A recent hike in prices of petroleum products in Nigeria may increase Bitcoin adoption for cross border transactions and other uses such as for safekeeping and investments.
Compounded by rising foreign exchange rates for imports, the hike is likely to have a transparent effect on inflation which already hit a 46-month high of 12.8% in March.
Bitcoin adoption grows
There has been a growing level of Bitcoin adoption in Africa's largest economy of late though. The level of awareness about the digital currency’s uses have improved particularly for trading and online purchases.
It would seem more handy now that the disparity between the exchange rates of foreign currencies such as the US dollar to the naira has widened.
The rates charged by traditional financial institutions have not been helpful. As of Friday May 13, Western Union calculates its exchange rate for a US dollar to be 197 naira - that’s excluding the transfer charge. Whereas in the parallel market, the rate Is 345 naira.
Subsidy removal stimulates the currency black market
There are speculations that the exchange rate is likely to increase soon. The government insists that the 67 percent price hike in the prices of petroleum products brought about by its sudden removal of a subsidy will not be reversed as it is aimed at tackling months of fuel shortages in the country.
The government also said petroleum product marketers who import the commodity to the country could buy dollars – which is their main currency of trade - from any source rather than just the Nigerian central bank or oil companies. This is the caveat that gets many worried.
Victor Asemota, Co-Founder/Director at SwiftaCorp wrote on his twitter page: “Now that fuel marketers can get dollar from anywhere to buy product but sell in Naira, the demand for unofficial dollar is going to triple.”
The black market exchange rate fell to 341 against the dollar from 320 following the decision, Aminu Gwadabe, chairman of the Association of Bureau de Change Operators of Nigeria, told Bloomberg, on Wednesday May 11, adding that it may reach 380 next week if the central bank doesn’t increase supply in the market.
Though the removal of the subsidy which led to the price hike has been described as a good step with a promise of plausible implications for the market, there are alleged plans by the government to make some adjustments to the foreign exchange management which will likely lead to the introduction of a two-way regime of a foreign exchange policy. It is not clear if the move is likely to salvage the value situation.
Maintain naira value through Bitcoin
To avoid a loss of value, assets could be stored in Bitcoin, instead of the naira, for safekeeping in a Bitcoin wallet or for a rainy day. This will enable it to retain its market value until it could be used as wished. It could also be deposited in a bank such as the Bitcoin Crpto Bank or invested in peer-to-peer lending platforms like The Sun Exchange, which connects people wanting to invest in solar energy with people who want to access it. Either way, the conversion of naira into the cryptocurrency will yield a return.
Investing in Bitcoin by storing it offline in cold storage could also shield its value until the market seems stronger for physical investment.