BlocksInform
Bitcoin bonuses from Nigeria – where the cryptocurrency was listed on local commercial platforms 60% above market prices – hit the front page this week. Even though the announcement was celebrated by the Bitcoin community on social media, inflated prices of bitcoin may not reflect increased demand for assets, but an ongoing demand for the US dollar as the country's local currency suffers.
It all started when a number of media outlets drew attention to the high premiums, which they attributed to cash withdrawal limits placed by the Nigerian government on its citizens as it worked on swapping old bank notes for new ones. But the ATM withdrawal limits were initially imposed on Dec. 6 last year, and the government had been easing the limit since before doubling down again in January.
If demand for Bitcoin increased due to the blockage of liquidity in the country, the bonuses should have skyrocketed as ATM limits were imposed in early December.
“but essentially, What we found was that it was simply a consistent bonus," conor ryder said, Research analyst with the kaiko digital data supplier, Reviewed prices a few days prior to the imposition of the withdrawal limit and found that "the premium had not increased substantially"; as an ATM boundary order result.
Nigeria’s bitcoin premiums are not a new phenomenon and they typically reveal the discrepancies between official and unofficial U.S. dollar exchange rates in the country. Although the government sets the official rate, thanks to the country’s chronic currency devaluation problem, the dollar sells for much higher on unofficial local forex markets.
Although Bitcoin prices on international peer-to-peer platforms like PAXFUL are calculated on the basis of the official exchange rate of the Nigerian American dollar, unofficial rates may in fact reflect the manner in which most Nigerians access the foreign currency – by distributing much more naira per dollar.
This is really the right rate. And if you use that rate, it's hardly exchanged with a bonus. I think this is pretty close to Bitcoin's price," Ryder said in an interview with CoinDesk.
He added that the overall reaction to the news of the premiums might have been a “bit overblown.” However, this does not mean that Nigerians do not pay more.
Read more: In Nigeria, One Bitcoin Can Cost $68,000. Here's Why.
“They are paying a premium. That's probably more for the American dollar than for bitcoin, That means they have an urgent need, i guess, adopt a more stable currency such as the US dollar," Ryder said.
But the logic that premiums indicate bitcoin is in demand isn’t exactly flawed either because bitcoin premiums show up in other markets like South Korea, where the local currency is comparatively stable.
When the demand for cryptography in South Korea rises dramatically, and when local sales rates in Korean won are converted to USD, "You see that they actually pay a higher rate in their local currency than they would have in the American market," Ryder said.
None of this, however, takes away from the fact that Nigeria is a big crypto adopter. Its tech-savvy, young population has embraced Web3 and has, in times of trouble – from protests against police brutality to combating inflation or government controls – turned to crypto as an alternative to naira.
It is therefore no exaggeration to imagine how cryptography – from bitcoin to dollar-backed stablecoins – could play a role in alleviating Nigerian foreign exchange problems, Ryder said.
"Bitcoin would solve some of the issues they have with access to money," he said.
Read more: Crypto Is Quietly Thriving in Sub-Saharan Africa: Chainalysis Report
