On February 5th 2021, the Central Bank of Nigeria (CBN) issued a letter to financial institutions in the country enforcing the closure of accounts dealing in cryptocurrency transactions.
Following this, commercial banks deactivated the accounts of individuals engaging in such exchanges. Cryptocurrency platforms such as Luno also released statements disabling all Naira withdrawals and deposits.
This resulted in widespread concern both nationally and internationally about the impact it could have on the growing FinTech industry in Nigeria. In particular, there is worry that the industry may lose out on investments from future-focused tech companies who endorse cryptocurrency use.
In response to these concerns, the CBN published a press release justifying its position and emphasizing the inherent risks associated with cryptocurrencies. It maintained that these actions are “not in any way, shape or form inimical to the development of FinTech or a technology-driven payment system.”
Nigeria traded 60,215 bitcoins, valued at more than $566 million on Paxful, a global peer-to-peer bitcoin marketplace, in the last five years
Most importantly, they clarified that the latter did not place any new restrictions on cryptocurrencies referencing a CBN circular dated January 12, 2017. This circular prohibits banks in the country from using, holding, trading and transacting in cryptocurrencies.
According to a Quartz report, Nigeria traded 60,215 bitcoins, valued at more than $566 million on Paxful, a global peer-to-peer bitcoin marketplace, in the last five years. This makes it the second largest volume worldwide, after the United States on the crypto platform.
This is not particularly shocking given the country’s large youth population, growth in technology, high inflation rates and volatile local currency.
Considering these figures and the fact that cryptocurrencies were still traded through financial institutions following the circular in 2017, it is worth asking why it took four years for the ban to be enforced.
Many high-profile cases brought by the Economic and Financial Crimes Commission (EFCC) have not involved cryptocurrencies
In justifying their position in the press release, the CBN made reference to other countries that previously placed limitations on financial institutions facilitating the use of cryptocurrencies. Its primary reason for enforcing the ban was the largely speculative and anonymous nature of cryptocurrencies which encourages its use for money laundering, terrorism financing and other criminal activities.
Although a valid point, this reason is easily applicable to legal tender. Many high-profile cases brought by the Economic and Financial Crimes Commission (EFCC) have not involved cryptocurrencies.
In addition, the CBN’s action has gotten more people interested in learning about cryptocurrencies. It is also unclear whether the letter issued relates to private individuals trading on cryptocurrency platforms. This may expose new investors to scams as they trade through unmonitored peer-to-peer platforms which contradicts the CBN’s intentions and makes it more difficult to control.
It is arguable that the CBN could have taken a more innovative-friendly approach considering the local and foreign investment in the companies that provide such services to the Nigerian population.
Another concern raised was that small retail and unsophisticated investors could face huge losses due to their highly volatile nature. This is understandable given their limited nature which renders it susceptible to market manipulation and speculative demand.
Bitcoin also played a major role in the #EndSARS protests against police brutality
For example, Elon Musk’s recent endorsement of Bitcoin saw it jump in price to $44,200. The cryptocurrency has also recently seen a surge in price of over $50,000.
Bitcoin also played a major role in the #EndSARS protests against police brutality when non-profit group Feminist Coalition had their initial payment platforms for voluntary donations blocked. For this reason, several Nigerian youth have linked this enforcement to retaliation from the Nigerian government.
During the protests, over $80,000 was contributed in Bitcoin which was used among other things, to provide medical support for those injured during the protests and legal aid for wrongfully arrested citizens. This is a clear example of how the younger population used cryptocurrency to navigate a restrictive banking system.
We're moving to only accepting donations in Bitcoin using BTC Pay. BTC Pay is a free, secure, decentralized and censorship-resistant platform, which makes it our best option, given the past few days #EndPoliceBrutalityinNigeria— feministcoalition (@feminist_co) October 15, 2020
Please donate here: https://t.co/FvsEKetUL9
I had a short conversation with Fikemi Aiyepeku, an International Business and French student in the US and long-time friend of mine, who was present at the #EndSARS protests last year.
Although not initially linking the CBN’s announcement to the protests, she considered it suspicious how it only took now to do so.
For her, the protests were a unifying experience. There was a feeling of desperation and frustration from Nigerian citizens, but there was also much hope.
Unfortunately, similar to the enforcement of this cryptocurrency ban, it has ended with more concern from Nigeria’s younger population.
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