The State of Cryptocurrency in Nigeria – On 5 February 2021, the Central Bank of Nigeria (CBN) published a letter addressed to banks and other financial institutions claiming that it is prohibited to deal with cryptocurrencies and to allow payment for transactions of cryptocurrencies. In addition, the CBN instructed all banks and other financial institutions to recognize individuals or entities dealing or operating in cryptocurrencies.
The State of Cryptocurrency in Nigeria – Not surprisingly, with many concerns about the possible negative impact it may have on the growing cryptocurrency market and innovation in the fintech industry in Nigeria, the letter caused significant concern among the public.
In response, on 7 February 2021, the CBN released a press release (the ‘Press Release’) addressing its previous Directive and offering explanations for its ban on transactions in cryptocurrencies by banks and other financial institutions.
In this article, we shed light on the CBN Directive, its effect on Nigerian trading in cryptocurrencies, and the role of the Securities and Exchange Commission (SEC) on Nigerian cryptocurrencies.
The State of Cryptocurrency in Nigeria
What are the Cryptocurrency Exchange Ban Justifications?
The State of Cryptocurrency in Nigeria – In the press release, the CBN claimed that cryptocurrencies are released by unregulated and unlicensed entities and, as such, the usage of cryptocurrencies in Nigeria violates existing law as they are not legal tender. Cryptocurrency anonymity was also described as an issue.
It claimed that KYC’s anonymity and absence made it vulnerable to illicit use, such as money laundering and terrorism financing. The instability of cryptocurrencies, which it said had undermined the stability of financial structures in other countries, was another reason.
The Cryptocurrency Trading Impact in Nigeria.
The State of Cryptocurrency in Nigeria – With over 500 million dollars worth of Bitcoin traded over the last five years, Nigeria has the second-largest Bitcoin market in the world. The CBN Cryptocurrency Transaction Directive would obviously have an impact on the cryptocurrency sector in Nigeria, It effectively prohibits traders from purchasing cryptocurrencies with their credit/debit cards issued by Nigerian banks or from collecting exchange proceeds from cryptocurrency transactions that encourage the purchase and selling of cryptocurrencies.
However, some exchanges have found a way around the limitation by transitioning to peer-to-peer trading that allows people, as opposed to the exchanges, to purchase or sell cryptocurrencies from individual traders. In addition, this removes the need for settlement accounts in Nigerian banks for exchanges to operate.
The State of Cryptocurrency in Nigeria – Banks have started to recognize and deactivate the accounts of people with inflows/outflows from/to cryptocurrency exchanges in response to the CBN directive. It is uncertain if affected individuals in the future will be able to reopen accounts with these banks.
The CBN’s cryptocurrency decision has also drawn the attention of the highest levels of government. The Nigerian Senate deliberated on the CBN Directive on 11 February, with some senators expressing reservations about the ban on transactions in cryptocurrencies. The Senate then resolved to invite the Governor of the CBN to give a briefing on the actions of the CBN.
More steps such as this can be seen as stakeholders deliberate on the possible far-reaching effects of the role of the CBN on cryptocurrency in Nigeria.
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