Cryptocurrency is proving to be a real hedge against economic turmoil in many countries facing severe financial crises. Several nations, especially in Africa, including Nigeria, have witnessed a surge in the use of cryptocurrencies, particularly Bitcoin, as a smart way to safeguard their wealth.
Data from Chainalysis reveals that Nigeria, one of Africa’s largest economies, saw a 9% surge in cryptocurrency adoption, totaling $56.7 billion as of June compared to July the previous year.
The primary driving force behind the growing adoption of cryptocurrencies in Nigeria is the high inflation rate. When inflation rises, the local currency loses its value, eroding people’s wealth.
In August, Nigeria recorded an inflation rate of 25.8%. According to Trading Economics data, this figure has been steadily climbing since January 2023, starting at 21.82%, then reaching 22.22% in April and 24.08% in July.
The government’s attempts to redesign the local currency and print new banknotes to combat inflation have encountered challenges. The cash supply has become constrained, putting pressure on and creating uncertainty for those without bank accounts, further exacerbating inflation.
“The unstable economic climate in Nigeria has prompted many of its citizens to seek financial alternatives, thus boosting the value proposition of cryptocurrencies,” notes Chainalysis.
Many Nigerians, especially the younger generation, are turning to assets like Bitcoin (BTC) and stablecoins to preserve their wealth as they witness their local currency’s continuous depreciation.
As a result, it’s not surprising that Bitcoin transactions dominate in the Sub-Saharan African region. According to Chainalysis data, this area contributed 9.3% of the total global Bitcoin transaction volume from July 2022 to June 2023.
In contrast, other regions like North America and Eastern Europe accounted for 9.0% and 8.2% of the total global Bitcoin transactions, respectively. People in those areas view Bitcoin as digital gold, offering better wealth preservation than traditional banking products.
Moyo Sodipo, a co-founder and Chief Product Officer (CPO) of the Nigerian-based crypto exchange Busha, stated that their platform gained popularity in 2019 and 2020. During the Bitcoin frenzy, many opted for BTC over stablecoins. However, with Bitcoin’s price fluctuation, there’s now a desire among the community to diversify between BTC and stablecoins.
“People continue to seek opportunities to hedge against the devaluation of the naira and ongoing economic deterioration,” said Sodipo.
Clarity in Regulations Boosts Crypto Usage
In 2022, the Financial Sector Conduct Authority (FSCA) began to open up to cryptocurrencies, categorizing them as financial products. This provided clarity on the status of previously unregulated high-risk assets.
This clarity has encouraged more people to utilize cryptocurrencies not only as a hedge but also as an investment vehicle.
Marius Reitz, the General Manager for Africa at Luno, pointed out that cryptocurrency usage in South Africa is currently dominated by investors. This is reflected in the 50% growth in crypto balances on the Luno platform.
According to Reitz, regulatory clarity has made the development of the digital asset business more responsible.
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