Understanding the growth of bitcoin market in Nigeria

Bitcoin activities may be gaining open popularity around the world as major businesses, organisations and government begin to acknowledge its disruptive nature, but in Nigeria it is a ‘black market menu’. Essentially, whether you are an exchange or an individual or organisation desiring to trade in the cryptocurrency, you do so with extreme caution.

More than two occasions, financial regulators have issued open warnings against transaction in bitcoin, often attributing it to ponzi schemes such as MMM (Mavrodi Mundial Moneybox) or as money laundering tool.

Notwithstanding, the growth of bitcoin in Nigeria has defied government’s warnings. To be sure, bitcoin is a cryptocurrency or digital currency that is not backed by any country’s central bank or government. It was invented by unknown person or group of people under the name of Satoshi Nakamoto and released as open-source software in 2009.

The first use of bitcoin in Nigeria is not very well known given that it is a digital-based currency; hence anyone could have claimed to be the first Nigerian to start using it. However, significant transaction in bitcoin started in early 2016 as Nigerians began to feel the bite of a deep economic recession caused by questionable foreign exchange policies and crash of global oil prices.

Import and export of goods and other businesses were adversely affected as a result of prohibitive FOREX rates and regulatory cap on money usage outside the country. Then came bitcoin. One of the many attractions of bitcoin is the ability to digitally move large amount of money that is blind to the central bank, at a ridiculously low fee and speed. Also you can store all you money in a personal wallet (an equivalent of a bank account) that no one will be privy to except the people on the network.

Bitcoin growth in Nigeria was largely enabled by ordinary Nigerians desperate for survival. The death of MMM and the rise of bitcoin prices towards the end of 2016 was a significant spur. A lot of people who were looking for an investment vehicle that would yield the quickest at a very short notice – the stock market was a mess – quickly turned to bitcoin.

Banks largely stayed away from everything cryptocurrency, having been threatened by the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Commission (NDIC) with dire consequences of they do get involved.

By the end of 2016, Luno, a global cryptocurrency exchange with a branch in Lagos disclosed that Nigeria topped the charts of the countries in the world with the highest search for bitcoin on Google. That feat saw Nigeria listed as a major activity destination on some bitcoin data platforms. There was also the birth of new cryptocurrency exchanges in Nigeria. The number of bitcoin companies has since grown but they have largely remained unregulated.

2016 ended with volume of trade in bitcoin at just above N400 million in Nigeria, which was quite significant for a currency that faced a lot of negativity. The regulators however managed to throw an olive branch by setting up a committee to understand blockchain and cryptocurrencies. The committee was supposed to submit its findings the next year.

Bitcoin then entered into a year that could be described as a defining moment in terms of awareness and adoption. Although the recession ended in the early weeks of January 2017, surging price of bitcoin was enough encouragement for new people in Nigeria to come on board the bitcoin wagon.

The regulator’s announcement of a committee also meant that many more business felt there was some form of legitimacy on the virtual currency, hence they came on board. Many players BusinessDay spoke to, confirmed that quite a number of business owners began to use bitcoin either as a store of value or as a currency for making payments for goods. Expectation of the committee findings and sense of an imminent regulatory framework also led many exchanges to upgrade their operations to conform to global standards. New exchanges appeared on the scene too.

Price increases on global exchanges opened the floodgates for more users in the country. Adoption rate surged particularly in the first week of August, 2017 reaching N1.866 billion for the first time ever. It went down the upper week to an embarrassing low of N970 million as China came after exchanges and start-ups raising funds through Initial Coin Offerings (ICOs). The China clampdown which lasted throughout September and early October sent shock waves across the global bitcoin community. Naysayers raised their pitch on an imminent bitcoin bubble.

China’s move on bitcoin exchanges and ban of ICOs led to the anxiety that the Nigerian government may follow suit or that the famous bitcoin committee could return with a flat ‘No Deal’ on cryptocurrencies. For almost a month, the price of bitcoin stayed stable as some investors adopted a wait-and-see strategy.

Demand picked up around October as it appeared that no other government was coming after bitcoin. Nigerians went shopping one more time for bitcoin. Some local exchanges began to add other cryptos like Ethereum. In December, a Nigerian remittance platform, SureRemit announced the first ever ICO by a Nigerian start-up aimed at reducing transaction fees on remittances. The start-up told BusinessDay the ICO will be issued on a new token it called Remit. Finally, bitcoin acquired legitimacy through listing on two global futures exchanges name CBOE and CME Group.

There were two most defining moments for bitcoin activities in Nigeria in 2017. First it hit a record volume of transactions crossing N1.9 billion in the second week of December and second it suffered from skyrocketing transactions fees which questioned its foundational promise of providing cheap fees. Although price reached an all-time high of $17,000 many people saw the transaction fees which it increased from below $1 to $28 as prohibitive. Cost is incurred from transferring money to an external bitcoin address. Bitcoin addresses are like virtual bank account numbers where users can store their bitcoin tokens.

Nevertheless, exchange owners are confident 2018 would see solutions coming up for many of the problems the cryptocurrency faces. It may also be the year that the committee set up by the CBN and NDIC will finally come up with a regulatory position. South Korea has set the path which could be towed by governments like Nigeria in 2018. There is the payment company which may decide to publicly adopt bitcoin or any cryptocurrency in 2018.