Last updated on August 20th, 2020 at 12:19 pm
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Bitcoin is a better hedge to Nigerian Naira inflation during this time of economic crisis.
The economy is gradually plunging into an irresistible recession according to Zainab Ahmed, the Minister of Finance, Budget and National Planning in Nigeria.
DiutoCoinNews reported in May, the increase in the rate of inflation in Nigeria. Which according to the National Bureau of Statistics (NBS), has increased on a month-on-month basis.
This period is a period during which the government sometimes print a lot of money in way to salvage the lack of funds for victims of the pandemic.
This leads to a greater rate of inflation and investors subsequently move their investment capital out to better investment usually into Gold to stabilize their capital.
But of recent, investment shelters like Gold has been followed by another long-term sustainable store of value called Bitcoin (BTC). Bitcoin has proved to be a good store of value since after it’s creation in 2009 performing better against the Naira.
Bitcoin as a Hedge Against Nigerian Naira:
There are several tangible reasons to why Bitcoin is a better Hedge against Nigerian Naira. Already, Naira has lost more value since the COVID-19 pandemic started.
At present, Nigerian Naira exchanges for N472 Naira per dollar on various cryptocurrency exchanges like Binance. Most analysts predict more Naira devaluation to N500 Naira per dollar in the coming months.
Since the COVID-19 storm took over the economy of Nigeria. Following the lock down and the seize on market activities. The inflation rate has increased relatively reducing the purchasing power of Nigerians.
Let’s take a look at What is Inflation and it’s opposite Deflation.
Inflation simply means the increase in the supply of money in circulation which will cause a relative decrease in the purchasing power of Nigerians. This decrease in the purchasing power affects the price of goods and services.
Another cause of inflation can happen when investors pull out of a particular fiat currency.
Deflation on the other hand, means the decrease in the supply of money which increases the value of the fiat currency. This increase in value of fiat currency will relatively increase the purchasing power of Nigerians with a decrease in the price of goods and services.
Limited Supply of Bitcoin:
Considering the limited supply of Bitcoin pegged at 21 million total supply. It’s value will continue to increase with an increase in the demand of it’s limited supply.
The possible disadvantage here is high rate of Deflation in Bitcoin which is still far-fetched. While the demand increases, the price of Bitcoin increases and not everyone will be able to buy a whole Bitcoin.
Though technically, the total supply of Bitcoin will become a reality in the next 120 years that is around 2140. The potential of Bitcoin to act as a complete deflationary asset over Nigerian Naira is still not complete at least till after 120yrs.
The fact is that Bitcoin can continue to act as a hedge against inflation until 2140. Until after 2140, it may or not continue to act as a cover against inflation completely.
Censorship Resistance:
Bitcoin has being proved to have a high censorship resistance against government control.
The government has a greater control over the issuance of Nigerian Naira. This also goes towards gold. The Federal government can practically control the circulation of gold supply is limited.
On the other hand, Bitcoin is highly free from the control of third parties like the Federal Government.
Investors tend to move funds towards Bitcoin to have full control of their funds. Though the activities behind Bitcoin is also regulated by different governments, the ownership and control of funds in Bitcoin remains under the control of the owner.
The owner maybe affected when he moves his funds through any regulated product there at the market.
