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Nigerians are Trading Depreciating Naira for Bitcoin

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Nigerian Naira
Image Credit: Andi T23 (Flickr)

The looming financial crisis slamming the Nigerian economy appears to worsen as time passes. The Nigerian naira continues to depreciate significantly. A financial projection by Goldman Sachs predicts the devaluation of the naira to about ₦550 per dollar within the next 12 to 18 months. Disturbing financial projections like this, and other unfavorable financial conditions that toll Nigeria’s economy, leave Nigerians with the burden of finding a better alternative currency to store their wealth. 

The rise of digital currencies, particularly Bitcoin, has presented Nigerians with an alternative to the depreciating naira. Digital currencies, like the bitcoin and BUS, the digital dollar backed by Binance, protect the wealth of Nigerians from the financial storms that hit the nation. While others who store their value in naira inevitably experience great loss, those who trade the naira for Bitcoin and the stablecoin BUSD currently offered on Bundle Africa, see a significant push in their wealth. Bitcoin is a digital currency which is built with blockchain technology and allows users to exchange funds and transact directly via peer-to-peer networks which do not require middlemen.

Although the introduction of digital currencies in Nigeria was received with mixed sentiments due to its perception as a Ponzi scheme, quite a lot have changed since then. The use of Bitcoin has gained a significant surge over the years. In terms of global search volumes for bitcoin over the past twelve months, recent statistics by Google trends ranks Nigeria as the top country. This indicates the massive interest of Nigerians in Bitcoin. 

Many Nigerians prefer holding Digital currency like Bitcoin and BUSD compared to the country’s fiat – Nigerian Naira

With the prevalence of blockchain in Nigeria, Nigerians can now perform day-to-day transactions more conveniently via Bitcoin. Additionally, with Bitcoin, international payments and transactions occur much faster. The several benefits of transacting with digital currencies, in preference to the naira, has led to the widespread usage of digital currencies in Nigeria. Several Nigerians see no rationale behind storing their value in naira, considering the harsh economic conditions, when digital currencies exist. The chart below shows the result of a 2020 Statista Global Consumer Survey that was carried out to determine the extent of the usage of cryptocurrencies in 65 selected countries. Nigeria tops the list with about 32 percent of the Nigerian respondents in the survey confirming that they used or owned cryptocurrencies. 

Image Credit: Statista

The engagement of Nigerians in the transaction of cryptocurrencies, relative to other nations, has undoubtedly been overwhelming. In statistics provided by Usefultulips, a BTC analytic provider, for Q2 2020, Nigeria topped in the amount of BTC transactions in Africa, with over $34.4 million. South Africa, the closest rival, transacted a total value of about $15.2 million, less than half of Nigeria’s transactional value.

The significant interest of Nigerians in digital currencies has attracted the attention of several prominent players in the global business and cryptocurrency scene. “Sad to be leaving the continent…for now. Africa will define the future (especially the bitcoin one!). Not sure where yet, but I’ll be living here for 3-6 months mid 2020. Grateful I was able to experience a small part. 🌍, ” remarks Jack Dorsey, CEO of Twitter and Square, stated, via a twitter post, after his visit to Nigeria in 2019. Unfortunately Jack’s proposed move to Africa was disrupted by the Covid-19 Pandemic.

With the current state of digital currencies in Nigeria, there is a lot of potential for an increased massive engagement in Bitcoin and other digital currencies. Quite a number of Nigerians are flocking towards digital currencies and it will only take a while for the constant depreciation of the naira and the dwindling financial economy of Nigeria to push others to adopt the use of digital currencies as a substitute for the naira.

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Kehinde is a driven human who is passionate about leveraging technology to transform the future of humanity and the way we all live. His interest lies in constantly getting valuable information and being part of a mission that seeks to create a transformative radical shift.

Crypto Assets

Crypto prices drop as global market fear increases

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Top cryptocurrency prices have fallen amidst a drop in stocks and fears over China’s Evergrande debt crisis. In the last 24hour, Bitcoin dropped from $47,772 to $42,630 shedding about 8.58%. this is the lowest in price since another bull run began on Sept 5 after the April crash.

El- Salvador’s President, Nayib Bukele sees the fall as an opportunity to invest more. Recall that the country adopted Bitcoin as a legal tender on September 7. Despite the adoption, the price of Bitcoin has fallen by almost 14% since then.

Other coins have experienced dramatic crashes within the last 24hours. Solana, a coin that has experienced 355% growth within the last 3 months fell from $162 to $130 shedding about 11.39% within the last 24hours. Solana’s fall may be categorized by the 17-hour outage which the founder, Anatoly Yakovenko said was caused by bots “flooding the networks”

Ethereum fell by 9.37% while Dogecoin and Axie Infinity fell by 11.22% and 14.14% respectively within the last 24hrs hours. While crypto experiences dark Monday, El-Salvador keeps investing more money in Bitcoin.

A look at the global market

The global market is experiencing fear due to the Evergrande debt crisis. A report published by the University of Michigan shows that consumer’s sentiment is beginning to decline. This trend alone may impact the crypto market as well.

On the other hand, the global market downturn must have been spurred by the Evergrande debt crisis. The company grew to be one of China’s biggest companies by borrowing more than $300bn. Last year, Beijing made rules to control the debt owed by big real estate developers. This led Evergrande to offer its properties at major discounts to raise more money to keep the business afloat. Right now, the company is struggling to meet the interest on payment of debts.

