Cryptocurrency: How Nigerians are profiting from it

Nigeria is ranked 6th in the global crypto adoption index, according to a Chainalysis research paper on ‘The 2021 Geography of Cryptocurrency Report,’ released in October 2021.

According to a March 2021 Bloomberg report, Nigeria’s unemployment rate stands at 33.3% as of the fourth quarter of 2020. The report cited the National Bureau of Statistics (NBS). The report further reads:

Many Nigerians as a result of unemployment have turned to the cryptocurrency industry to earn a living.

Besides the capitalization growth of the crypto industry which has grown by approximately 228% from about $760 billion to $2.51 trillion, there has been growth in terms of interest, participation, and also investments in the industry.

According to a TripleA global adoption report, as of 2021, the world has over 300 million crypto users worldwide, with Nigeria among the top countries with approximately 13 million users. Using an assumed population size of 200 million people, this means approximately 6.5% of Nigerians have used cryptocurrencies in one shape or form.

Ways in which Nigerians are profiting from Cryptocurrency

  • Capital Appreciation (Buy and Hodl)

Most Nigerians make money from the cryptocurrency industry by using this strategy. It involves buying cryptocurrency assets and holding onto them on a short, medium, or long-term period for a price appreciation before they sell-off.

There have been astronomical price rallies in 2021 from tokens such as Shiba Inu, Dogecoin, AXS, and many others. However, some cryptocurrencies like Bitcoin, which has grown by over 93% Year-to-Date (YTD), have had a significant price drop within the period. The most significant happened in May 2021, where Bitcoin lost 50% of its value in a day.

  • Staking

This strategy is used by a few Nigerians. It is the process of actively participating in transaction validation on a Proof-of-Stake (PoS) blockchain. On these blockchains, anyone with a minimum-required balance of a specific cryptocurrency can validate transactions and earn staking rewards.

Staking involves holding coins in a live wallet, thus allowing you to earn additional coins for securing and participating in that particular crypto network. Decentralized Exchanges (DEX) like PancakeSwap, Uniswap, offer their platform users an opportunity to earn passive income on their cryptocurrency holdings through staking.

  • Yield Farming

Yield farming or liquidity harvesting involves lending crypto assets in order to generate high returns or rewards in the form of additional cryptocurrency.  The sector currently has a total market capitalization of $159.6 billion.

It involves incentivizing liquidity providers (LP) to stake or lock up their crypto assets in a smart contract-based liquidity pool, in which they get in return, a percentage of transaction fees, interest from lenders, or a governance token.

  • Futures and Options

These are high-risk investments that involve providing individuals who are looking to reduce future risk with their investment through pre-determined prices. However, since a direction of price movements cannot be predicted, it can cause substantial profits if right or losses if a market prediction is inaccurate.

Although they share some commonalities, they are also markedly different in certain key respects. Although both derive their value from an asset known as the ‘underlying’ such as shares, commodities, exchange-traded funds (ETFs), share market indices, and in this case, cryptocurrencies, they both however differ in terms of commitment and obligation. Futures represent a commitment to trade that must be squared off at the specified date. Whereas options give the buyer the right, but not the obligation, to exercise the contract.

  • ICOs/IDOs

Initial Coin Offering (ICO) and Initial DEX Offering (IDO) are similar to when a stock, being listed on an exchange, has an Initial Public Offering (IPO). ICOs are a popular fundraising method used primarily by startups wishing to offer products and services, usually related to the cryptocurrency and blockchain space. An IDO on the other hand is when a project launches a token through a decentralized liquidity exchange.

Due to the ease of entry and exit into the cryptocurrency market, any size of investors can participate in ICOs and IDOs. Nigerians are now participating in ICOs/IDOs, in hopes of a rapid price increase as a result of high demand at the official launch.

  • Crypto-Related Jobs

Nigerians are also making money through cryptocurrency-related jobs. There are many cryptocurrency companies in Nigeria. They include Remitano, Patricia, Nestcoin, and a couple of others. These companies have been able to create jobs for Nigerian youths.

Also, as a result of the COVID-19 pandemic that gave rise to Work from Home (WfH) policies, many Nigerians have been able to secure foreign cryptocurrency jobs in the areas of writing, software engineering, community development, and so on, where they earn in foreign currency.