According to Osawaru, in the case of rapid naira devaluation, there’s the possibility of crypto traders experiencing higher transaction costs due to potential changes in exchange rates. Increased volatility could result in wider bid-ask spreads, making it more expensive to buy or sell cryptocurrencies using the naira.
Cryptocurrencies are typically traded on exchanges and these exchanges rely on the liquidity of different fiat currencies, including the naira, to facilitate smooth trading. If the liquidity of the naira decreases, it becomes more challenging to match buyers and sellers at desired prices, leading to potential slippage and increased trading costs.
Liquidity refers to the ease with which an asset can be bought or sold without significantly impacting its price. When the liquidity of a currency decreases, it means that there is a reduction in the availability of buyers and sellers in the market, which can result in wider bid-ask spreads and increased price volatility.
Osawaru said that the free float of the naira could also reduce arbitrage opportunities for cryptocurrencies by minimizing the discrepancies in their prices across different markets. If the naira's exchange rate is allowed to freely adjust, it becomes less likely for significant price disparities to exist between the naira and cryptocurrencies across different trading platforms or exchanges.
Cointelegraph spoke with a local crypto expert, David Osawaru, who said that fluctuations in the value of the naira against other currencies, including cryptocurrencies, may impact the profitability of crypto trades.
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