Nigerian blockchain professionals are happy to wake up and witness Bitcoin prices rising. It indicates that they are likely to be getting more naira per dollar when they convert cryptocurrency earnings to local currency. However, in this case, at the same time, purchasing Bitcoin turns out to be more expensive.
All of this struck the cryptocurrency professionals when the official exchange rate for US dollars in Nigeria was approximately 380 naira per dollar. Utilizing this rate, a Bitcoin listed on a peer-to-peer platform of approximately 26,000,000 nairas seemed to have converted more than $68,000.
As far as the surface is concerned, it appears like a hefty 24% premium. In this context, it refers to the price of Bitcoin is much higher in particular locations as compared to the worldwide average. In Nigeria, such premiums are not consistent. The Bitcoin prices listed on the peer-to-peer platform were based on $1 trading for approximately 475 nairas. This rate changed to the price much nearer to the average trading price of bitcoin.
The informal dollar market exchange rate within Nigeria reflected the rate witnessed on the peer-to-peer platform along with the prices of Bitcoin listed on it.
Bitcoin Prices are Shedding Light on the Informal Market For US Dollars
In the emerging markets today, going through a currency crisis, the prices of Bitcoin can truly shed light on the US dollar informal market. One Crypto exchange from Latin America listed the price of Bitcoin which later converted to a whopping amount, thereby utilizing the official exchange rate. However, the listings of Bitcoin on numerous exchanges also indicated the informal going rate for dollars. In this case, the exchanges most likely are utilizing informal dollar rates, hence inflating the price of Bitcoin in local currency.
It is something primarily reflecting the difference between the official and the informal US dollar rate. The gap within the informal unofficial dollar happens to be around 70% as far as Argentina is concerned. Exchanges utilizing informal rates other than official ones highlight the local Bitcoin markets exist outside the government rules. In this case, trading of Bitcoin might reveal the value of the local currency as compared to the dollar.
Informal Exchange Rates
Because of the declining purchase power of naira, Nigeria possesses multiple exchange rates when it comes to the dollar. Such rates are usually much weaker, with few Nigerians having to dish out higher amounts of naira per dollar. It indicates that local currency might be valued less. Multiple exchange rates appear within the unofficial market, with the government implementing exhaustive exchange limitations and restrictions on the foreign currency amount that could be sold or bought.
A similar thing happened in Argentina when, in 2020, the Government of Argentina imposed strict restrictions on the acquisition of US dollars. The number of dollars citizens could purchase and hold it was restricted because of attempting to stop capital flowing out of the nation. As a result, the black market dollar flourished with traders scrambling to purchase more dollars for protecting their wealth. It quickly led to spilling over to cryptocurrency as the people of Argentina demanded Bitcoin as its price increased in 2020. With that being stated, it is pretty difficult when it comes to estimating local informal dollar rates. However, as far as the black market currency is concerned, Bitcoin conversions can land up at a decent estimate.
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Be an inflationary nation the Nigerian citizens have been turning to Bitcoin as the value of naira drops. The demand for cryptocurrency was pretty high and the central bank of Nigeria ordered all the banks to shut down accounts associated with Crypto trading, thereby releasing and explaining that indicated a measure was about to be taken for protecting the financial system of the country.
With that being stated, post-ban, the exchange rate of naira on cryptocurrency platforms drastically changed, possibly driven by the panic and the demand for a slight drop of Bitcoin, thereby leading unofficial exchanges to hit approximately 420 nairas per dollar only leading the market to circle back.