Why would it matter if Evergrande fails?

The collapse of the multi-million dollars company would affect the global market; including the crypto market. Many people bought properties from Evergrande and they expect to make gains. If Evergrande falls, crypto investors will be forced to withdraw more money to keep their business running without the means to invest more. When one business fails, the other gets affected indirectly. This also applies to other firms that do businesses with Evergrande.

The potential impact on China’s financial system is another effect of Evergrande’s fall. In his statement to BBC, Mattie Berkink, the Economist Intelligence Unit (EIU), said that “the financial fallout would be far-reaching. Evergrande reportedly owes money to around 171 domestic banks 121 other financial firms” if the company fails, other lenders or businesses may be forced to lend less. Thereby leading to a credit crunch- a situation where companies struggle to borrow money.

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Bitcoin in Africa

The rise of CBDC in African economies

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Many nations have taken cues from the world of crypto and its resounding successes over the last decade. In order to avoid getting left behind, governments worldwide are increasingly turning their attention towards implementing some form of digital currency, a CBDC which in full is Central Bank Digital Currency. Although inspired by cryptocurrencies, CBDC’s are quite different from traditional crypto platforms. The main differences are that CBDC’s are unlikely to be decentralized, the supply of this currency regulated by the host’s country’s central bank as the CBDC is designed to operate as a sovereign legal tender, the digitized form of the host country’s fiat currency. Thus, a central bank may issue digitized tokens of its currency of which their value is pegged to the fiat currency of the nation in question, making CBDC’s stablecoins.

Africa has seen a rise in the use of cryptocurrencies and it’s still pushing frontiers in this sector. Although the use of crypto in many African nations is becoming more and more pervasive by the day, the tone of governments in many of these countries toward the sector is cautious at best and threatening at worst. However, a few nations have voiced interests in creating digitized versions of their legal tender to function as a CBDC. Amongst these are Ghana, Nigeria, Morocco, Kenya and Tunisia.

Many of these projects are still in the research phase or developmental phase however. A good example is Ghana’s proposed CBDC, the E-cedi being developed in partnership with German company, Giesecke + Devrient. Nigeria’s CBDC project, the eNaira has been announced and according to Nigeria’s central bank, this CBDC will be launched sometime in 2021. To that end, the CBN has partnered with fintech company, Bitt Inc. to serve as the technical partner in the eNaira’s development. Reportedly, the CBN had made the decision to digitize the Nigerian Naira in 2017.

While the pursuance of digital currencies in African nations is a welcome development, implementation of these schemes isn’t without challenges. Chief among the issues countries in Africa face would be the already existing financial service inequality and poor penetration of internet access in the continent. These challenges must be tackled in order to allow for mainstream adoption of CBDCs and the subsequent provision of financial inclusion. The benefits largely depend on the peculiarities of the nation deploying them. For instance, a digital currency is thought to help Nigeria increase foreign remittances, it’s second largest source of forex after oil. Whatever the outcome of these projects, it is becoming apparent that CBDC’s have come to stay.

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Bitcoin trades above $51k ahead of El Salvador’s adoption

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Bitcoin growth

Bitcoin price has rallied above $51,000 ahead of El Salvador’s adoption. The immediate surge in price may be due to the social media campaign that everyone should buy sats of Bitcoin to support El Salvador’s plan to make the coin a legal tender or it may be due to the news of El Salvador’s adoption of the coin as a legal tender on September 7. Users of social media platforms like Twitter and Reddit are discussing how they will buy Bitcoin of $30 each to mark the new El Salvador Bitcoin law.

The surge in Bitcoin’s price began in the last 24hrs with the price rallying around $51,955 with a 3.37% increase. This is an all-time high after the April crash that brought the price of Bitcoin from $64k down to $28k. The move by El Salvador to be the first country that accepts Bitcoin as a legal tender and the social media campaign that leads to a surge in price ahead September 7 are a repetition of events that occurred late last year and early this year with regards to institutional investors and how the price of Bitcoin skyrocketed.

El Salvador, a country in Central America, has been preparing heavily to adopt Bitcoin by installing ATMs to allow citizens to convert the token into US dollars. Last week, the country’s Legislative Assembly passed a law to allow for the creation of a $150m Trust to support the conversion of Bitcoins to US dollars.

To promote the use of Bitcoin, the government states that it will give the adult population of El Salvador $30 in Bitcoin once they download “Chivo” the wallet issued by the government. This was confirmed by the Finance Minister, Alejandro Zelaya.

What this means for Bitcoin investors

Apart from the adoption by Salvadorians, on-chain analytics show that Bitcoin is in high demand. The fourth halving that occurred will make Bitcoin become a scarce token in the nearest future. Thereby increasing the price sporadically.

With El Salvador’s interest in Bitcoin, other countries are likely to follow suit- Panama is considering following El Salvador’s lead. History will repeat itself as this development will serve as another crypto rout that occurred early this year when Tesla and MicroStrategy announced their support for Bitcoin.

El Salvador’s new law allows the use of Bitcoin as a legal tender it can be used to buy goods, pay for taxes and bank loans. This means more demand for Bitcoin, with the fourth halving that occurred, it means less supply. A common rule of economics for demand and supply will apply. Prices are projected to keep rising. At the time of writing this report, Bitcoin is trading at $51,839 with a projection of $52k before the end of today and higher tomorrow when Salvadorians begin to use the token.

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