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Tuesday, March 28, 2023

Why the NSIA Should Begin to Think of Bitcoin, Digital Assets as Investment Option

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Allocating to digital assets has become far more normalized over the past two years for all investors.

The Fidelity Digital Assets 2021 Institutional Investor Survey found that 71% of U.S. and European institutional investors surveyed intend to allocate to digital assets in the future.

This number has grown across each individual region of the survey for the past three years, and Fidelity expects 2022 to show another year of higher current and future asset allocations to digital assets amongst institutions.

The market cap of digital assets rests at just under $2 trillion. While its growth rate has been impressive, it is still relatively small compared to the hundreds of trillions of dollars in assets globally.

The Nigeria Sovereign Investment Authority (NSIA) is the manager of Nigeria’s sovereign wealth fund. With about $1.75 billion in assets under management the NSIA is puny compared to global peers and must begin to think outside the box if it intends to grow fast as well as not miss out on the innovation that will drive the global economy over the next two decades.

The NSIA currently operates three separate and ring-fenced investment funds.

The stabilization fund provides stabilisation support to the Federation revenue in times of economic stress, the infrastructure fund enhances the development of infrastructure, primarily through investment in domestic infrastructure projects that meet targeted financial returns, and the Future Generations Fund which invests in a diversified portfolio of growth investments to provide future generations of Nigerians a savings base for such time as the hydrocarbon reserves are exhausted.

The Future Generations Fund which reported N388.77 billion ($932m) in assets at the end of 2020 is clearly inadequate to take care of unborn Nigerians once the oil wealth dries up.

This past year saw some major moves by world governments with regards to digital assets.

We saw multiple bans from China throughout the year, most notably a call to crackdown on mining in May, then a document released detailing all cryptocurrency transactions as illegal in September, and finally, another announcement in November to shut down all mining.

The Nigerian central Bank for its part banned the processing of Bitcoin transactions through its banking system, effectively putting a chill on the growth of the industry domestically.

The government of El Salvador took the opposite approach, becoming the first-ever sovereign nation to make bitcoin legal tender in its country (El Salvador still uses the U.S. Dollar, but all businesses must accept bitcoin as payment as well).

In addition, El Salvador has rolled out its own digital wallet, distributed free bitcoin to its citizens, and the president of El Salvador made multiple announcements that the country has purchased bitcoin for its reserves and will also be offering a “bitcoin bond” of $1 billion USD with half used to purchase more bitcoin and the other half used for related bitcoin infrastructure.

Fidelity notes that:

“We think the two developments observed this year couldn’t be more opposed. Time will certainly tell which path is more successful but given our view of digital assets, it isn’t surprising that we think an outright ban will be difficult to achieve at best, and if successful, will lead to a significant loss of wealth and opportunity. History has shown capital flows to where it is treated best and embracing innovation leads to more wealth and prosperity. We also think there is very high stakes game theory at play here, whereby if bitcoin adoption increases, the countries that secure some bitcoin today will be better off competitively than their peers. Therefore, even if other countries do not believe in the investment thesis or adoption of bitcoin, they will be forced to acquire some as a form of insurance. In other words, a small cost can be paid today as a hedge compared to a potentially much larger cost year in the future. We therefore wouldn’t be surprised to see other sovereign nation states acquire bitcoin in 2022 and perhaps even see a central bank make an acquisition.”

We believe the Nigerian authorities should be heeding this message, especially those charged with growing a future nest egg for all Nigerians like the NSIA.!!

A small allocation such as $10million to Bitcoin and Ether by the NSIA will ensure it doesn’t wake up 10 years from now and missed the boat on digital currency innovation.

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