The Outlooker 01

CBN says no to crypto trading within the banking sector, but Nigerians have other plans in mind.

The Promontory

On February 5th, 2021 - the Central Bank of Nigeria prohibited banks from having any involvement with cryptocurrency transactions. The country's central bank is against regulated institutions and banking sectors that deal with cryptocurrency exchanges unless a physical branch is first established. Despite the backlash from regulators, Nigerians are soldiering forward with P2P trades and the use of alternative currencies like Quidax. The revolt against the traditional banking system in Nigeria is moving full speed and it's unlikely that its presence in the country will dwindle anytime soon in Africa's largest economy.

Central Bank of Nigeria's thoughts on crypto trading

In February 2021, the Central Bank of Nigeria banned the involvement of cryptocurrency trading - but not the entirety of crypto itself. This came as a surprise, since African countries such as Kenya and Nigeria were at the forefront of adopting innovative P2P payment methods. Despite Nigeria's drive for financial freedom, the SEC and CNB are not on the same page as the populace. With 38.1 million citizens (18 years and older) and 36% of Nigerian adults being completely financially excluded - there are worrisome implications for the economy.

This could further impoverish the population due to the inaccessibility of credit cards and insurance, placing them at an economic standstill. Nigeria's unemployment rate is soon to rise to almost 33% this year, and even more in the following years. However, Nigerian stakeholders and regulators are working hard to realize the potential that digital currencies have in counteracting these ill effects.

In their letter to other national banks, the Central Bank of Nigeria stressed that holding, trading, and transacting virtual currencies is strictly prohibited. Suspicious transactions should immediately be reported to the Nigerian Financial Intelligence Unit (NFIU). Lastly, the CBN reiterates that virtual currencies such as Bitcoin, Ripple, Monero, Litecoin, Dogecoin, OneCoin and others are not legal tender in Nigeria.

The SEC’s stance and crypto trading regulations

The Security and Exchange Commission (SEC) in Nigeria is responsible for regulating investments and securities, and tasked with the main objective of regulating cryptocurrency used by any individual or entity. In order to trade crypto, the individual/entity must first establish a physical branch in Nigeria. Despite the SEC's stance against crypto, they still acknowledge some form of legitimacy in cryptocurrency and state that crypto assets are still securities unless proven otherwise.

Central bank of Nigeria skyscraper buildings
The Central Bank of Nigeria headquarters.

Who and what will the SEC monitor?

Virtual crypto assets, digital assets token offerings (DATOs), initial coin offerings (ICOs), security token ICOs, and other blockchain-based offers of digital assets will be monitored. Any individual or corporation involved in blockchain-related activities and digital asset services will be subject to the guidelines and shadowed by the Commission. They will also request that foreign issuers or sponsors establish a physical office in Nigeria before conducting activities.

How Nigerians are trading crypto post-ban

An October 2021 report indicates that Nigeria was in 6th place out of 154 countries that witnessed a huge spike in crypto trading. This increase was brought about thanks to P2P trades on LocalBitcoins and Paxful, facilitated by Telegram and Whatsapp communications. While the volume of crypto trading rises, the Naira continues to decline - even following the ban.

Luno, a major crypto exchange in Nigeria - was greatly impacted by the ban due to the forced shift towards fiat money. However, Nigerians eventually found ways to exchange their fiat into crypto even without using exchanges. P2P trading allows direct transactions between buyers and sellers without any intermediaries. Nigerians saw potential in this and decided to conduct P2P with Naira for citizens who still wanted to take the traditional fiat route. Unfortunately, there are some risks due to the lack of trust and security for those trading Naira to cryptocurrencies - especially with random sellers on an exchange. Trading with Naira might not be the most popular choice, but another option is to trade using different currencies. For example, Quidax is an exchange that allows people to trade using US Dollars, giving added flexibility.

P2P trading, alternate currencies, and exchanges are primed for explosive growth in Nigeria. Despite ongoing hurdles from regulators, Nigerian citizens will continue to make crypto transactions work for them.

Crowd of Nigerians waving flags protest
Nigeria continues with crypto trading despite prohibition by the SEC.

The Intel

The Central Bank of Nigeria issued a circular to ban cryptocurrency transactions, and facilitating payments for the bank sector is frowned upon. Nonetheless, Nigerian customers are eager to embrace crypto trading - and the P2P volume of transactions is increasing dramatically. But Nigeria isn't the only country where crypto communities have found a loophole around government restrictions; other African countries have also moved in this direction. Despite the government's harsh clampdown, cryptocurrencies are unlikely to fade anytime soon.

DISCLOSURE:

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. Charts, graphs and references to any digital assets are for informational and illustrative purposes only.

Finblox Blog is associated with Finblox - a reliable cryptocurrency earnings platform where you can buy and earn passive income on your digital assets.

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