Premiums have risen after the Central Bank of Nigeria reminded banks that they should not provide financial services to crypto exchanges.
Nigeria’s central bank (CBN) restrictions on the cryptocurrency are still affecting exchanges operating in the country.
On Friday (February 26), Bitcoin was traded for a 46% premium on the Nigerian exchange Luno, meaning the price of 1 bitcoin on the exchange was much higher than its average price. on other major exchanges it was about $ 48,000 at the time. This is up from the 38% premium rate earlier this week. Luno is a subsidiary of Digital Currency Group, one of the largest crypto corporations in the world.
Earlier this month, CBN banned local financial institutions from serving crypto companies. Exchanges said they experienced a drop in liquidity due to the ban. Marius Reitz, Luno Africa’s general manager, said that although liquidity issues have no “yes or no” answer, “the letter from CBN has caused a market shock”.
“The Luno exchange is still liquid, but it’s only a third of what it used to be,” Reitz expressed concern.
Liquidity generally indicates a firm’s ability to pay off its short-term liabilities. But in this context, liquidity reflects the ease with which crypto assets can be converted into cash or other cryptocurrencies without affecting the asset’s price too much. Low liquidity makes this transition more difficult and drives up asset prices.
Usually, the price of Bitcoin on each exchange varies slightly depending on the liquidity of the exchange, as well as the fact that bitcoin is a decentralized asset, with no standardized pricing.
However, the prices on Luno far exceed the regular prices on other exchanges.
Central bank ban
Although the ban is not new, the central bank has ordered all local banks to close accounts related to crypto companies. In response to the order, Binance Nigeria halted Nigeria’s Naira-denominated deposits on the platform, while Luno halted both withdrawals and deposits.
Luno is still unable to process deposits and withdrawals, Reitz said.
He added that, right after the CBN ban, people were trying to sell bitcoins to naira so they could withdraw money to their personal accounts. And central bank orders have resulted in lower demand for bitcoin. In fact, unable to maintain accounts with traditional exchanges, Nigerian crypto users began switching to peer-to-peer trading platforms.
“Now, when the price of bitcoin reaches new highs, because there aren’t as many people buying or selling bitcoin in Nigeria as it used to be, it could lead to periods of low liquidity causing spikes and drops in price,” Reitz. added.
Bitcoin has been traded at a slight premium on several Nigerian exchanges where the unofficial dollar rate and inflation can affect the price. On Friday (February 26), the official exchange rate of the US dollar to naira announced by the CBN was 379 naira per dollar. Meanwhile, the Bitcoin price on the Paxful P2P platform reflects the unofficial exchange rate of the Nigerian dollar: 475 naira to $ 1. On Luno, bitcoin is listed at around 33,000,000 naira, meaning $ 1 is worth around 690 naira. A Twitter user pointed out that $ 1 will cost 700 by February 20 on the platform. In other words, Bitcoin could cost users between $ 45,866 and $ 69,000 in Nigeria at the moment.
Another user, MarufLawal, took to Twitter to raise concerns about Luno’s high premium, going as far as accusing the platform of manipulating prices.
“Again, I come back to the same problem .. stop manipulating prices on your exchange.. that’s bad and it makes you look really horrible… why can’t you allow marketing? active school? Why USDC = 610NGN on your platform? Do you want CBN to come after you? “
Luno does not price bitcoin or any of the cryptocurrencies available on the platform, Reitz said.