|A woman checks her phone in Owerri, Nigeria.
Source: Obiageli Adaeze Okaro/Moment via Getty Images
Cryptocurrency adoption is rising rapidly in Nigeria despite attempts by regulators to limit access as users seek alternative methods of transacting.
Nigeria was ranked 6th in the 2021 Global Cryptocurrency Adoption Index published by blockchain analytics organization Chainalysis in October 2021. Factors driving cryptocurrency usage include lack of access to traditional finance, depreciation of the naira and inflation. More than a third of Nigerians between the ages of 18 and 60 surveyed by cryptocurrency exchange KuCoin invest in cryptocurrencies, according to an April report.
This despite the fact that the country’s central bank said in February 2021 that the use of cryptocurrencies is “a direct contravention of existing law” and prohibited commercial banks do business with them. He warned that cryptocurrency trading presents risks including loss of investment, money laundering and terrorist financing.
The crackdown has pushed users to peer-to-peer or P2P platforms. like Paxful and LocalBitcoins.
“There was an initial shock, but the water will always find its way and the young people found P2P: the volume [of transfers] that they were carrying out through the banks has moved [to P2P]so banks no longer get the fees for those transactions,” Adedeji Owonibi, CEO and founder of Nigerian blockchain consultancy Convexity, told S&P Global Market Intelligence in an interview.
“There are thousands of people trading every moment,” Owonibi said.
Nearly two-thirds of the 360 Nigerian cryptocurrency investors surveyed by KuCoin used fiat to buy cryptocurrency on peer-to-peer exchanges. Many users trust P2P platforms are not only a gateway to cryptocurrency, but also a tool for sending remittances and conducting business transactions, according to Chainanalysis.
The Paxful P2P platform has seen an increase in the number of customers using its services.
“At Paxful, we have seen a huge increase in remittances coming into the country,” Oyewole Joledo, a senior manager at Paxful Nigeria, told Market Intelligence. “For a more agile generation of young people, sending money through traditional means seems to be disappearing. They need more comfort. They prefer to do all this from their phones.”
The World Bank had projected that remittances sent to sub-Saharan Africa increased 6.2% year-over-year in 2021 to $45 billion, following a pandemic-induced decline in 2020. The Nigerian diaspora had higher disposable income due to a lower spending amid the COVID-19 pandemic, allowing them to send more money home, Jimi Ogbobine, head of consulting at Agusto Consulting Ltd. in Lagos, told Market Intelligence.
However, converting cryptocurrency to naira is difficult and as such discourages expats from sending remittances in bitcoin or ethereum, Ogbobine said. As long as the government ban remains in place, friends or family will not be able to walk into a bank and exchange cryptocurrency for naira, which means that, for now, people would prefer to send money through official money transfer operators. ogbobine saying.
Ogbobine has seen the cryptocurrency being used more often by people in Nigeria who are sending money out of the country to get around regulatory hurdles meant to stop outflows.
Still, new rules issued in May suggest a softening of Nigeria’s anti-crypto stance. Entities wishing to launch initial offerings of digital assets must submit a white paper, which will be vetted by the Nigerian Securities and Exchange Commission, while cryptocurrency exchanges must have a minimum paid-up capital of 500 million naira.
Remittances make up “a big part” of the banks’ business, with a growing fraction of such transactions taking place online, according to Teslim Shitta-Bey, managing editor at financial research group Proshare Nigeria.
“Outside of conventional loans and [foreign exchange]digital transactions are very significant,” Shitta-Bey said. “Banks’ digital revenue as a percentage of total revenue has increased in recent years… because younger generations now conduct almost all transactions digitally, including remittances “.
Remittances are a “very important” source of interest-free income for Nigeria’s largest lender, Access Bank PLC, and have increased in recent years. a company spokesperson told Market Intelligence. The bank has not seen any revenue impact from the authorities’ ban on bank customers making transfers from their bank accounts to cryptocurrency platforms, the spokesperson said.
Lack of financial inclusion and macroeconomic factors are also pushing Nigerians to trade cryptocurrencies. Fintech firm BPC estimates that 57% of Africans do not have a traditional bank account or mobile money account.
Meanwhile, the naira has fallen 60% against the US dollar since October 2014, annual inflation was 16.5% in April and only 37% of people aged 15-34 were in full-time employment. in 2020.
People are increasingly buying Tether, a dollar-pegged stablecoin, as they realize how volatile the dollar-naira exchange rate is, Paxful’s Joledo said. “That’s important because currently the [exchange] It’s terrifying for the average Nigerian,” Joledo said.
As of June 8, 1 US dollar was equal to 415.13 Nigerian Naira.