TL;DR Breakdown

• Nigeria’s CBN imposes crypto ban.
• There are speculations that the ban might have a political undertone.
• Some countries have also issued an outright crypto ban in their attempts to protect their citizens and their economy.

Nigeria’s burgeoning crypto industry suffered a significant setback recently as the country’s apex bank, the Central Bank of Nigeria (CBN), sent a circular to financial institutions to remind them that cryptocurrencies remained banned in the country. The bank strongly warned these institutions to either close user’s accounts with affiliations to crypto-assets or risk facing severe regulatory sanctions. And in no time, these institutions began informing their clients about their attempts to meet up with the regulatory policy.

The apex bank cited an earlier memo it had written to that effect and also mentioned the risks involved in transacting cryptocurrencies as why it is making its choice of a crypto ban. To put this in perspective, the CBN believes they are trying to protect the country’s economy and prevent the use of such assets for illegal activities like terrorism financing.

Crypto enthusiasts in the country, who are majorly the youths, began to pour their displeasure on major social media sites, but there is nothing they can do about the bank’s decision.

Why did Nigeria’s CBN impose a Crypto ban?

As stated above, the Central Bank of Nigeria did not give any compelling reason for banning crypto. It merely alludes to what people already know about the risks of the industry and states that this crypto ban regulation has been in place since 2017. However, there are speculations as to why the CBN chose to enforce the crypto ban regulation now. 

One of the widely touted reasons is the massive drop in remittance to the country within 2020 and the bank’s effort in controlling the exchange rates between the country’s fiat currency, Naira, and the American Dollar. The Buhari led administration had promised citizens of restoring the Naira to a better position against the Dollar.

However, this promise has remained largely unfulfilled, with the Naira’s value declining against the US Dollars instead. Thus, the bank had a daunting task of halting this freefall, which is why the country has implemented some remittance policies they feel would better protect the currency.

The failure of these policies might have forced the citizens’ hands into finding a suitable alternative. Coupled with some lousy banking practices, many found a viable alternative in crypto transactions, especially for their international transactions.

While this is at best speculative, available data from Nairametrics, a financial analytic site in the country, said that remittance from official channels fell from $2.05 billion in January 2020 to $54.4 million in September 2020, which represents a 97.3% drop. No one can, however, categorically state the reason for this massive fall. Some have laid it on the pandemic’s feet, which they say affected the spending power of diaspora Nigerians. While another school of thought says, it is because an alternative is being sought in cryptocurrency.

Transaction volume data from crypto companies operating in Nigeria shows that this is very likely as about $1.5 billion was processed in 2020 alone.

With this in mind, the apex bank might have seen a blanket crypto ban as a way of shooting its remittance level up and allowing it a more generous room to improve the value of the Naira against the Dollar.

Another speculation is that the ban might have some political undertone. During the youth charged protest against police brutality, they had received crypto donations, which the authorities had no control over to support the protests ongoing in the country then. This lack of control over this channel might have informed the choice of the authority.

Are Bitcoin and other cryptocurrencies now illegal in Nigeria?

Technically, the authorities have not outrightly banned cryptocurrencies in the country. Nigeria’s central bank has only ordered financial institutions in the country not to provide their services for crypto transactions, which means crypto enthusiasts can still carry out transactions as long as they do not use any of the institutions regulated by the authorities.

What is the crypto community saying?

While the news sent a shockwave through the crypto industry in Nigeria and Africa at large, with many crypto enthusiasts condemning the crypto ban; Nigerians on social media, especially Twitter, were quick to raise their concerns about what this would mean for fintech startups and crypto exchanges in the country.

According to Senator Iheyen, the President of Stakeholders in the Blockchain Technology Association of Nigeria (SiBAN), this new regulation is shocking. In his opinion, the apex bank’s failure to consult far and wide before imposing this crypto ban leaves a very sour taste in the mouth. He claims the bank made a unilateral decision without carrying significant stakeholders in the field along.

Crypto enthusiasts in the country also point to the fact that the country’s Securities and Exchange Commission’s (SEC) had said it was committed to regulating cryptocurrencies in the country in a way that it wouldn’t stifle innovation or hinder the use of the technology. This effectively means that the commission was looking to create an efficient market for these digital assets. 

However, with this new development, nobody knows what the future holds for cryptocurrency trading in the most populous African country.

Other countries that have imposed a Crypto Ban

Nigeria is not the only country imposing a crypto ban. The Indian government is also currently seeking to fast-track a bill that would lead to the ban on all “private cryptocurrencies in the country.” Other countries like China, Morocco, the United Kingdom, Bangladesh, Bolivia, Saudi Arabia, Iran, and a host of others have at one time, or the other imposed a crypto ban. 

Most of these countries ban these crypto-assets because they claim that these virtual currencies are not considered to be a legal tender. In contrast, some claim that these digital currency’s anonymity could allow illegal activities like money laundering to thrive in their country. 

Like the FCA in the UK, some regulators say the volatility of the crypto industry makes it dangerous for consumers. The FCA also issued strict warning to investors in the field to be “prepared to lose all of their money.” In essence, most of these bans’ underlying reason is the authority’s attempt to retain control of their financial system.

Effect of crypto ban in Nigeria

In a fast-paced, digitally evolving world, cryptocurrencies, and blockchain technology are innovations that have come to stay. The similarities it shares with the internet as a decentralized network makes it immutable.

While some countries already recognize this, their efforts are geared towards regulating the industry instead of an outright ban. Because, undeniably, a ban on cryptocurrency will stifle innovation and affect the growth of the economy.

For a country like Nigeria, which is the leading African country in crypto market activities, this ban would affect the future of crypto startups in the country. It also means that citizens would be unable to use crypto as safely as in previous times.

And since the authorities cannot control crypto, it cannot be effectively banned. A ban only increases the risk of fraudulent activities through crypto-assets. This is because more people who have used official and public channels will resort to private channels that might leave them at the whims of fraudsters who might want to reap from this lack of regulations.

What does the future hold for crypto transactions in the country?

Several crypto exchange and fintech companies based or active in Nigeria have already stopped offering crypto trading services. However, this does not mean the end of crypto in Nigeria. Instead, it could mean the beginning.

The CBN regulations only banned regulated financial institutions from participating in crypto. This means crypto traders can still carry out trading activities, though it is now more difficult and riskier.

Experts predict that this ban will increase peer to peer (P2P) transactions, which is the fundamental basis of crypto. It is also likely that crypto companies will pivot to providing peer to peer services. This would thereby ensure that the P2P exchange is safer and more efficient.

Few Cryptocurrency exchange platforms already have P2P features, and we are likely to see more very soon if the CBN doesn’t reverse its decision. 

Conclusion

While regulating the crypto industry appear to be necessary. An outright ban, however, is a step in the wrong direction as it places the country in the backwater of such financial innovations.

Hopes remain high that the CBN could someday retrace its steps and find a better alternative that benefits everyone in the long run.