The world’s strongest stablecoin has collapsed – against the Nigerian naira. The search for the causes leads deep into a labyrinth of exciting assumptions.
Recently there was a moment as if the Matrix had hiccups. And the following happened:
On a Binance P2P marketplace, the Tether dollar crashed – against the Nigerian naira. That was on November 2nd and 3rd. The USDT rate fell from 1,200 to 790 naira in two days. Soon after, it climbed back up to 1,000 naira.
What has happened there? Why did the strongest and most stable stablecoin collapse – and why against a rather unstable currency from the third world, whose money supply, at around 52 billion dollars, is still less than that of Tether? Is it just a rustling in the forest? Or is there more to it: Does Tether’s crash reveal something deeper?
There is one thing you need to know about the Naira, the currency of Nigeria, or NGN for short: it has two exchange rates.
One, the official one, applies to investors, exporters and banks. It lies in a channel directed by the Central Bank (CBN). In the first week of November, it moved between 909 and 780. These are fluctuations, but far from those seen on Binance’s P2P marketplace.
The second value is the black market price. It is lower, currently at a good 1,000 naira per dollar. This is the usual consequence of price controls: the market finds a way around them.
By the end of October, the black market price had fallen to 1,300 after a shortage of foreign exchange. Dollars had become scarce, liquidity was drying up, and the price of the dollar was rising.
The Tether market on Binance reflects the black market prices. But for a moment, on November 3, when the crash hit the ground, it aligned with the official course. This is the strange event we want to explain.
The central bank pays out foreign currency
The Nigerian Tribune reports on the Tether crash. He offers three explanations.
The first begins with the central bank clearing the forex backlog of international banks. In German: It has paid around 80 percent of the foreign currency liabilities due and thus paid out around 6.7 billion dollars to companies.
The flow of dollars saturated the market, both official and “parallel”. The naira gained around five percent. In the black markets, where the true price is more uncontrolled, speculators sometimes switched from panic buying to panic selling (of dollars).
Of course, it is difficult to determine how far the black market price has fallen. However, Nairametrics reports that the naira price for “P2P” – i.e. Tether – rose to 1/900 of a dollar, but remained at 1,000 to 1,100 on the black market.
The Tether price fell more than the dollar price on the black market. Forex clearing is certainly part of the explanation – but not all of it.
Is the central bank taking action against Binance?
The Tribune offers another reason: the central bank is taking tougher action against Binance’s P2P marketplace.
This is actually happening. The Securities and Exchange Commission (SEC) has been on Binance’s radar for several years, and it was only in June that it asked the exchange to stop trading in Naira because it was violating regulatory requirements. Binance then moved Naira trading to its P2P platform. The Tribune believes that the fear that these will also be closed is now unsettling traders and leading to a liquidity bottleneck.
If that were the case, this would have to be a long-term trend that is noticeable in the trading volume. However, this has been rising continuously since autumn 2022. There is no apparent lack of liquidity, especially not one that arose so spontaneously.
The chart shows everything, but no marketplace where the volume is seeping away. The Tribune’s third speculation is therefore more interesting.
Centrally manipulated prices
The magazine speculates whether the central bank manipulated the prices on Binance. There were reports as early as 2021 that the CBN was infiltrating P2P markets. After the naira collapsed, it may have tried to push P2P prices back to official rates to stabilize the situation.
Binance-Boss Changpeng Zhao nourished these rumors by posting a Nigerian flag on Twitter exactly on November 2nd without further comment. One could interpret this to mean that he welcomes a Nigerian government agency as a customer.
This is also supported by the fact that the P2P market for Bitcoin and Naira reacted similarly. On November 2nd, one Bitcoin cost 41.2 million naira – equivalent to $52,360 at official rates and around $34,300 at black market prices. It then fell to 27 million naira – equivalent to $34,300 or, according to black market prices, $27,000.
The Naira had adjusted to the official rate on Binance.
If the central bank actually brought this about, the measure only had a short-term effect. Today, Bitcoin is back at just under 37 million naira, which would be more than $46,000 according to the official rate, but according to black market rates, it corresponds exactly to Bitcoin’s dollar rate. Binance is back in the parallel market.
Ultimately, one could interpret the price developments in geopolitical terms. Admittedly, this is speculative and nebulous. But it is a variant.
The Naira is Africa’s second most important currency after the South African Rand. It is relatively widely accepted, but is less regulated and integrated into Western sanctions regimes than the Rand. This makes it a good option for sending money outside of official channels, for example if you have been covered in financial sanctions from toe to head.
Like the Wagner group, the Russian mercenary group that murdered in Ukraine, but also carries out its bloody trade on the African continent. There is evidence that it uses Bitcoin, USDT and Naira to finance African operations or repatriate their proceeds. Binance’s P2P markets allegedly played a central role in this, evidence of which can be seen in price and volume spikes.
A large demand for Naira in this situation could have triggered a crash of Tether. But what kind of event would that have been?
Here you can only guess. Chronologically, there is an interesting connection: On November 2, the Wall Street Journal published a video about how Russia is restructuring the African Wagner operations after the death of Yevgeny Prigozhin. New Wagner generals are appointed from the Ministry of Defense and the Secret Service, and two oligarchs replace Prigozhin as financiers. In September, the new Wagner leadership will travel to Libya, Burkina Faso, Mali and the Central African Republic.
Then an interesting sentence comes out in the video: The new leadership is faced with the challenge of “creating a completely new network of untraceable, unsanctionable organizations and entities that send each other values and money.” So you also have to ensure that the rubles from your home country reach the African front in some usable form, bypassing the sanctions.
It doesn’t take much imagination to imagine that Bitcoin, USDT and Naira play an important role in this. It is quite possible that demand for Naira will temporarily explode, for example if the new management plans certain transactions or regroups units.
But all of this, to reiterate, is conjecture. The most likely explanation is the most boring: the P2P market simply reacted more hysterically than the sedate, cash-based black market due to the lower liquidity and the crypto traders’ hunger for speculation.