Cryptocurrency ban in Nigeria: A bad financial policy

Article written by John Bamidele, founder of gbc.ng, a leading digital news portal on gaming in Africa. Well versed and experienced in Africa gaming, John has been a journalist for two decades working in Print and electronic media, writing on Sport, Marketing, Marketing Communication, Tourism and Politics

Trading in Cryptocurrencies is not backed by the Central Bank of Nigeria (CBN) Act which recognises the Naira as the only legal tender in Nigerian financial system. Reason given by the CBN over banning banks from digital is that bitcoin and other variants of digital currencies are not only regulated the world over but are also used as weapons by cyber criminals. This directive came as a rude shock to Nigerians who have invested heavily in the crypto technology.

Investigation revealed that, cyber criminals hijacked the customer data base of one of Nigerian banks and they demanded ransoms in bitcoin before releasing the database. Another reason for the ban is that crypto trading would undermine monetary policy which is anchored on Naira money supply and demand. The financial regulator opines that bitcoin valuation is excessively speculative, akin to betting and it will not make sense to run a currency system based on gambling.

Crytocurrencies have gained popularity since bitcoin, the most valuable crypto rose significantly four years ago and has continued to beat all forecasts for its increase. The coin went from $900 in January 2017 to almost $20,000 by the end of that year. Today a Bitcoin is trading at almost $38,000-$39,850 and it’s expected to beat it’s all time high very soon. While cryptocurrencies are known for people making or losing money from trading, they have many use cases, including cross-border payments, remittances or storing wealth. In countries where the official fiat currency is less than reliable, cryptocurrencies have gained significant popularity as we can see in the case of Nigeria and its ever-weakening Naira.

For millions of Nigerians and the world at large, crptocurrencies were a breakthrough and in 2017, we started to see a rise in bitcoin volumes. According to one estimate, a local bitcoin trades now hit $3 million in a single week. At the same time, start-ups started to emerge, providing different financial solutions using cryptocurrencies and their technology. Today, we are starting to see powerful exchange and wallet companies like Blockchain.com, Luno, LocalBitcoins and many more emerging with financial solutions to payments.

Prices of crytocurrency rose in 2020 due to the Corona Virus pandemic. The world looked to crypto again but this time, there was a more formal acceptance. Large corporations began to buy bitcoin and also invested in crypto-related start-ups. The IMF even went as far as quoting bitcoin as a type of cryptocurrency on its website and even called crpyocurrency the current stage in the evolution of money. Countries are accepting bitcoins and even starting to create regulations of KYC on the wallet companies and capital gains taxes are now being paid in the United States for its nationals using Coinbase and Binance etc.

In Nigeria, businesses and individuals found that crptocurrencies could solve their woes with the Naira and help them transfer money in and out of the country.Last year, estimates from BuyCoins showed that total volumes of bitcoin traded in Nigeria stood at $200 million per month. That’s more than what was traded on the Nigerian Stock Exchange ($131 million0 in Q2’2020. Nigerians moved from exchanging bitcoin on WhatsApp groups to more formal exchanges like Bundle and Binance, Luno, Localbitcoins, Quiddax etc. This caught the eye of financial regulators, the Securities and Exchange Commission (SEC) who announced that all crypto assets fall under its remit. To the extent that it formalized cryptocurrencies as “securities” in a statement published in September 2020.

Fast forward to today, the CBN is doing something contradictory to the SEC’s move. While one regulator is working on laws to formalize crypto assets, the CBN is going in the other direction. In a circular sent to banks last week Friday, the apex bank said that dealing in cryptocurrencies is prohibited and went as far as asking commercial banks and other financial institutions to identify and close the accounts of anyone involved in cryptocurrency exchange. This move is a big blow to Nigeria’s booming crypto market. This will also harm the start-ups across the Nigerian crypto landscape. What we have here is another can be likened to trying to strangle a sector that has just started to find its feet and grow. Instead of banning the use of crypto, we advice the CBN to retrace its steps and behave like other developed countries who have promulgated regulations on cryptocurrency usage. The ban will only help lose faith on Nigeria’s banking policies and may even cause the total hyper inflation of the Naira as fervent cryptocurrency users will seek, find and make massive usage of other means of spending and using money.