Nigeria is tackling severe shortages of cash, not to mention protests, yet people refuse to use the national digital currency, i.e., the eNaira.
The cryptocurrency was expected to add $29 billion to the nation’s economy in a decade, boosting financial inclusion, payment processing, and tax collection, but it seems to be failing.
The adoption of the eNaira by households and merchants has been slow, to say the least. The eNaira uses the same blockchain technology as Ethereum, is stored in digital wallets, and can be used for payment transactions.
Even if people want to turn to the digital currency, options are limited. The eNaira is subject to controls by the central bank and draws value from the naira, to which it’s pegged at parity.
When the central bank last year prohibited banks and financial institutions from dealing with or facilitating cryptocurrency transactions, many interpreted this move as an attack, so they refused to interact with the eNaira.
According to Statista, the number of users is forecasted to grow to 6.26 million users by 2027. User penetration will be 1.4% in 2023.
Given the popularity of cryptocurrency, recognizing it as investment capital may be inevitable. A new bill could allow local regulators to acknowledge digital currencies as capital for investment. Simply put, the use of Ethereum and other cryptocurrencies would be legal.
The Borderless Nature of Crypto Makes It Impossible to Ban Investments Indefinitely
Cryptocurrency is free from the control of governments or banks. Blockchain networks allow users to send transactions at any time, day or night, with no limits on value, to anywhere in the world.
There are no restrictions as long as the transaction fee is paid. An ever-increasing number of Nigerians are choosing digital currency for remittances, so cryptocurrency trading continues despite the government ban. The high remittance figures are fueled by the skilled diaspora – educated citizens are more likely to migrate. In theory, it’s possible to make cryptocurrency illegal, but in practice, it’s unlikely people will abandon digital currency.
Ibrahim Badamasi Babangida, popularly known as IBB, maintained there had been several changes within the capital market, notably the introduction of cryptocurrencies, and all modifications must be captured in the new Act. If the proposal passes into law, the Act will define the key supervisory roles of the Central Bank of Nigeria and the Securities and Exchange Commission. After the bill has passed the second hearing and is reviewed by the Committee on Capital Markets, it will be submitted to the House of Representatives for consideration and approval. Nevertheless, there’s no guarantee the Act will be passed soon since it doesn’t specify a timeline in that regard.
Evaluating Cryptocurrency as An Investment Class
Ethereum and other cryptocurrencies represent a new investment class that will increasingly gain the acceptance and participation of institutional investors. Cryptocurrency can be an excellent investment with high returns, but it’s necessary to analyze your time horizon, risk tolerance, and, last but not least, your liquidity requirements. Volatility is an inseparable trait of these digital assets, whose price fluctuates based on supply and demand, user sentiment, government regulations, and, of course, media hype. Price volatility isn’t likely to diminish on account of increased financial literacy. If the fear of missing out becomes greater, the market continues to act irrationally.
Nigerians have demonstrated they prefer permissionless currencies over government-controlled digital currency, as they can exercise power and define the rules, which makes cryptocurrency a one-of-a-kind asset class. Blockchain, the technology underlying Ethereum and other cryptocurrencies, removes intermediaries from computer networks, enabling economic activity that wasn’t possible before. Digital assets become attractive investments to people who believe decentralization can lead to efficiency, equity, and development. Some speculative behavior is to be expected in the crypto space as the technology matures, largely driven by strong impulses and weak self-control.
In recent years, the cryptocurrency market has matured considerably owing to the development of trade platforms and exchanges with a high level of automation. Payments can’t be tracked, so Ethereum and other cryptocurrencies offer data protection and privacy. It’s useful to look at digital assets as diversification tools because their level of correlation with other assets tends to be zero. The higher the covariance between the assets, the higher the volatility of the portfolio. One could argue that the adoption of cryptocurrencies brings about many benefits regardless of their high volatility, so it would be best to come up with a plan to overcome the challenges and pitfalls in adoption.
The Future of Cryptocurrency in Nigeria Is Looking Extremely Bright Indeed
For the time being, cryptocurrencies aren’t illegal in Nigeria; it’s just that there’s no regulation for them. This is precisely why it’s necessary to review the Investments and Securities Act and offer a clear framework for crypto-related activities, including commodity exchanges, derivatives, and digital currencies. More and more Nigerians are turning to cryptocurrency for investment, so it’s safe to say that the future looks bright for the industry. If the amendment is made to the Act, Ethereum and other cryptocurrencies will be recognized as investment capital. It will bring an extra layer of protection to users while reassuring institutional investors, but the structure of cryptocurrencies will remain decentralized.
Nigerian lawmakers’ move comes as a surprise given that the central bank imposed a ban on individuals and businesses using digital assets. In 2021, all activity was shut down, and financial institutions were prohibited from funding the accounts of those involved in crypto trading activities. Nigerians are among the most zealous nationalities as far as cryptocurrency adoption is concerned, transacting freely and within minutes. The eNaira hasn’t managed to hold up its end of the bargain. It’s similar to cryptocurrency but enjoys the backing of established authorities, and there are limits for transactions and balances for individual wallets.
If you’d like to change your Ethereum for naira despite the ban, peer-to-peer trading allows you to do just that. You have influence over who buys your coins in terms of price and settlement time, meaning you have complete control over the process. In the near future, the government could officially recognize the use of cryptocurrency.