Key highlights
- Bitcoin outperformed Nigeria’s equity market in Q1 2023, with a 67% YTD return and a market value of $549 billion, leading to renewed interest in the digital currency as a potential investment opportunity.
- Nigeria’s stock market was largely ineffective due to political uncertainty, a policy limiting cash withdrawals, and the inability to attract new listings or successful public offers.
- The recent collapses of global banks have highlighted the vulnerability of some global banks and the need for alternative financial systems that offer greater resilience, with Bitcoin being one of them.
- Despite the risks associated with investing in cryptocurrencies, Bitcoin’s popularity as a hedge against traditional markets continues to attract investors, with technical analysis dominating the cryptocurrency market as traditional fundamental analysis is not feasible for Bitcoin.
Bitcoin’s performance in Q1 2023 has been better than Nigeria’s equity market, with a 67% year-to-date (YTD) return and a market value of $549 billion. This has led to renewed interest in digital currency as a potential investment opportunity.
A lull in stock market activity is further heightened by the Exchange’s ability to attract new listings or successful public offers. Bitcoin is currently outperforming the NGX index by 60% at the time of writing.
The just concluded general elections have also impacted market sentiments towards stocks as investors largely stayed out amidst political uncertainty. To add to this challenge, the central bank’s policy limiting cash withdrawals and the poor introduction of new naira notes further dented investor appetite in the stock market.
With the stock market largely ineffective, most Nigerians have limited investment options beyond keeping their money in the bank. Meanwhile, the global appetite for bitcoins appears to be on the rise as a global response to financial sector stability resurrects crypto bulls.
The recent collapses of Silvergate, Signature Bank, and SVB have brought attention to the strength of decentralized currencies like Bitcoin, which individuals can completely control and own. The events surrounding the failure of SVB and other banks have highlighted the vulnerability of some global banks and the need for alternative financial systems that offer greater resilience.
Despite the risks associated with investing in cryptocurrencies, Bitcoin’s popularity as a hedge against traditional markets continues to attract investors. Technical analysis dominates the cryptocurrency market as traditional fundamental analysis is not feasible due to the absence of earnings records for Bitcoin. However, “on-chain data” discovered in the public blockchain of Bitcoin can provide insights into significant turning points, as scholars have discovered.
According to JPMorgan Chase strategist Nikolaos Panigirtzoglou, retail investors will likely have more influence in the cryptocurrency market as many corporations have given up on entering the market due to numerous digital token meltdowns and exchange failures. As a result, the positive retail impulse is naturally more dominant in crypto.
Bitcoin’s price has been volatile, with its record high of $68,000 in November 2021 followed by a bear market sentiment in 2022 due to constant lower lows. However, Bitcoin has consistently shown resilience, making a powerful comeback and rebounding in a bullish pattern. This has led many analysts to speculate that the bear market may have ended and that BTC has begun a new bull run.
The cryptocurrency market’s future remains uncertain, and investors should exercise caution and conduct their research before investing in any digital asset. However, as the crypto market continues to evolve and mature, it is likely that we will see more institutional adoption and regulation. This could lead to increased stability and credibility for the market, as well as new investment opportunities for individuals and institutions alike.
The NGX index finished at 7.16%, highlighting Nigeria’s declining economic activity that negatively impacted its stock market. The delisting of companies from the exchange led to massive capital flight, making it challenging for foreign investors in Nigerian stocks to withdraw their money after selling any assets. As a consequence, market participation from abroad has drastically decreased.
The rise of Bitcoin has been a bright spot in contrast to Nigeria’s stock market. While the future of the crypto market remains uncertain, the potential for high returns has drawn many investors to the space. As such, it is important for investors to exercise caution and conduct their research before investing in any digital asset.
To make a fair comparison between these two asset classes, it would be more appropriate to compare their Sharpe Ratios, which measure the excess return earned per unit of risk taken. Based on this measure, I suspect that the NGX might perform better than Bitcoin, even though Bitcoin has shown higher returns on an unadjusted basis.