Cryptocurrency experts say Nigerians are hedging against the devaluation of their currency, the naira, by trading more dollar-denominated digital assets. The naira has fallen to new lows on the black market in Nigeria, Africa’s largest and most populous economy. But experts say cryptocurrency investment is also driving the Nigerian currency’s devaluation.
Experts say less volatile digital assets such as stablecoins and bitcoins saw a jump in trading volumes last week compared to the previous week.
Data from a popular peer-to-peer financing platform showed that Nigerians traded more than $5 million worth of bitcoin — an increase of more than 250 percent over the period.
Trading volumes on the platform have steadily increased since the beginning of the year, reaching almost $400 million in June.
GT Igwe Chrisent, founder of online trading platform Truzact, said they have recorded several transactions.
“We’ve seen an increase in the USD savings we have in our vault,” Chrisent said. “No one wants to have a million naira worth $2,000 today and tomorrow, your one million naira is now worth $1,500. So basically everyone is trying to hedge against the dollar. No matter how bad the naira falls, their money is not affected. It is the only thing that keeps people coming to crypto.”
The naira has been falling steadily for months, losing more than 30 percent of its value over the past year.
Public finance analyst Isaac Botti said government policies are the main reasons for the trend.
“Government policy around trade balances over the years we have consistently run trade deficits – we spend more buying dollars than we earn on foreign trade,” Botti said. “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, one dollar was equal to 710 naira. There is a significant reduction in the value of the naira compared to the dollar.”
Experts also say that currency shortages and inflation exacerbated by local factors such as food and energy shortages, and Russia’s war in Ukraine, make matters worse.
Last week, Nigeria’s Senate summoned the governor of the central bank, Godwin Emefiele, for questioning.
The Central Bank of Nigeria said the decline has been fueled by speculation and pledged that the bank is working to address supply and demand challenges, particularly to manufacturers and residents who need dollars for business and tourism.
CBN’s director of cooperative communications, Osita Nwani Sobi, declined to comment on the measures being taken.
But experts like Botti warn that acquiring assets can cause more harm than good in the long run.
“This will also cause further crisis because when we start experiencing the crash that comes with fictitious currencies, if we invest too much in cryptocurrency and the value drops significantly, it means the naira will dive further,” Botti said.
But for now, many citizens will be looking for ways to deal with the status quo.
