Naira Devaluation: Could Increased Crypto Trades be the Cause of the Free Fall?

The dollar to naira rate increased yesterday due to crypto trading, according to the governor of the Central Bank of Nigeria. The Nigerian currency has been experiencing a continuous upward trend against the dollar. This has also affected and contributed to a hike in the prices of goods and services in the country. 

The Nigerian exchange rates have three different markets: the official rates, which are strongly protected and backed by the Central Bank of Nigeria; 

The black markets, which are also called parallel markets, freely trade naira for dollars, whose rates depend on the principles of demand and supply. 

And then there are the cryptocurrency market rates, where citizens freely exchange naira for digital assets in the form of crypto peer-to-peer. 

With the recent free fall of the naira against the dollar, there have been reports of increased dollar trades in crypto as most Nigerian citizens are buying up digital assets as a means to hedge against inflation. 

This increased demand for crypto is believed to be a result of the increased upward trend of the naira against the dollar in the past few weeks, driving fear among citizens who have lost faith in the devaluing naira. 

It is also reported that one of the contributing factors to the recent free fall of the naira is the scarcity of dollars in the forex market. The central bank of Nigeria recently imposed laws restricting access to dollars to Bureau de change merchants. 

This move has caused an increase in demand for the dollar but has reduced supply since the banks alone cannot handle the increased demand for the dollar. 

As a result, more people in need of dollars are left with no other option but to turn to parallel markets for dollars, increasing demand and further devaluing the naira. 

The world’s largest cryptocurrency exchange, Binance, recorded an increase in cryptocurrency trades by Nigerians to a record of $103,691 in trades of digital currencies in 24 hours as recorded in Lagos on Wednesday.

Peer-to-peer trades on the Binance platform are recording a high of over 650/$1, whereas official rates are still at N430/$1, which is over a 58% difference in market rates. 

This was also not the first indication of more Nigerians moving into crypto. Although trading of cryptocurrencies is banned in Nigeria, Binance trading records reveal that Nigerians traded a total of $185 million in Bitcoin in the first three months of the year, accounting for a quarter of the transactions in the period on Paxful, a crypto trading platform.

More Nigerians are beginning to see the importance of cryptocurrencies, leading to massive adoption despite limiting laws in the country. Most Nigerians are transitioning to the use of cryptocurrencies upon seeing their potential, as revealed by the first President of SiBAN, Paul Ezeafulukwe, in an interview with Lightblocks. 

As the naira keeps devaluing, more and more Nigerians are forced to seek alternative currencies such as digital assets to hedge against the ensuing inflation and devaluation of their local currency. 

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