During the police brutality protests in Nigeria in October, fast-rising bitcoin market saved the day when the government shut out protesters from using local payment platforms for collecting donations to support it.
The young, tech-savvy protesters quickly switched to using bitcoin, and in about a week bitcoin accounted for around 40% of the nearly $400,000 raised. It was just one high-profile example of how young Nigerians increasingly involved in the bitcoin market and use bitcoin to navigate a complicated and restrictive banking and monetary system.
In the last five years, Nigeria has traded 60,215 bitcoins in the bitcoin market, valued at more than $566 million which, apart from the US, is the largest volume worldwide on Paxful, a leading peer-to-peer bitcoin marketplace. The data scraped from Coin Dance shows from the beginning of May 2015 to the middle of November this year, bitcoin trade in Nigeria have increased yearly at least 19% in volume since 2017, and the highest volume (20,504.50) was traded in 2020.
Bitcoin trade had its highest spike of 30% this year during the national lockdown in the country and the highest volume traded during the peak of the pandemic. Between January and September, Paxful reported a 137% increase in new registrations in Nigeria.
Peer-to-peer (P2P) exchanges, which are decentralized platforms that directly connects buyers and sellers without third parties are the most popular way to buy bitcoin in Africa because users do not have to worry about cryptocurrency regulation by the government. Paxful is the largest platform for P2P trade in Africa and overtook LocalBitcoins in June this year to be the Largest P2P bitcoin market in the world, controlling 52% of the market share.
The company says Nigerians make up around a quarter of its customer base with 1.3 million registered accounts. “They mostly use the platform for peer-to-peer and arbitrage trading,” says Nena Nwachukwu, Paxful Nigeria regional manager. “Remittances is also a popular use case.” Nwachukwu says bitcoin transfers are “much cheaper and faster than using traditional money transfer operators.”
The growing uncertainty and instability around the Nigerian naira, which has had increasingly divergent official and parallel exchange rates with the US dollar, has created an opportunity and practical use case for bitcoin trade in Nigeria. The divergent rates have long been a striking feature of Nigeria’s economy but more so in the last half decade as the country’s financial authorities have attempted to micro-manage the supply of foreign exchange and “defend” the naira.
In the last couple of years, other African countries, most prominently Zimbabwe, have seen a spike in cryptocurrency trade led by bitcoin, due to currency fluctuations and uncertain monetary policy. In some cases limits to the trade has been prompted by a lack of reliable local platforms.
“The lack of bitcoin liquidity was the first obstacle to solve to introduce bitcoin to Africa,” says Ray Youssef, co-founder of Paxful.
Nigerians are often restricted on international platforms such as PayPal, which does not allow payment to Nigeria, and local banks place a cap on international transactions and charge high fees for transactions due to dollar deficiency.
“People want to be able to buy and sell, transact internationally and the more the traditional channels are being restricted the more people trade crypto and mainly bitcoin,” explains Eleanya Eke, a former co-founder of Buycoins Africa. “And the best thing about it is that it’s almost impossible to stop. If you block the exchange it moves to Peer-to-peer platforms that are non-custodial.”
The increased awareness and availability of easy-to-use bitcoin market platforms to Nigerians have largely increased bitcoin liquidity in the country, therefore solving the first problem hindering adoption. Nigerians now have several formal and semiformal bitcoin platforms to use, ranging from international platforms including Paxful, Binance, and Luno, and local ones such as Quidax, Busha, and BuyCoins. However, long-term watchers say most trading in the country is done on informal channels such as Telegram, WhatsApp, and WeChat.
“Globally, there was a shift to online transactions from the physical,” says Osaretin Victor Asemota, a Nigerian tech investor. “In Nigeria, as banks were closed, the agency outlets recorded much higher transaction volumes. I think this shift was inevitable, and it is not a temporary pandemic boost.”
Bitcoin, which traded as low as $3,600 in March due to a massive sell-off on global financial markets, has this month surged past $20,000 for the first time. While in the past, the value has increased like this only to later drop drastically in a few weeks, some analysts say this increase may continue into 2021 as it appears it is due to the growing interest of institutional investors in the cryptocurrency.
Institutional investors such as MassMutual and MicroStrategy were reportedly planning to purchase hundreds of million-dollar worth of bitcoin, while PayPal, a top global online payment company recently added cryptocurrency to its functionality, letting people use bitcoin to pay for things online.