02 Aug 2022 Jane Whitmoore
Nigerians Opt For Cryptos To Hedge Against Inflation
Nigerians are increasingly shifting towards cryptos as the native currency of Nigeria – the naira, has fallen victim to a massive devaluation. It turns out that the massive increase in trading volumes for bitcoin and stablecoins last week, when compared to the week before, is adding to the naira devaluation as well.
Meanwhile, data from a popular peer-to-peer finance platform showcased that Nigerians moved two and a half times more Bitcoin than the past week, eclipsing $5 million worth of the world’s largest crypto. Furthermore, since the start of 2022, trading volumes have been increasing, reaching nearly $400 million in June.
"We've seen a surge in the USD savings we have in our vault," GT Igwe Chrisent, founder of online trading platform Truzacsaid.
"Nobody wants to have a million naira worth $2,000 today and then tomorrow, your one million naira is now worth $1,500. So, everybody is basically trying to hedge against the dollar. No matter how bad the naira falls, their money is not affected. That's the only thing making people come to crypto." Chrisent added.
Nigeria’s native currency continues to drop
Meanwhile, the Nigerian naira lost more than 30 percent of its value within the past 12 months. The primary reasons for the devaluation, according to public finance analyst Isaac Bott, are government policies.
"Government policies around trade balances over the years, we have consistently run trade deficits -- spending more to buy dollars than we're earning from foreign trade," Botti stated, adding that “another significant problem is our level of borrowing. ... We have to pay back in the currencies of the countries we borrowed from.”
“As of Friday, a dollar was equal to 710 naira. That's a significant reduction in the value of naira compared to the dollar." the analyst concluded.
The lack of access to foreign exchange and inflation made worse by local factors like food and energy shortages, and Russia's war in Ukraine, are making it worse for the naira, according to other experts.
The problem seems so severe, that Nigeria’s Senate called upon the Central Bank of Nigeria and its governor, Godwin Emefiele, to give an explanation for the crisis.
According to Emefiele, the Central Bank of Nigeria is already working on the matter, trying to mitigate supply and demand challenges, especially faced by manufacturers and citizens who need dollars for business and tourism.
However, experts like Botti are raising a flag of concern about whether Nigeria’s massive turn towards cryptos could actually set a course to even worse financial events.
"This will also cause a further crisis because by the time we begin to experience the crash that comes with fictitious currencies, if we invest too much in cryptocurrency and the value drops significantly, it means that the naira will further nosedive," Botti stressed.
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