While Bitcoin is experiencing a record-breaking year so far, many would-be investors are in awe of just how much the value has rocketed during 2021.
Nigeria itself has the second-largest Bitcoin market in the world, with only the USA trading more in the cryptocurrency. The last 4 years have all seen an increase of 19% in the amount that Nigerians invest into Bitcoin and it is believed that they have traded around $600 million worth during this time.
Nigerians now face a new challenge in their investment journeys. With Bitcoin being so popular in the country, they are now facing a 50% premium in prices compared with what Bitcoin costs in other countries across the world.
Anyone familiar with crypto terms will know that the price of Bitcoin can never be fixed, but what has led to this significant premium being levied against Nigerian investors?
The Central Bank of Nigeria
February 2021 saw the Central Bank of Nigeria (CBN) issue a notice to all of Nigeria’s financial institutions. This notice instructed them that they must close all bank accounts that were associated with cryptocurrency trading platforms. This meant that the likes of Luno and Binance were suddenly in a position where they were unable to process deposits.
The CBN was keen to stress that its directive was nothing new. The notice was intended to reiterate the countries position on cryptocurrencies which was originally started in January 2017. At this time the CBN instructed banks that they were prohibited from providing crypto exchanges with any type of financial service. History shows what has happened since 2017 with Bitcoin in Nigeria where it has only grown in popularity, so this latest attempt by the CBN to control its use may be in vain.
How does this impact the price of Bitcoin?
Perhaps unsurprisingly, the order made by the CBN sent shockwaves across Nigeria. The appeal of Bitcoin, and indeed any cryptocurrency, is the fact that it is decentralised and free from the interference of individuals and governments. Yet, in Nigeria what was being witnessed was a government trying to take control by shutting it down. The order saw Nigerians immediately selling Bitcoin and literally overnight the demand had slumped.
This slump in demand has led to issues with liquidity at the exchanges. Liquidity refers to the ease with which crypto can be exchanged for cash or another cryptocurrency. When liquidity is low it pushes the price of an asset up. In this case, the asset is Bitcoin and the increase has been around 50% when compared to prices elsewhere.
The future of Bitcoin in Nigeria
A recent survey revealed that 32% of Nigerians have invested in Bitcoin. That is the highest percentage anywhere in the world. Over 1 million trades in crypto are made every month on just one platform and that equates to $65 million worth. Given these figures and the intense interest in Bitcoin in Nigeria, it is hard to see how it is going anywhere anytime soon.
Although trading platforms have lost accounts, and even individual traders have had their accounts frozen, the commitment to Bitcoin means that Nigerians will still find a way. Many have already been vocal about the fact that they have no intention of moving away from the currency. After all, it has provided a safe haven for many as well as making a fortune for others. Already Nigerians are exploring ways around this ban and are taking advantage of overseas accounts and peer to peer opportunities. It would seem that Bitcoin will remain alive and well in Nigeria.
