Not only does the CBN’s restrictions on the facilitation of cryptocurrencies in Nigeria affect crypto investors domiciled or resident in Nigeria, the letter to depository banks and non-bank financial institutions has gone a long way to affect even crypto trade platforms in the African terrain.
Just yesterday, the 26th of February 2021, BTC was exchanging hands at a whopping 46% premium on Luno in Nigeria. This depicts a figure that surpasses the average rate of one BTC on other crypto trade platforms (being about $48,000) as at yesterday. Luno stands as a subsidiary company of the Digital Currency Group.
Just recently, on the 5th of February, the Central Bank of Nigeria, the bank of banks and other financial institutions prohibited the institutions under its regulatory purview from enabling cryptocurrency related trade or payments. Using the mischief rule, one may discover that this move is just in a bid to extinguish access to cryptocurrencies at least in the Nigerian terrain. Both foreign and Nigerian players have risen to lash out against this move terming it an attempt to delete the entire wealth of an emerging generation of Nigerians. Luno has complained that it is seeing a downward trend that can be tied to this ban. Representatives of the company have expressed that the company is “experiencing a drop in liquidity as a result of the ban”.
The General manager for the company in Nigeria, Marius Reitz [ how the CBN circular “caused a market shock.”
“Luno still has liquidity, but it is a third of what it was previously,”
This essentially means that the cryptocurrencies on the exchange go through real time hassles before they can be translated to cash or fiat currency and this has significant impact on the cryptocurrency’s price. It goes without saying that the prices of cryptocurrencies will hike. Although different exchanges have different rates for the leading currency and other altcoins (contingent upon how liquid the trade platform is) Luno’s price rates are on the high side. The CBN’s indirect ban led to Luno suspending Naira “deposits and withdrawals” and Binance stalling Naira “deposits” and currently, Luno still does not allow for Naira deposits or withdrawals
“Now, as the price of bitcoin reaches new highs, because there aren’t as many people buying [or] selling bitcoin in Nigeria as there were before, it can lead to periods of low liquidity causing price spikes and dips,”
While the CBN rate for dollar stood at NGN379 per $1, the Paxful dollar rate for a naira translated to NGN475 while a dollar was as high as NGN 690 on Luno. This just means that for BTC traders in the Nigerian terrain, copping one BTC will mean expending from about $45,866- $69,000.
While crypto traders in Nigeria have taken to twitter to express their distaste for this current turn of events, it appears that the reason for this may just be attributed to the forces of demand and supply.
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