The cryptocurrency ban in Nigeria has proven to be ineffective. Instead, it bolstered the market.
One year after the cryptocurrency ban in Nigeria, Nigerians’ affinity and investment in the crypto market has deepened. This defeats the plan of the Central Bank of Nigeria to cripple cryptocurrency trading in the country.
The CBN Governor Godwin Emefiele had also barred Nigerian banks from facilitating crypto transactions, warning of severe sanctions on offenders, including freezing accounts of firms using them.
But if the CBN had thought that its action would slow down the cryptocurrency market, then it missed it by a long shot. Chainanalysis reported in March 2021, soon after the cryptocurrency ban in Nigeria, that the volume of crypto sent from Nigeria rose sharply to $132million, an increase of 17 per cent from February. Then in June of the same year, crypto transactions galloped by 25 per cent compared to the same period in 2020.
Nigerians had devised a new way to trade in crypto – Peer-to-Peer (P2P) exchanges. This method rendered the crypto ban ineffective. Although the ban limited the traditional and centralised exchanges, the P2P more than made up for the loss.
By August 2021, over $400 million worth of crypto assets had been traded in Nigeria. As a result, Nigeria ranks number six in the Chainanalysis’ 2021 report on crypto adoption worldwide, two steps higher than its position in 2020.
So even though the crypto ban in Nigeria forbids commercial banks and payment providers from dealing with crypto entities, it has indirectly raised crypto awareness and encouraged tech-savvy young Nigerians to embrace digital currencies for the first time.
What is P2P crypto trading?
In P2P trading, users don’t buy cryptocurrencies with naira; they buy directly from another crypto trader. This formula shut out the banks and enabled crypto trading under regulators’ radar.
Crypto peer-to-peer platforms like Remita, Paxful, Exchange Yellowcard etc., also experienced a boom in business. Paxful recorded an almost 60 per cent rise in trading volume in the first half of 2021, and the number of its customers also grew by 83 per cent.
Many Nigerians now use informal channels like WhatsApp and Telegram, where users exchange crypto for Naira and other currencies with people they find there. Unfortunately, that is where people of the underworld take advantage to perpetrate financial crime.
What drives interest in crypto?
In an economy that has seen a rapid rise in inflation, many see cryptocurrency as a means of preserving their wealth. For context, in 2021, Bitcoin holders got over 300% in return on their investment, while headline inflation stood at 15.75% year-on-year in December 2021. Crypto is a more efficient store of value.
More so, the rising cost of cross-border payment has forced many Nigeria in the diaspora to embrace crypto as a means of sending money to loved ones back home.
How crypto can solve Nigeria’s economic problems
Without a doubt, crypto has come to stay in Nigeria. So instead of fighting it, maybe the government should rather be thinking of ways to harness the industry’s enormous potential to solve its economic problems.
If Nigeria requires a template, it can look to El Salvador, which recently adopted Bitcoin as one of its legal tenders, or Canada, which is now taking steps to expand the economic opportunities in the crypto world for the benefit of its citizens.
Canada has introduced legislation designed to strategically position the country to attract multi-billion-dollar new investment in crypto assets.
Canadian parliament member Michelle Rempel Garner who introduced the bill said, “To be a world leader, Canada needs to make sure crypto-asset experts and investors are telling us what policies they need, or what policies they don’t need. This bill requires the minister of finance to formally ensure that their voices help lead policy development.”
Crypto can also be used to solve Nigeria’s unemployment problems. According to NBS, 33 per cent of Nigerians are currently jobless, and the youth unemployment rate is well over 50 per cent. The crypto industry can help drive the figure down if well harnessed.
Chike Okonkwo, Business Development Manager, OKEx told Nairametrics that Crypto can be used for job creation. “Since the adoption of cryptocurrency in Africa, Nigeria has become a major hot zone in the African cryptocurrency space. The adoption of blockchain/cryptocurrency by Nigerians has been able to give jobs to young Nigerians like me.
“The industry will further curb unemployment, but to achieve this — Blockchain and Crypto education must be a key focus because it’s a young industry.”
Crypto can also be harnessed to improve the country’s sagging Foreign Direct Investment. Last year, Nigeria plunged by 74 per cent year-on-year, reaching its lowest level since 2013. Cryptocurrency can provide an opportunity for the country to attract a series of new investments.
Nigeria, being one of the biggest crypto markets globally, holds a very attractive prospect for crypto investors. But the current policy of crypto ban sends the wrong signals to investors that they are not welcome in Nigeria, despite the high adoption rate.
Nigeria is also losing out on the huge tax revenue from digital currency. In the last couple of years, many crypto firms have sprung up. Despite the ban, they are still operating. These companies cannot be adequately taxed if the government refuses to recognise them as legitimate businesses.
Cryptos, when fully adopted, will have a considerable impact on Nigeria by increasing the financial inclusion of individuals and companies. Particularly, cross-border payments can be improved by reducing the transaction fees and time. This is beneficial for remittance payments, peer-to-peer lending, and international trade.
Perhaps, the way to solve the current crisis and place Nigeria on the path to reaping from its crypto potentials is for the operators and regulators to close ranks.
Owenize Odia, country manager for crypto exchange, Luno, has said that the industry should allow for some form of regulation by the government as this will address the concerns about financial crimes in crypto.
“We are looking for a collaborative approach, a situation where we sit down with regulators and they list their demands. Because the way back for crypto in Nigeria is regulation. With CBN regulation, only licensed providers will operate, cutting off the scammers. In the end, it is about consumer protection.
This is a challenge for the CBN and the Nigerian government. Will they agree to work with the industry stakeholders to harness the gains of crypto, or will they stubbornly stick to the ban and continue to lose out on the revenue potentials of crypto?