Nigeria Investors adopts Cryptocurrencies as Dollar deficient

Nigeria Investors adopts Cryptocurrencies as Dollar supply reduces

Due to the limited supply of Dollar, Nigeria investors and business owners have adopted cryptocurrencies to buy the imports that are the bedrock Nigeria’s econ­omy.

Recall that at  the weekend dollar sold for N500/$ at the black market.

With the price of oil, the country’s main export, depressed and foreign exchange reserves dropping, the central bank is holding on to scarce foreign currencies in its coffers in order to shore up the naira.

A cryptocurrency is a digital asset designed to work as a medium of ex­change wherein individual coin own­ership records are stored in a ledger existing in a form of computerised database using strong cryptography to secure transaction records and to control the creation of additional coins.

Cryptocurrencies use de­centralised technology to let users make secure payments and store money without the need to use their name or go through a bank. They run on a distributed public ledger called blockchain, which is a record of all transactions updated and held by curren­cy holders.

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The naira has been experi­encing a steady fall for many weeks now. For instance, by 1.05 percent on Tuesday, Au­gust 18, 2020, to a low of N480 to the dollar on the black mar­ket, while it was N500 by the weekend.

Similarly, the Pound Ster­ling exchanged for N610 and the Euro traded for N550.

However, as the naira con­tinues its free fall, the CBN has refused to dispense forex to investors and importers as it is fighting against a deple­tion of the nation’s foreign exchange reserves which currently stands at around $35.6 billion.

Holders of Nigerian bonds and equities may have as much as $2.5 billion trapped in the country, Simon Kitch­en, an analyst with EFG Her­mes, said in a note to inves­tors last week.

According to Ayodele Sa­lami, who is the Chief Invest­ment Officer at Duet Group, “We’ve been investing across African markets for about 15 years. And in 15 years, Nige­ria is the only place where twice in less than five years you have a lockdown or a complete freeze of the foreign exchange market.”

What this means is that foreign investors who want to buy into the Nigerian market can’t move their cash out.

Significantly, around the world, the acceptance and utilisation of blockchain technology and its underly­ing cryptocurrencies has be­come more imperative. With the surge in the number of bitcoin (BTC) and altcoin us­ers, it could be presumed that people are now more aware of the possibility of attaining financial autonomy.

For economies with fiat currencies that are prone to frequent devaluation like Nigeria, the embrace of dig­ital currencies has grown in recent times. A recent survey from statista.com, encom­passing 65 countries, showed that Nigerians were the most likely to say they used or owned cryptocurrency. The oil-rich sub-Saharan African nation topped the chart with 32 percent.

Effort Etinosa Onoboh, an independent bitcoin trader and investor, said the rank­ing is “nothing unexpected” as the masses are recognising the revolutionary capabili­ties of blockchain technology.

He said: “Stiffened regula­tions, coupled with the subtle and incessant devaluation of the naira, have made crypto­currencies a viable option for all.”

In a country that is im­port-dependent, the cen­tral bank, in its powers, is always revising the dollar spend limit both home and abroad, and Onoboh believes that these restrictions will al­ways “hinder businesses and transactions”. This is a ma­jor reason why people turn to cryptocurrencies as the best alternative.

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Lukman Otunuga, senior research analyst at FXTM, said sentiment towards Ni­geria, the largest economy in Africa, remains fragile, thanks to dollar scarcity, shaky oil prices, and external risks in the form of US-China tensions.

Nigeria is still expected to contract by 5.4 percent, ac­cording to the Internation­al Monetary Fund (IMF), thanks to COVID-19, while inflation continues to rise on the back of continued border closures and the lingering ef­fects of coronavirus-induced supply disruptions.

It is the same story out­side of Nigeria with other emerging markets and de­veloped countries nursing deep wounds from lockdown restrictions. At best, the outlook for the rest of 2020 remains clouded by uncer­tainty.

Investors may be offered some clarity over how Nige­ria fared in Q2 when Gross Domestic figures are released on Wednesday, August 26. With economic growth in the United States plunging 32.9 percent in Q2, the UK contracting 20.4 percent and even South Africa’s growth projected to tank as much as 40 percent last quarter, it will be interesting to see how Nigeria performed. An eco­nomic contraction is widely expected, the question is how deep?

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Otunuga believes that last week was another phe­nomenal trading week for global markets with U.S. eq­uity bulls stealing the show by propelling the S&P 500 to all-time highs on Wednesday and the tech-heavy Nasdaq joined the party overnight, making a record despite growing signs of economic weakness, but some emerg­ing markets were not invited to the party with the Nigeri­an stocks struggling for direc­tion this week.

The Nigeria Stock Ex­change All Share Index (ASI) is still down almost 6 percent year-to-date despite the S&P 500 and Nasdaq, both hitting record highs. Although glob­al equity bulls continue to derive strength from unprec­edented central bank support and handsome fiscal packag­es, this liquidity-fuelled rally has been unable to find its way into Nigerian markets.

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