A news report extracting a statement from Paxful, one of the major P2P platforms in the country, showed that weekly transactions on its Lightning Network have increased significantly. The CEO and Co-founder of Paxful, Ray Youssef, noted that Nigeria was one of the countries with the highest Bitcoin trade volume in the first week of May 2022.
Meanwhile, in the first quarter of the year (Q1 2022), Nigerians traded at least N77.75bn (US$185m) worth of Bitcoin, a 5.71% increase compared to N73.54bn achieved in Q1 2021, according to the trading platform. In 2021, globally, the company saw nearly US$3bn in trade volumes on Paxful, and Nigeria had the largest trade volume with over US$760m.
Nigerians traded over N316.9bn in bitcoin volume in 2021 with over 16,000 daily trades. An increasing number of Nigerian youths are investing in cryptocurrencies despite the CBN’s directive to banks in the country, and the current bloodbath in cryptocurrency markets has created an attractive entry point for new investors to the crypto ecosystem.
Despite the many benefits associated with the use of cryptocurrencies such as speed, anonymity and accessibility, the opacity of cryptocurrencies that have made them well suited for conducting many illegal activities such as money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion makes them unacceptable by many monetary authorities.
Unlike Fiat Money, which is accompanied by the full faith and comfort of a country or Central Bank, cryptocurrencies do not have any intrinsic value and do not generate returns by themselves and are highly volatile, just as we have seen in recent times. These reasons informed the decision of the CBN in February 2021 to stop financial institutions in Nigeria from facilitating transactions in cryptocurrency.
We note that the rising number of Nigerians investing in cryptocurrencies reflects the dearth of high-yielding investment options amidst a significant decline in the purchasing power of households caused by multiple devaluations and high inflation.
Research by Gemini showed that respondents in countries that have experienced 50% or more devaluation of their currency against the USD over the last 10 years were more than 5 times more likely to say they plan to purchase crypto in the coming year than those in countries that have experienced less than 50% currency devaluation, implying that investments in potentially high yielding ventures such as cryptocurrencies, despite associated risks, are seen as a hedge against inflation.
Forces of supply and demand, investor and user sentiments, government regulations, and media news are all factors that create price volatility in cryptocurrencies. However, if history is anything to go by, the cryptocurrency market will likely correct soon enough. Moreover, the continuous rollout of features on solutions such as Lightning Network and Cash App for more accessibility to crypto-assets, particularly Bitcoin, means investments in cryptocurrency will likely continue to grow. The current low prices present an ideal entry point for new investors who may have missed Bitcoin’s last rally or for existing investors who intend to increase their positions.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.
