Why Nigeria Became a Global Leader in Bitcoin Trading
Nigeria’s share of the world’s cryptocurrency ( cryptocurrency ) trading volume is larger than that of most other countries . Ijioma Ndukwe says this reflects a declining confidence among Nigerians in traditional ways of investing .
Tola Padugbagbe recalls coming to Lagos, Nigeria’s largest city, dreaming of a brighter future than 10 years ago.
Contrary to what he had dreamed of at the time, as a 34-year-old young man, he is living on only the minimum wage by changing jobs. This is the reality many Nigerian youths face today.
But in 2016, seeing an online advertisement, Padugbagbe became interested in Bitcoin.
“I started doing a lot of research on Bitcoin.” He told the BBC.
“I spent hours every day watching videos about Bitcoin on YouTube and reading articles about Bitcoin. We didn’t have much money, so we started with around $100-200.”
his decision then changed his life.
Padugbagbe currently trades bitcoin full-time, teaching other investors, and said at the time of the interview that he owns more than $200,000 in cryptocurrencies.
“I’m building my own house right now, and I’ll be moving when it’s finished. There are also very large farms. It’s thanks to cryptocurrency.” He smiled broadly. He is not shaken by fears that he is part of a bubble that may someday burst.
“No one in Nigeria wants to get their hands on cryptocurrency and go back. It’s a huge opportunity.”
The success stories of people like Padugbagbe have attracted millions of Nigerians to Bitcoin and other cryptocurrencies.
According to a survey conducted in 2020 by data specialist Statista, 32% of Nigerians are using cryptocurrency. This is a higher proportion than any other country in the world.
Nigeria’s 2020 cryptocurrency trading volume is estimated at over $400 million. This is the third largest trading volume in the world after the US and Russia.
Although Nigeria has overcome the recession in less than five years, the economic situation is still difficult. As a result, other sources of income and alternative currencies are gaining traction.
Nigeria’s central bank devalued the national currency, the Naira, by 24% last year. There is concern that the devaluation could be as high as 10% this year.
Meanwhile, prices continue to rise. Food prices rose to the highest level since July 2008.
After selling his property in 2018, Michael Ugwu, the founder of the Lagos-based media company, felt the need to explore new investment opportunities.
Although his income increased, the devaluation of the national currency, the Naira, devalued his dollar assets.
“I earned my age, but I lost US dollars. That’s when I realized we were going backwards. That’s when I started looking at Bitcoin.”
The investment transition to cryptocurrency has paid off.
“Some of the currencies I own have yielded 50 times the investment. Bitcoin has simply risen tenfold over the past year.” he said
He sees cryptocurrency as an evolution of finance. The expression “finance 2.0” is also derived from it.
Despite the instability of virtual currency values, Uguu sees virtual currency as a very useful tool to “hedge” the risks of the “high-risk environment” in which he lives.
‘Better banking experience’
His wife, Onieka, started investing in cryptocurrencies because of the high fees they incur each time they send money from a Nigerian account to a UK account.
“It’s kind of a banking system for me.” he said
“The purpose is not to make money. For a better banking experience. Think of it as saving money in a currency that maintains its value.”
Despite the attractiveness of cryptocurrencies, economists warn that bitcoin and other cryptocurrencies are high-risk investments.
Concerns that Bitcoin’s soaring price is of a speculative nature and may one day go bankrupt are not unfounded.
A Nigerian international finance worker, who requested anonymity, said cryptocurrencies are a financial product with significant regulatory risks.
“Governments and central banks have not yet decided if and if cryptocurrencies should be regulated.” he said
“From a technical point of view, I am not 100% sure that the security system used by cryptocurrencies is perfect. I think there are still technical uncertainties.”
Nigeria’s central bank banned banks from engaging in cryptocurrency-related transactions in 2017 to regulate the market, but so far the move has largely gone unenforced.
However, the authorities are consolidating their stance this year.
In a statement released on February 7, financial authorities addressed the need to protect the general public from “unregulated and unknown entities.”
Since then, many Nigerians have suffered bank account suspensions due to cryptocurrency-related activities.
Padugdagbe’s bank account phoned him and instructed him to transfer funds because his account was going to be suspended.
But not everyone was so lucky.
A source said that two weeks ago, accounts containing tens of thousands of naira were suspended.
The source, who works as a software engineer, says the bank does not give reasons for the account suspension.
He suspects that he has been targeted by the authorities for running a cryptocurrency remittance business.
However, many cryptocurrency investors say they will continue to trade via bank accounts abroad.
It is also said that it can be easily converted to one-to-one remittance. In other words, instead of sending funds through financial institutions and cryptocurrency exchanges, transactions can be made by sending virtual currency directly to the buyer or agent.
‘You can’t stop it completely’
This is the method used by the cryptocurrency community in Nigeria before today’s cryptocurrency trading ecosystem was formed.
Uguu said he had heard a lot of stories about moving businesses to Ghana, Rwanda, and Sierra Leone, which are more friendly in the cryptocurrency industry.
Authorities’ concerns that virtual currency can be used for illegal purposes are not without basis, but some point out that they are over-regulating.
Kingsley Mogalu, who served as vice governor of the Central Bank of Nigeria, said the government should intervene to manage risk through appropriate intervention, rather than block it entirely, given that cryptocurrencies are providing food to many people during a recession.
There are also concerns that Nigeria may miss the opportunity brought by cryptocurrencies. Gvite Oduneye of the Lagos-based brokerage firm EGM Group says:
“Nigeria is the third largest cryptocurrency exchange in the world. If you don’t take advantage of this, someone else will. We need to create an ecosystem and give it rules and regulations.”
‘I believe in cryptocurrencies rather than stocks’
Nigerians also treat cryptocurrencies as a tool to evade foreign currency restrictions.
“There are too many restrictions on what can be done with foreign currency.” Nena Nwachuku of Nigeria’s popular cryptocurrency exchange Paxpool says:
“Nigerians find it easier to use cryptocurrencies as an investment tool.”
He says interest in the company’s services has grown since around October 2020, when protests against police violence in Nigeria erupted.
When authorities froze bank accounts to crack down on organizers of the protests, they turned to cryptocurrencies.
As a result, the number of subscribers and trading volume on Nwa Chuku’s exchange has increased dramatically.