Why Nigeria leads the world in Bitcoin trading

Bitcoin has surged above $ 17,000 (£ 12,800) and hit a three-year high.

More cryptocurrency is traded in Nigeria than almost anywhere else in the world, reflecting a loss of confidence in more traditional forms of investment, as Ijeoma Ndukwe reports.

Tola Fadugbagbe remembers moving from his small southwest town to Lagos 10 years ago and dreaming of better prospects.

Instead, the 34-year-old got a number of odd jobs that earned the minimum wage to survive – a typical story for many young Nigerians just trying to get by.

It wasn’t until 2016 that online ads for Bitcoin piqued his interest and he began his journey into cryptocurrency.

“I did a lot of research,” Fadugbagbe told the BBC.

“I spent hours every day watching videos on YouTube and reading articles about Bitcoin. I didn’t have a lot of money, so I started with $ 100 to $ 200.”

It was a decision that changed his life.

"No Nigerian comes to cryptocurrency and wants to look back.  This is a great opportunity."", Source: Tola Fadugbagbe, Source description: Cryptocurrency-Investor, Image: Tola Fadugbagbe

“No Nigerian comes to cryptocurrency and wants to look back. This is a great opportunity.”, Source: Tola Fadugbagbe, source description: cryptocurrency investor, image: Tola Fadugbagbe

At the time we had a chat, Mr Fadugbagbe, who is now acting full-time teaching prospective investors, said he had more than $ 200,000 (£ 140,000) in cryptocurrency in his possession.

“I will soon be moving into my own house that I’m building. I have a farm – a very big one – thanks to cryptocurrency,” he laughs happily, unencumbered by the worry that he might inflate an investment bubble one day it burst.

“No Nigerian comes to cryptocurrency and wants to look back. This is a great opportunity.”

Success stories like Mr. Fadugbagbe’s have drawn millions of Nigerians to digital currencies like Bitcoin.

A 2020 survey by the data platform Statista found that 32% of Nigerians use cryptocurrencies – the highest proportion of any country in the world.

Nigeria's cryptocurrency business.  2020 [ 1.1m cryptocurrency trades per month in Nigeria on the Paxful platform ] [ $65m traded every month ],[ $100 was spent on each trade on average ],[ $215  was the average spent on each trade in the US ], Source: Source: Paxful, Image: Bitcoin representation

Nigeria’s cryptocurrency business. 2020 [ 1.1m cryptocurrency trades per month in Nigeria on the Paxful platform ] [ $65m traded every month ],[ $100 was spent on each trade on average ],[ $215 was the average spent on each trade in the US ], Source: Source: Paxful, Image: Bitcoin representation

It is estimated that Nigeria ranked third in the top 10 countries for trade volume in 2020 after the US and Russia, generating more than $ 400 million in transactions.

Although Nigeria emerged from its second recession in less than five years, the challenging economic climate persists, making alternative sources of income and currencies attractive.

The story goes on

The Central Bank of Nigeria devalued the Naira currency by 24% last year. There is fear of a further decline in value of up to 10% this year.

Meanwhile, prices continue to rise and food inflation has reached its highest level since July 2008.

"I made naira but lost US dollars.  That's when I realized that we were moving backwards"", Source: Michael Ugwu, Source description: Cryptocurrency Investor, Image: Michael Ugwu

“I made naira, but lost US dollars. That’s when I realized that we were pushing backwards” “, source: Michael Ugwu, source description: cryptocurrency investor, image: Michael Ugwu

When Michael Ugwu, the founder of a media company in Lagos, sold land he owned in 2018, he realized he needed to explore new investment opportunities.

Although his naira income increased, he was worse off in US dollars due to the devaluation.

“I made naira but lost US dollars. That’s when I realized that we were going backwards. That’s when I started looking at Bitcoin.”

The move to invest in digital currencies has paid off.

“With some of my currencies, I’ve made 50 times as much as I’ve invested. Bitcoin has grown easily 10 times in the last year,” he says.

The former banker sees cryptocurrency as a development in finance and describes it as “Finance 2.0”.

Despite the volatility of the currency, Ugwu sees it as a valuable instrument to hedge or reduce the risk of living in an environment that it describes as high-risk.

“Better banking experience”

His wife Onyeka started investing when she faced high commission fees to transfer cash between her Nigerian and UK accounts.

