Investigating BTC’s true market value in Africa’s biggest Bitcoin nation

Africa’s largest economy is also the continent’s biggest nation for Bitcoin and cryptocurrency adoption. It is estimated that over 33.4 million Nigerians (or 35% of the country’s adult population) trade cryptocurrencies.

However, several reports have emerged in recent weeks suggesting that Bitcoin is trading at a 66% premium in Nigeria as the country deals with a new inflation wave. Instead of the current market value of around $23,800, rumor suggests Bitcoin is trading close to $39,000 in the African nation.

This edition of the Adaptive Analysis newsletter investigates the reported Bitcoin premium in Nigeria. We also deep-dive into the country’s ongoing battle with inflation and consider how an aggressive push towards a cashless society could potentially aid Bitcoin adoption in the region.

Is Bitcoin trading at a 66% premium in Nigeria?

At the time of writing, Bitcoin's current spot price is $23,800 or approximately ₦18,000,000 (Nigeria Naira), according to NairaEX, a local cryptocurrency exchange. Yet, a quick Google Search for "1 BTC to NGN" shows the leading cryptocurrency is exchanging hands at roughly ₦11,000,000 or 66% less than the price on the NairaEX quoted earlier.

(BTC’s Actual Price in NGN vs. Official Rates)

Noteworthily, this price difference has existed for the past few years and may be misinterpreted to show that BTC is trading at a premium in Nigeria. However, the reality is that a premium technically does not exist since most Nigerians use stablecoins as a proxy to access US dollars for buying Bitcoin.

Therefore, while the official NGN rate provided by the Nigerian Central Bank is ₦460/$1, the parallel market rate applied to U.S. dollar exchanges outside the Nigerian banking system is ₦747/$1. This considerable disparity accounts for the perceived Bitcoin premium in Nigeria as everyday investors exchange USD-based assets like Tether (USDT) and Binance USD (BUSD) for BTC using the unofficial rate.

USDT/NGN Rate (Source: Binance)

Reports claiming that Bitcoin trades at a premium in Nigeria ignore the crucial point that it is nearly impossible for everyday investors to access USD at the official bank rate to buy cryptocurrencies. Recall that the Central Bank of Nigeria (CBN) banned banks from handling crypto-related transactions for customers. Thus, citizens cannot directly purchase crypto on exchanges using bank wires or debit cards to access the lower USD rate.

At the same time, commercial banks have placed a $0 limit on international card transactions and significantly limited spending on USD-denominated accounts. These limitations account for why the Nigerian crypto market thrives primarily by using stablecoins as a proxy for getting in and out of crypto through peer-to-peer (P2P) transactions. Nigeria is, unsurprisingly, Africa’s largest market by P2P trading volume.

Meanwhile, the perceived premium in Bitcoin’s price also applies to all other cryptocurrencies since investors buy them for the same parallel market USD rate. It would not indicate that Nigerians are buying BTC because of its usefulness as an inflation hedge.

More accurately, the rise in USD’s parallel market value in Nigeria indicates a growing demand among investors to hedge their assets against rising Naira inflation. This demand could potentially pave the way for increased Bitcoin adoption in the African nation.

Bitcoin adoption to soar in Africa’s biggest economy amid inflation

Rising inflation is one of the most prominent advertisements for Bitcoin as it uncovers how poor central bank policies adversely impact the value of the local currency. Nigeria is dealing with a fair share of soaring inflation exacerbated by the recent COVID-19 pandemic and political instabilities. Nigeria’s inflation rate hit its current peak of around 21.5% in November and remains relatively high.

(Source: Trading Economics)

The Central Bank of Nigeria (CBN) is already taking adverse steps to arrest the rising inflation. The apex bank has redesigned high-denomination currency notes, enforced a daily ATM cash withdrawal limit of ₦20,000 ($27), and limited over-the-counter cash withdrawals to ₦500,000 ($675) and ₦5 million ($6,756) for individuals and organizations, respectively.

The soaring inflation and the Central Bank’s push towards a cashless society may be the perfect catalysts to drive the adoption of Bitcoin in a largely crypto-savvy country. Despite Bitcoin’s short-term volatility, it remains one of the decade’s best-performing assets, and Nigerians are paying attention.

Google Trends reveals that searches for “How to buy Bitcoin” in Nigeria have remained steady in the past year despite the bearish market. This sustained interest and the country’s current macroeconomic situation means that Bitcoin retains its high chance of continued adoption in Africa’s biggest economy, regardless of whether or not BTC trades at a premium.

Crypto market spotlight:

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  • FTX sues Voyager to reclaim $445 million:  From one bankrupt firm to another. FTX lawyers filed a lawsuit against Voyager Digital seeking a refund of $455 million paid back to the firm months before FTX went out of business.  
  • Bitcoin mining revenue jumps 50% in January: BTC’s recent price recovery has led to a corresponding fortune reversal for miners. Revenue has jumped over 50% in the past 30 days.
  • Coinbase denies plans to shut down NFT business: Coinbase’s NFT business may have failed to take off, but the exchange has no plans to shut it down despite rumors suggesting otherwise.