By Tuedor Akpevwe Jackson
The news of the Central Bank of Nigeria (CBN) directive on the prohibition of banks/individuals from buying, selling and using cryptocurrency came as a shock to young Nigerians and the world at large. Construe it as you may, be it an order to the banks only, or to the individuals alike was indeed a destructive policy in every sense of the word.
In a world currently ravaged by the Corona virus with trillions of dollars lost in the world economy, and a mother of all recession looming after we get the vaccines right, such a policy is draconian and could cause a total collapse of the banking industry as well as the little faith we have in the banking system and its mother institution; the CBN itself.
On the 8th of February 2017, I wrote an article in the Vanguard newspaper in similar circumstance as this, by an order given by the SEC warning Nigerians to steer clear of cryptocurrencies in which we looked into the legality of such an action and the powers arrogated to the SEC by its enacted law.
Yet again at this time when the world is struggling, and smart individuals are looking deeply into the forex market and cryptocurrency as recession-proof financial institutions and banks are starting to make moneys off cryptocurrency charges by wallet and exchange companies, the CBN now deems it fit to place a directive or prohibit banks and individuals from this massive wealth creation business opportunity education?
Cryptocurrencies 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 -$39850 and its expected to beat its all time high very soon.
While cryptocurrencies are known for people making (or losing) money from trading, they have many use cases, including making cross-border payments, remittances or storing wealth (protected from inflation or exchange rate depreciation).
In countries where the official fiat currency is less reliable, cryptocurrencies have gained significant popularity as we can see in the case of Nigeria and its ever-weakening Naira, so is that a reason for such an inhibitive order?
For millions of Nigerians and the world at large, cryptocurrencies were a breakthrough, and in 2017, we started to see a rise in bitcoin volumes. According to one estimate, 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.
For the Central banks though, the rise of cryptocurrencies was a potentially scary movement and it was said to be a vehicle for fraud, ransom payments and cyber theft because of its anonymity and that no legal recourse can be had if an individual or Nigerians lose their money (as if anyone ever recovered from the losses in the Stock Market) Since then, the CBN has been relatively quiet on the matter. In fact, the global cryptocurrency scene hit a rough patch in 2019 as prices crashed.
That all changed in 2020 when prices started to pick up due to the Corona virus pandemic. The world looked at crypto again, but this time, there was a more formal acceptance. Large corporations began to buy bitcoin and also invest in crypto-related start-ups even those that used to call it worthless or scam. The IMF even went as far as quoting bitcoin as a type of cryptocurrency on its website, and even called cryptocurrency 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 e.g USA nationals using Coinbase and Binance etc.
In Nigeria, businesses and individuals found that cryptocurrencies could solve their woes with the Naira and help them transfer money in and out of the country. Bitcoin volumes started to rise significantly.
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 million) in Q2’2020.
This activity boosted the space, and the gatekeepers of these volumes were the cryptocurrency exchanges. Nigerians moved from exchanging bitcoin on WhatsApp groups to more formal exchanges like Bundle and Binance, Luno, local bitcoins, Quiddax etc.
The increase in trading activity caught the eye of financial regulators, the Securities and Exchange Commission (SEC), who announced that all crypto assets fall under its remit. It formalised cryptocurrencies as “securities” in a statement released in September 2020.
Fast forward to today, four months later, and the CBN is doing something almost contradictory to the SEC’s move. While one regulator was working on laws to formalise crypto assets, the other (CBN) is going in the other direction.
According to the circular, which was sent to banks, the apex bank said that dealing in cryptocurrencies is “prohibited”. They then asked commercial banks and financial institutions to identify and close the accounts of anyone involved in cryptocurrency exchange.
It’s not clear if this order includes individuals who use these exchanges or if it’s restricted to the owner of the exchanges. Nonetheless, the move is a blow to Nigeria’s booming crypto market.
This will also harm the start-ups across Nigeria’s crypto landscape (not just the exchanges). What we have here is another policy that is trying to strangle a sector that has just started to find its feet and grow.
We therefore call on the CBN to retrace its steps and even ( like other developed countries are doing) be creative enough to promulgate regulations on cryptocurrency usage rather than stifling its growth. It will only help in the final lose of faith of Nigerians on this government banking policies and may even cause the total hyper inflation of the Naira as fervent crytocurrency users will seek, find and make massive usage of other means of spending and using money.
You cannot use a centralized solution to solve a decentralized problem. The Peer to Peer system of cryptocurrency made possible by the Blockchain technology will eventually lead to the democratization of wealth to the people and give power of control back to us the people; perhaps a power which was taken away by the Banks in conjunction with the government in the precious metals era. Hence we crypto-enthusiasts call this cryptocurrency era, Barter 2.0 where we wont be needing 3rd parties to aid us in carrying out transactions or its draconian control whatsoever.
*Barr Jackson, a cryptocurrency analyst and a blockchain expert, lives in Lagos