Nigeria has the highest proportion of people holding cryptocurrencies in the world. Why has it become such a hot spot?

Cailian Press | Blockchain Daily (Shanghai, reporter Zhang Yangyang) reported that although the Nigerian government has issued a ban on financial institutions holding and trading cryptocurrencies, it seems to be helpless against private trading activities.

Statistics show that Nigeria has the highest proportion of cryptocurrency holders in the world. Coupled with the unfriendly economic environment, Nigeria is becoming a hot spot for the crypto market.

Industry insiders analyzed to the Blockchain Daily reporter that the cryptocurrency market meets some financial needs of underdeveloped regions, but also brought blind spots to government regulation for a period of time, and the risks naturally cannot be ignored.

Cryptocurrency in Nigeria

According to a 2020 survey by the data statistics platform Statista, 32% of Nigerians have held/used cryptocurrencies - the highest proportion in the world. Vietnam is followed by 21%, the Philippines 20%, and the United States 6%.

If online surveys have limitations, the latest trading volumes are a better reflection of the reality.

According to Bitcoin data statistics provider Coin Dance, Nigeria was one of the top 50 countries and regions in the world in LocalBitcoins statistics for the past week (as of August 17).

Nigeria is the most populous country in Africa, with a total population of 206 million, accounting for 18% of Africa's total population. The country is also the largest economy in Africa, with a gross domestic product (GDP) of US$432.3 billion in 2020, making it the country with the highest GDP in Africa.

In the view of Hu Jie, a professor at the Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, Nigeria's huge economic size and population make it an important player that cannot be ignored in the global cryptocurrency market.

Secondly, despite being the largest economy on the African continent, Nigeria’s domestic economic environment is very precarious, which is also the biggest reason why cryptocurrencies such as Bitcoin are popular in this West African country.

The oil industry is Nigeria's largest source of income, but the current international oil price is fluctuating at a low level. The drop in oil prices has severely impacted the fiscal revenue of oil-producing countries.

Especially affected by the continued impact of the global epidemic, the plummeting oil prices and the new crown epidemic have made Nigeria’s current economic situation even worse.

The reporter of Blockchain Daily noted that as the epidemic continues, Nigeria's inflation rate continues to rise. Since the beginning of this year, this figure has remained at a high level of more than 15%.

According to the latest data from the Nigerian National Bureau of Statistics, Nigeria's inflation rate was 17.8% in June 2021, and reached 18.2% in March this year, a record high in nearly four years.

In this economic context, many Nigerians have chosen Bitcoin as their investment target, because the local currency, the Naira, is depreciating, while Bitcoin is appreciating, allowing people to hedge against inflation risks.

Hu Jie also analyzed to the reporter of Blockchain Daily that the cryptocurrency market has a certain alternative effect on traditional financial activities in a sense. "When traditional financial services are not developed enough, the demand for alternative financial services will increase."

In addition, compared with the 10% cross-border transfer fee, the low fees of cryptocurrencies such as Bitcoin have shown great advantages and have become the preferred option for Nigerians to make cross-border payments.

In addition, political factors also drive the use of cryptocurrencies in the local area.

Interest in cryptocurrencies surged during Nigeria's "EndSARS" movement last year, when activists used Bitcoin to raise funds to fight police brutality in Nigeria.

Giants’ layout in Nigeria

Currently, peer-to-peer transactions are the most popular way to trade cryptocurrencies in Nigeria.

Many local exchanges support buying and selling digital currencies using the local currency, the Naira. For example, Nairaex is the largest local cryptocurrency exchange.

Binance also provides services in Nigeria. In 2019, Binance launched the Nigerian Naira (NGN), which is Binance’s first fiat currency exchange and cryptocurrency channel. Nigerian users can use Naira to purchase BTC, BUSD, and BNB on Binance’s official website.

Since then, the Africa Stable-Coin (ABCD), Africa's first stablecoin pegged to the Nigerian fiat currency, has also been built on the Binance Chain.

There is also Bitpesa, a Bitcoin remittance platform that focuses on overseas payments. Nigerians can use Bitpesa to purchase Bitcoin using credit or debit cards.

Contradictory regulatory prohibitions

Although cryptocurrencies are very popular locally, the Nigerian government has always wanted to curb them. As early as 2017, the Nigerian government announced a ban on the country's financial institutions from holding and trading cryptocurrencies.

This year, the Central Bank of Nigeria (CBN) reiterated this policy.

According to a letter issued by the CBN on February 5, it requires banks, non-bank financial institutions and other financial institutions in the country to immediately close all accounts involving cryptocurrency transactions and prohibit the purchase and sale of cryptocurrencies or the provision of payment facilities for such transactions. The CBN warned that failure to comply with the directive will result in "severe regulatory sanctions."

The underlying message behind both policy circulars is clear: keep cryptocurrencies out of Nigeria’s financial institutions.

As for the private use and trading of cryptocurrencies, the Nigerian authorities do not seem to have strict regulations.

Hu Jie mentioned that the Nigerian government has maintained a relatively tolerant attitude towards alternative financial activities outside the traditional financial system.

"The cryptocurrency market has brought new hope to finance in underdeveloped regions and has met some local financial needs to a certain extent."

On the other hand, Hu Jie also said that this also brought blind spots to supervision for a period of time, and the risks cannot be ignored. As the Nigerian authorities have always emphasized in the ban, we must be vigilant against illegal activities such as money laundering and fraud using cryptocurrencies.