Nigeria has been one of the largest markets for crypto in the world, so it came as a huge shock to the crypto community when the Central Bank of Nigeria (CBN) issued a circular in early February that prohibited banks and financial institutions from facilitating crypto payments, and that accounts that conducted crypto transactions needed to be identified and closed down. While this has come as a surprise to the crypto community in Nigeria, it is sadly reflective of a global trend where governments are trying to figure out how to regulate the crypto industry without crippling it.
There was a clarification issued by the central bank soon after this directive, which stated that the aim of the order was not to discourage people from trading in cryptocurrencies but to enforce earlier orders that have been in place since 2017 which banned crypto transactions in the country’s banking sector. However, the 2017 orders also did not ban crypto exchanges from using banking channels in the country. That order only required financial institutions and banks to have effective and adequate anti-terrorism and anti-money laundering controls in place. Thus, it does seem as though this order is aimed at restricting crypto transactions in the country, which is surprising given the fact that Nigeria is the second-largest crypto market in the world, second only to the United States, and therefore the largest market in Africa.
This has led to a number of businesses relying on crypto in the country, with the growth of crypto being mirrored by growth in the local digital economy as a result. One example of this is in the online gambling sector, which is immensely popular in Nigeria. There are various online gambling sites now that offer buy bonus casino games and other casino table games that can be played with cryptocurrencies. These games are not limited to Bitcoin, with the likes of Dogecoin, Litecoin and Ethereum also accepted. The use of crypto in the country’s online gambling sector has helped transform it into a very lucrative area, and this is just one instance where the use of crypto has had a positive impact on the prospects of a sector in the country.
However, unfortunately, this trend is being repeated elsewhere in the world. In the USA, Jerome Powell, the chairman of the Federal Reserve, has raised questions around the potential for cryptocurrencies to be used to finance illegal activities, while also having concerns around the volatility of Bitcoin and other crypto tokens. In Iran, crypto exchanges have been targeted, and Bitcoin mining has even been bizarrely blamed for high levels of air pollution. These examples show how the crypto industry still has a long way to go to build trust within existing financial systems and with powerful stakeholders.
Nigeria is the largest economy in Africa, with the largest population, a significant percentage of which is young. All of this, combined with a growing tech sector, makes it easy to see why it has become one of the largest crypto markets in the world. Other factors include the volatility of the naira, the country’s fiat currency, due to the COVID-19 pandemic and the sharp fall in global crude oil prices. Thus, with banks placing limits on foreign currency transactions, cryptocurrencies became the favoured way to send and receive money from abroad, as well as a hedge against the falling value of the naira. The ban has also done little to stop this activity, with trading volumes continuing to be robust, and it is also encouraging to see that several Nigerian politicians have pushed back against this order. We will have to wait and watch for the further developments in this regard, but it can be said with certainty that the crypto genie is not going back into the bottle anytime soon.