“For me it’s a banking system,” she says.

“It wasn’t about making money. It was about how [to] have a better banking experience. Think of it as saving your money in a currency that can hold the value of money. “

Despite its appeal, economists around the world are warning that Bitcoin and other cryptocurrencies are high-risk investments.

Hold naira notes

Currency devaluation, the naira, and a shortage of US dollars have led some to look for other ways to hold money

There are valid concerns that Bitcoin’s rising value is a speculative bet that one day will leave many in ruins.

A Nigeria-based international banker who chose to remain anonymous says it is a financial product that carries significant potential regulatory risk.

He says that “governments and central banks haven’t decided whether they can or should regulate it”.

“On a technical level, I’m not 100 percent sure that the security being used is completely foolproof. I think there are still some technical uncertainties,” he adds.

In order to regulate the market, the Nigerian central bank banned banks from allowing transactions related to cryptocurrencies in 2017. However, the ban was largely not enforced.

Ban on cryptocurrencies

However, this year the institution’s stance has doubled.

A statement released on February 7 highlighted the need to protect the general public and protect the country from the potential threats posed by “unknown and unregulated companies” that are “well suited to engaging in many illegal activities”.

Since then, many Nigerians have reported that their bank accounts have been suspended due to activities related to cryptocurrencies.

Mr. Fadugbagbe’s bank manager called to inform him that his account was going to be closed and gave him a day to transfer his money.

However, not everyone was so lucky.

According to a source, his bank account was frozen at tens of thousands of naira two weeks ago.

The software developer says the bank will not disclose the reason for its actions.

He suspects that he has been targeted for running a cryptocurrency remittance business.

In addition, the BBC was shown a customer’s bank correspondence containing the warning, “We strongly recommend that you do not use your account for cryptocurrency-related activities so as not to conflict with the law.”

However, many investors with the option say they will continue to trade through their overseas bank accounts.

They say they can easily revert to peer-to-peer transactions. This means that instead of transferring funds between a financial institution and an online cryptocurrency trading platform, investors transfer funds directly between each other or through a middle person when buying and selling.

“Don’t turn it off completely”

This is the method that the cryptocurrency community used prior to the development of the virtual currency market ecosystem in Nigeria.

Mr Ugwu has also spoken to many in the cryptocurrency space about moving to potentially more hospitable environments such as Ghana, Rwanda, and Sierra Leone.

The authorities’ concerns about using cryptocurrencies for illegal purposes are legitimate, but some argue that they are too persistent.

A former central bank deputy governor Kingsley Moghalu believes the country should take and control the risks “instead of just shutting them down completely – especially to the extent that it provides livelihoods for many people in a depressed economy.”

There are also fears that cryptocurrency could become a missed opportunity, according to Gbite Oduneye, head of EGM Group, a Lagos-based brokerage firm.

“Nigeria is the third largest place for cryptocurrency trading by volume,” he explains. “If you don’t take advantage, someone else will. Build an ecosystem on it. Put rules and regulations in place.”

“I trust cryptocurrency more than stocks”

Nigerians also see cryptocurrencies as a way to bypass currency restrictions.

“There are many restrictions on what we can and cannot do with our forex,” explains Nena Nwachukwu of the popular Paxful trading platform.

“Nigerians find it easier to use [cryptocurrency] as an investment vehicle. “

A protester wearing a blindfold with an inscription "End of Sars", Gestures during the protest against alleged police brutality in Lagos, Nigeria, October 17, 2020

The organizers of the EndSars protests had their bank accounts frozen, which led to a switch to cryptocurrencies

During the #EndSars protests against police brutality, awareness of their service grew in October 2020.

Attempts to fight the organizers by freezing their bank accounts resulted in increased use of digital currencies, with the bitcoin trend being seen on Twitter.

Ms. Nwachukwu says this has resulted in a wave of new registrations and an increase in transactions.

At the center of Bitcoin’s rise, according to investors, is a distrust of centralized financial systems and top-down economic control.

Many express frustration with government policies and the decline of the Nigerian economy.

No more than Mr. Fadugbagbe, who fought for years to come by as a “minimum wage slave”.

“I don’t do stocks and government bonds,” he says. “These are scams. I trust cryptocurrency more.”

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