The cryptocurrency industry took the world by storm in 2021, especially in emerging economies. According to a Chainalysis research paper on ‘The 2021 Geography of Cryptocurrency Report,’ released in October 2021, Nigeria is ranked 6th in the global crypto adoption index with an index score of 0.26. Nigeria was once the leading nation in Africa in terms of cryptocurrency adoption but according to the report, Kenya leads in Africa, taking the 5th spot with an index score of 0.28.
Nigerians, especially youths, have turned to the cryptocurrency industry in search of ‘greener pastures’ which is majorly attributable to the high level of unemployment plaguing the nation. According to a March 2021 Bloomberg report, Nigeria’s unemployment rate stands at 33.3% as at the fourth quarter of 2020. The report cited the National Bureau of Statistics (NBS). The report further reads:
“A third of the 69.7 million-strong labour force in Africa’s most-populous nation either did nothing or worked for less than 20 hours a week, making them unemployed, according to the Nigerian definition. Another 15.9 million worked less than 40 hours a week, making them underemployed.”
What reports are saying about crypto adoption in emerging economies like Nigeria
As a result of this growing unemployment problem, many Nigerians have turned to the cryptocurrency industry in search of an opportunity to earn from the massive growth the industry has witnessed in 2021. For instance, the cryptocurrency market capitalization has grown by approximately 228% from about $760 billion to currently stand at $2.51 trillion as of the time of this writing. The cryptocurrency market capitalization traded as high as $2.96 trillion earlier in the month.
Asides from the capitalization growth of the industry, there have been instances of astronomical growth in terms of interest in the space, participation in the space and also investments. Speaking on the global adoption rate of cryptocurrencies, Chainalysis Research stated:
“At the end of Q2 2021, that total score stands at 24, suggesting that global adoption has grown by over 2300% since Q3 2019 and over 881% in the last year.”
The report further lists the growing adoption of cryptocurrencies by emerging economies as a major contributor to this growth.
“In emerging markets, many turn to cryptocurrency to preserve their savings in the face of currency devaluation, send and receive remittances, and carry out business transactions,” they said.
Asides from this, TripleA put out a global adoption report stating that 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.
In terms of investments, KPMG’s ‘Pulse of Fintech’ half-year report revealed that cryptocurrency and blockchain investments as of the first half of 2021 stood at approximately $8.7 billion, which is more than double the $4.3 billion investments made in the whole of 2020.
With these facts, we will now look at ways in which Nigerians have been able to mint profits by leveraging this new industry.
How Nigerians are making money from crypto
Capital Appreciation (Buy and Hodl)
This is the most common way that many Nigerians make money from the cryptocurrency space. It involves buying cryptocurrency assets and holding onto them on a short, medium or long term basis in hopes that the price at which they are ready to sell, is more than when they initially bought it.
In 2021, the cryptocurrency space has seen astronomical price rallies from tokens such as Shiba Inu, Dogecoin, AXS and many others. However, although the price appreciation in the cryptocurrency world is huge, cryptocurrencies like Bitcoin, which has grown by over 93% Year-to-Date (YtD), has had significant crashes along the way. The most significant happened in May 2021, where Bitcoin lost 50% of its value in a day.
Staking 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 is another way of earning passive income in the cryptocurrency space, which many Nigerians are warming up to. 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 and so on, all offer their platform users an opportunity to earn passive income on their cryptocurrency holdings through staking.
Also known as yield or liquidity harvesting, it involves lending crypto assets in order to generate high returns or rewards in the form of additional cryptocurrency. Yield farming, according to Coinmarketcap, is currently the biggest growth driver of the still-nascent DeFi sector, helping it to balloon from a market cap of $500 million to $10 billion in 2020. The sector currently has a total market capitalization of $159.6 billion.
Nigerians involved in farming also see it as a way to earn passive income on their long term cryptocurrency holdings, as the process 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
Nigerians’ involvement in the futures and options trading market started long before the advent of cryptocurrencies. Before cryptos became mainstream, Nigerians participated in the commodities and currencies market through futures and options and it was popularly termed ‘forex trading.’
They are both 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.
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 unlike with IPOs, where a substantial amount of money is required before participating. Nigerians are now participating in ICOs/IDOs, in hopes of a rapid price increase as a result of high demand at the official launch.
Nigerians are also benefiting from the world of crypto through clinching cryptocurrency-related jobs. There are many cryptocurrency companies in Nigeria. They include Remitano, Patricia, Nestcoin and so on. 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.