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Bitcoin trading volumes are on the rise on the African continent despite the ongoing concerns about the high network fees. Data shows peer to peer bitcoin trading platforms recorded spiked growth in volumes starting in April. This was the same time as many countries implemented lockdown measures.
Anecdotal evidence seems to suggest that Covid-19 related regulations are the reason for the volume growth. This “evidence” is observed in Nigeria, already one of the biggest cryptocurrency markets in the world. Some observers from the country say the struggling economy, as well as the volatile currency, are helping to build new momentum for bitcoin as well as altcoins.
To illustrate, they show how the corona virus-induced drop in oil revenues has put increased pressure on local currency. Increased pressure on local currency inevitably leads to capital flight and scarcity of foreign currency.
Available data shows that between March and August 2020, the Naira (the Nigerian currency) has depreciated by 33%, from about 360 to 480 units for every US dollar. The ensuing shortages of hard currency has resulted in some banks limiting the amount of US dollars Nigerians can withdraw each month.
This scenario, which has played out in many African countries similarly affected by the closure economies, inevitably leads to growing interest in alternatives like cryptocurrencies as Nathaniel Luz, Lead for Dash in Nigeria explains.
Luz says the “increased instability of the Naira” as led to “more Nigerians keeping their money in crypto.”
The high transactions fees
Still, as Luz argues, the high transaction fees associated with a bull market, particularly on the Bitcoin network, are proving to be an unwelcome dynamic.
“Bull runs generate lots of excitement and optimism for the crypto space in general, serving as a good advert for newbies to get on board. With every bull run we see increased fees and slow confirmation times for bitcoin transactions due to the mempool being full,” explains Luz.
This makes the leading cryptocurrency less appealing as an alternative means of transacting or remitting funds.
Echoing Luz sentiments is Chris Maurice, CEO at Yellowcard Financial, the digital currency exchange that helps Nigerians in the Diaspora to send funds home using bitcoin.
According to Maurice, his organization is “seeing growth in volumes” although he admits that the “high transaction fees have definitely impacted us on the operational side, however.”
To try and mitigate the problem, Maurice shares a strategy his company has adopted to minimize the impact of the high fees.
“We move BTC constantly, and at this point, I only move bitcoin at around 2-3 am EST while everyone in the US is asleep and the chain is a little calmer. I’ll send with a ‘reasonable’ fee of $20+ and pray that blocks happen quickly and the coins don’t get caught for 24 hours or more.”
Using higher fees help get transactions confirmed faster, yet as one bitcoin trader from Zimbabwe, William Chiu explains, the final transaction cost will be much higher.
The final cost renders moot the appeal of bitcoin for remittances adds Chiu:
“The challenge we have is that we pay a premium already to get the BTC, then when we need to make a transfer, the fees are high, which further impacts us.”
In countries like Zimbabwe, banks are barred from interacting with cryptocurrency exchanges. That leaves traders with the informal crypto markets as the only source for getting bitcoin. For their effort, informal dealers charge a premium on top of the going bitcoin price.
The premium ranges between 5% and 10% and this is before adding the network transaction fee to the total cost.
“(At the moment) fees of about $8 help to get a transaction approved (confirmed) quickly, or else, people can play the lottery and pay a lower fee and possibly wait 3 days for it to clear,” explains Chiu.
This, therefore means the sending party will have to incur a minimum cost of $13 just to send bitcoin worth $100. Such costs make remitting funds via bitcoin less appealing when compared to traditional remitting channels.
Newcomers to cryptocurrency
Meanwhile, as Gray Jabesi, a founder at Crypto University and Buy Bitcoin Malawi argues, the bull market has had both positive and negative aspects to it. He explains the positive part first:
“We are seeing increasing volumes from beginners that are in it for speculation but we also still see a steady growth of those that want cryptocurrency because it works for what they want to do.”
Still, Jabesi admits the same bull market is making bitcoin less cost-effective for border remittances, the common use case for cryptocurrencies on the African continent. He ties the growing interest in alternative coins to BTC’s high network fees, as BTC’s fees rose as much as 550% last month.
Opportunity for BCH
According to Jabesi, BCH seems to be the preferred alternative because it is “not only cheaper and faster, but also because it is accepted as payment on many online retail market places.”
Meanwhile, Maurice who insists that bitcoin remains king despite the high network fees, admits they are also looking to add BCH on the Yellowcard platform.
We get requests pretty often for BCH, and we’re actively working on listing it. BTC is still king, however, especially in Africa. I think even with the high fees right now it would take a large educational push around BCH to get people switching.
Dash is also seeing growing interest by users that want faster and cheaper fees. According to the Dash leader in Nigeria, one platform Coinprofile.co has already added Dash to the list of supported coins.
Success on this front will help these cheaper and faster alternatives to get more from this growing market.