Nigeria’s Bitcoin Bounties May Better Reflect Country’s Demand for Dollar, Not Crypto

Bitcoin premiums from Nigeria – where the cryptocurrency was listed on local trading platforms at 60% above market prices – grabbed headlines this week. Although the news was celebrated by the bitcoin community on social media, bitcoin’s inflated prices may not reflect increased demand for the asset, but continued demand for the US dollar as the country’s local currency suffers.

It all started when several media caught the attention with high premiums, which they attributed to cash withdrawal limits imposed by the Nigerian government on its citizens as it worked to exchange old banknotes for new ones. But ATM withdrawal limits were originally imposed on December 6 last year, and the government had since relaxed the limit before doubling it again in January.

If demand for bitcoins had increased due to traffic congestion in the country, premiums should have skyrocketed when ATM limits were imposed in early December.

“But essentially what we were seeing was it was just this constant premium,” said Conor Ryder, a research analyst at digital asset data provider Kaiko, who looked at prices going up. days before the imposition of the withdrawal limit and saw “the premium has not materially increased at all”, following the ATM limit order.

Nigeria bitcoin premiums are not a new phenomenon and they usually reveal discrepancies between official and unofficial US dollar exchange rates in the country. Although the government sets the official rate, thanks to the country’s chronic currency devaluation problem, the dollar fetches a much higher price in unofficial local exchange markets.

Even though bitcoin prices on international peer-to-peer platforms such as Paxful are calculated based on Nigeria’s official US dollar exchange rate, unofficial rates may actually reflect how most Nigerians are accessing foreign currency – by spending many more naira per dollar.

“That’s really the rate to use. And if you use that rate, it’s barely negotiated at a premium. I think it’s pretty close to the price of bitcoin,” Ryder said during an interview with CoinDesk.

He added that the overall reaction to the bounty announcement could have been a “little exaggerated”. But that doesn’t mean Nigerians aren’t paying more for something.

Learn more: In Nigeria, one Bitcoin can cost $68,000. Here’s why.

“They pay a premium. It’s probably more for the US dollar than for bitcoin, which tells you that they desperately need, I guess, to move to a more stable currency like the US dollar,” Ryder said.

But the logic that bounties indicate bitcoin is in demand isn’t exactly wrong either, as bitcoin bounties appear in other markets like South Korea, where the local currency is relatively stable.

When there is a dramatic increase in demand for crypto in South Korea and the local selling rates in Korean won are converted back to US dollars, “you see that they are actually paying a higher rate in their local currency. than they would”. have been in the US market,” Ryder said.

None of this, however, takes away from the fact that Nigeria is a big crypto adopter. Its young, tech-savvy population has embraced Web3 and has, in times of hardship – from protests against police brutality to the fight against inflation or government controls – turned to crypto as an alternative to the naira. .

So it’s no exaggeration to imagine how crypto – from bitcoin to dollar-backed stablecoins – could play a role in easing Nigerians’ monetary woes, Ryder said.

“Bitcoin would solve some of the problems they have with access to money,” he added.

Learn more: Crypto is Quietly Thriving in Sub-Saharan Africa: Chain Analytics Report

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