In an interview with the Foundation for Investigative Journalism (fij.ng), crypto market analyst Mikael Bernard reveals that the recent naira appreciation was a function of order book manipulation.
Last Friday, the Nigerian stock exchange experienced an unexpected surge in the strength of the naira as it traded between N780 and N806 for a dollar in the official window. On the parallel market, a dollar was sold between N950 and N1110. While some attribute this rise to panic-selling of USD or the Central Bank of Nigeria (CBN) pumping money into foreign exchange (FX), others believe there might be more to the story.
Speaking with fij.ng, Crypto Market Analyst Mikael Bernard suggests that the sudden appreciation of the naira could be due to manipulation of the order book, a platform where buyers and sellers place bids. According to Bernard, the order book automates the process of matching buy and sell ads, similar to what the CBN does with FMDQ ads. However, he warns that the figures obtained from these transactions might not reflect the real rate, as only numbers are being traded on the spot market.
Bernard explains that on Friday, a group of people found a way to manipulate the order book on the NGN P2P window, causing the rate to drop as low as 700 Naira. They then used the Binance NGN balance to buy USDT in small amounts and sold it on normal P2P where there is liquidity, making up to 17 percent profit. According to Bernard, this manipulation, coupled with media reports about the spot markets, caused panic among street traders.
He stated in part, “What happened on Friday was that a bunch of people found a way to manipulate the order book. The CashLink wasn’t working and people used what we call NGN P2P. On this NGN P2P window, you will pay three percent premium to get normal Binance NGN balance and then trade it on the spot market. At that point, they had manipulated the order by posting low amounts within the range of $1–$4.
“When they did that, the rate was going as low as N700. So, when they get the Binance NGN balance, they used it to buy USDT in small amounts and then go to normal P2P where there is liquidity and sell it. At a point, they were making up to 17 percent profit from it. Then, it was as if there was a media angle to it because people started taking the news of the spot markets and it caused panic. People on the streets, who were smart enough, started taking advantage.
“So, you had informal BDCs on the streets telling people the rate is N800. Because what many of them do is, they just go on Binance, check the rates, and tell people.
READ ALSO:BREAKING: Industrial Court Stops Labor Unions from Embarking on Nationwide Strike
“But if you are buying dollars from them, they would try to make you sell it at the worst rate possible. They would go on Binance or even go on Google, get a very low rate and tell you this is the rate. But, if you are actually buying from them, then they will use the real rate which is N1000 and above.
“The Friday incident can also be referred to as a speculative attack. This happens when there is low liquidity or a dysfunctional market. Arbitragers or speculators take advantage to make good money. It had nothing to do with the naira or the economy. It was just a speculative attack.
“Also, the naira is always expected to gain strength by this time because this is past the peak period. People took advantage of that low peak period to run their arbitrage. It had nothing to do with the naira appreciating.”