Cryptocurrency experts claim that Nigerians are protecting themselves against the decline in value of their currency, the naira, by trading more dollar-denominated digital assets. The naira has fallen to new lows on the black market in Nigeria, Africa’s largest and most populous economy. But experts say that investing in cryptocurrency is also behind the devaluation of the Nigerian currency.
Experts say that less volatile digital assets like stablecoins and bitcoins saw increased trading volume last week compared to the previous week.
Data from a popular peer-to-peer funding platform showed that Nigerians traded over $5 million worth of bitcoins, an increase of over 250% during the reporting period.
Trading volumes on the platform have been steadily increasing since the start of the year and reached nearly $400 million in June.
GT Igwe Chrisent, founder of online trading platform Truzact, said he saw more trades.
“We’ve seen an increase in dollar savings that we have in our vault,” Chrisent said. “No one wants to have a million naira worth $2,000 today and tomorrow your million naira is now worth $1,500. So everyone is basically trying to hedge against the dollar. It doesn’t matter to how much the naira drops, their money is unaffected. That’s the only thing that keeps people coming to crypto.”
The naira has been depreciating steadily for months, losing more than 30% of its value in the past year.
Public finance analyst Isaac Botti said government policies are the main reasons for this trend.
“Government policies regarding trade balances over the years we have consistently run trade deficits – spending more to buy dollars than we earn from foreign trade,” Botti said. “Another significant issue is our level of borrowing. … We have to repay in the currencies of the countries we borrowed from. On Friday, a dollar was worth 710 naira. This is a significant reduction in the value of the naira compared to to the dollar.
Experts also say foreign exchange scarcity and inflation compounded by local factors such as food and energy shortages, and Russia’s war in Ukraine, are making matters worse.
Last week, the Nigerian Senate summoned Central Bank Governor Godwin Emefiele for questioning.
The Central Bank of Nigeria said the decline was fueled by speculation and pledged that the bank is working to manage supply and demand challenges, particularly faced by manufacturers and citizens who have need dollars for business and tourism.
CBN’s director of cooperative communications, Osita Nwani Sobi, declined to comment further on the actions taken.
But experts like Botti warn that acquiring assets could cause more harm than good in the long run.
“It will also cause another crisis because by the time we start to experience the crash that comes with fictional currencies, if we invest too much in cryptocurrency and the value drops significantly, that means the naira will plunge further,” Botti said.
But for now, many citizens will be looking for ways to cope with the status quo.