level against the US dollar on record. And in the second quarter of this year, the currency saw its second-worst quarter of depreciation ever.

According to Adedeji Owonibi, the founder of Convexity, a blockchain consultancy firm in Abuja, this might explain why crypto uptake remains strong during the bear market.

“The inflation rate is running at 18%,” he says. “So why not just gamble with it, if you think that [crypto] might give you a higher return?”

Chronic high inflation, the persistent weakness of the naira, poor financial infrastructure, the high cost of remittances, difficulties obtaining foreign currencies and political repression are all ingrained issues that are likely to incentivise the continued uptake of decentralised solutions.

“The younger generation are hellbent that this is a tool for them,” Owonibi says.

Not all speculative

The majority of Nigerian crypto users, however, aren’t using crypto speculatively. As Owonibi points out, long-term crypto holders only represent “the highest echelon of people that have enough money to save or invest.” In a country where the minimum wage is N30,000 per month (around $50) and the unemployment rate is 33%, “the purchasing power of most citizens isn’t big enough for them to hold crypto and just watch it.”

Indeed, the figures suggest that most Nigerians use digital assets for specific, everyday purposes, chiming with a wider trend across Africa.

According to Chainalysis, “Africa has a bigger share of its overall transaction volume made up of retail-sized transfers,” with “smaller transfer sizes suggest[ing] higher grassroots adoption amongst everyday users.” As much as 96% of all transaction volume comes from cross-region transfers, with growth powered by an explosion of trading on peer-to-peer (P2P) networks.

“In emerging markets like Nigeria, crypto has a more fundamental utility perspective,” says Maya Caddle, the manager of Strategic Products and Investments at Nestcoin. This differs from western markets, “where usage of crypto is fundamentally ideological or speculative.”

And because Nigerians tend to cash in and out of crypto quickly, using digital asset markets for practical reasons, most have largely been unaffected by the bear market.

Caddle argues that crypto offers “access to the foreign world and foreign financial systems,” with digital assets being particularly popular for cross-border remittances. Transfers from the west to the continent represent “one of the most expensive corridors of any remittance corridor,” she says. “Decentralised finance reduces that cost and ensures almost instant settlement.”

“There’s often no other option than digital assets if you want to move money across borders,” says William Phelps, an investment manager at Lagos venture capital firm Adaverse.

As long as crypto continues to allow people to transfer money from one place to another quickly, easily, and cheaply, the specific price at which it’s being traded isn’t a primary concern – because the end result will be the same.

“Cryptocurrencies act less as tradeable assets in Africa,” says Phelps. “Market trends are therefore less important.”

Securing US dollars

Despite this year’s volatility, many Nigerian businesses and individuals are also continuing to use crypto to secure access to US dollars. With the country’s foreign reserves down 3.4% this year, the Central Bank of Nigeria has limited sales of dollars, leading to a shortage of authorised foreign exchange markets.

This is a major problem for those who need to pay for goods or services in the greenback – but crypto provides a solution. “A lot of people are on-ramping from fiat to crypto to access different stablecoins,” which are designed to maintain a peg with USD, says Caddle.

“The main use-case here is not for speculation,” says Nwachukwu. “People are using cryptocurrency to solve actual, real-life problems.”

Phelps agrees. “Although hard to quantify, there’s typically a tangible use-case associated with crypto transactions on the continent,” he says. This makes the typical Nigerian user “more immune to downturns in digital asset markets than those who trade crypto for the sake of it.”

In any case, the downturn in crypto markets is unlikely to impact users in emerging markets such as Nigeria in the same way it has western investors. Digital assets are seen less as a way to secure high returns and more as solutions to practical problems. As long as crypto continues to provide these solutions, digital assets will continue to play an important role in the Nigerian economy and markets across Africa.

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