Nigeria, which has seen a major rise in the adoption of cryptocurrencies, particularly Bitcoin (BTC), introduced a new policy on June 14 that allows banks and other foreign exchange market participants to trade its naira currency freely. This could have various implications for crypto traders.
Foreign currency buyers and sellers are now able to trade at prices that suit them based on current market conditions, instead of being constrained by the Central Bank of Nigeria (CBN). This shift follows the President’s decision to impose a 10% tax on capital gains from cryptocurrencies and could be a significant influence on Nigeria’s cryptocurrency sector, for better or worse.
Cointelegraph consulted with David Osawaru, a crypto specialist in the area, who mentioned that the fluctuations in the value of the naira in comparison to other currencies, including digital currencies, could influence the profitability of crypto trades. If the worth of the naira decreases sharply, it would be detrimental for crypto traders, but if it increases, it would bring high returns.
Osawaru suggested that if the Nigerian naira were to suffer rapid devaluation, crypto traders could be faced with greater transaction costs due to potential fluctuations in exchange rates. Volatility could lead to wider bid-ask spreads, thus making it costlier to buy or sell cryptocurrencies with the naira.
Exchanges that facilitate trading in cryptocurrencies depend on the liquidity of various fiat currencies, including the naira, to ensure smooth transactions. If the liquidity of the naira diminishes, it can be difficult to match buyers and sellers at their desired prices, resulting in potential slippage and increased trading costs.
Liquidity is a measure of how quickly an asset can be bought or sold without causing a significant change in its price. When liquidity of a currency is diminished, there is a decrease in the number of buyers and sellers in the market, which can lead to a larger difference between the bid and ask prices and greater price fluctuation.
Osawaru suggested that if the naira’s exchange rate was to be allowed to fluctuate freely, it would reduce the potential for arbitrage with cryptocurrencies by reducing the variance in their prices across different markets. This would make it less likely for there to be significant differences in the naira and cryptocurrency prices between different trading platforms or exchanges.
Nigeria’s regulatory body has reportedly suspended the operations of Binance.
In order to reduce any potential negative repercussions of this new policy on the crypto market and the economy as a whole, the Nigerian government could implement cryptocurrency regulations to create a more liquid and efficient trading atmosphere, promote market-making activities, and guarantee transparency.
The magazine states that Hong Kong requires 100,000 workers for its cryptocurrency industry and China has an AI unicorn.
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