April 21, 2022/CSL Research
A Punch news report quoting the founder and Chief Executive Officer of Paxful, one of the biggest P2P platforms in the nation, states that Bitcoin’s adoption is growing, and Africa is leading the way. According to him, Nigerians traded over N316.9bn in bitcoin volume in 2021. He also noted that there were over six million successful trades in Nigeria in 2021, which breaks down to over 16,000 trades each day. Globally, the company saw nearly US$3bn in trade volumes on Paxful last year, and Nigeria is the company’s largest country based on trade volume with over US$760m in trade volumes last year. An increasing number of Nigerian youths are investing in cryptocurrencies despite the CBN’s directive to banks in the country to stop transacting in and with entities dealing in cryptocurrencies.
Despite the many benefits associated with the use of cryptocurrencies such as speed, anonymity and accessibility, the opacity of cryptocurrencies that have made them wellsuited for conducting many illegal activities such as money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion makes them unacceptable by many monetary authorities. Unlike Fiat Money, which is accompanied by the full faith and comfort of a country or Central Bank, cryptocurrencies do not have any intrinsic value and do not generate returns by themselves and are highly volatile. These reasons informed the decision of the CBN in February 2021, to stop financial institutions in Nigeria from allowing their platforms to be used for cryptocurrency transactions.
In terms of adoption, 2021 can be considered the breakout year for crypto. Based on a 2022 survey conducted by Gemini, a regulated cryptocurrency exchange, wallet, and custodian, nearly half of all crypto owners in the United States (44%), Latin America (46%), and Asia Pacific (45%) first bought crypto in 2021. More than half of crypto owners in Brazil (51%), Hong Kong (51%), and India (54%) got started in 2021. In Europe, two in five (40%) of those who own crypto started investing in 2021. Again, according to recent research conducted by KuCoin, 33.4 million Nigerians, or 35% of those aged 18 to 60, have owned or traded cryptocurrencies in the last six months. 52% (approximately 17.3 million people) have distributed more than half of their wealth into the asset class. Moreover, 70% of the crypto investors vowed to increase their exposure by the end of 2022. The research further revealed that the majority of Nigerian crypto holders entered the market many years ago, but about 26% began investing six months ago, driven by the 2021 bull run.
We note that the rising number of Nigerians patronizing cryptocurrencies reflects the dearth of high yielding investment options amidst a significant decline in the purchasing power of households caused by multiple devaluations and high inflation. The Gemini research showed that respondents in countries that have experienced 50% or more devaluation of their currency against the USD over the last 10 years were more than 5 times as likely to say they plan to purchase crypto in the coming year than those in countries that have experienced less than 50% currency devaluation, implying that investments in potentially high yielding ventures such as cryptocurrencies, despite associated risks are seen as a hedge against inflation.
