Nigeria’s Bitcoin crackdown mirrors the global crypto conundrum

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Nigeria’s Bitcoin crackdown mirrors the global crypto conundrum. Nigeria’s Bitcoin crackdown mirrors the global crypto conundrum.

When the Central Bank of Nigeria (CBN) released a circular in early February advising banks and financial institutions that “facilitating transfers for cryptocurrency exchanges is prohibited” and that they needed to locate and close accounts affiliated with them, it set the country’s crypto world alight.

“I was in a danfo [a yellow public transport bus that operates in Lagos] heading home when my phone started buzzing with WhatsApp notifications regarding the CBN ban on cryptocurrency transactions,” said David Akinwale, a 25-year-old financial analyst who trades in cryptocurrency.

“It was disappointing and sad. While other countries are embracing the use of Bitcoin and cryptocurrency, Nigeria is doing the reverse.”

This week, a spokesman for Nigeria’s central bank chief Godwin Emefiele reportedly tried to explain the February 5 guideline, telling reporters that it was not targeted at discouraging people from investing in cryptocurrencies like Bitcoin, but helped to reinforce orders in effect since 2017 prohibiting crypto transactions in the country’s banking sector.

But the 2017 order does not preclude crypto exchanges from using banking and payment networks. It simply mandated banks and financial firms to ensure that their crypto-exchange clients had strong anti-money laundering and “anti-terrorism” funding measures in place.

The outcry and misunderstanding mirror a crypto-drama unfolding across the globe as decentralized currency like Bitcoin rise in prominence and hits new heights at a period of unparalleled financial volatility arising from the coronavirus pandemic, as well as domestic problems.

In the United States this week, Federal Reserve Chairman Jerome Powell expressed questions about the part cryptocurrencies play in encouraging illegal activity, as well as their notorious instability, calling Bitcoin “more of an asset for speculation” than a replacement for the US dollar.

In Iran, officials recently threatened crypto exchanges and pinned blamed for high air emissions levels on Bitcoin mining.

The innovations highlight the regulatory conundrum policymakers face with crypto assets that by nature are meant to be decentralized and outside their control but which are part of a rapidly emerging field of global finance that pivots on innovation.

Africa’s biggest Bitcoin market

Nigeria is Africa’s largest nation, its most populated region, and home to one of the world’s youngest populations. Throw in the booming tech industry, and it’s easy to see how Nigeria has become the continent’s biggest Bitcoin market by trade volume, according to UsefulTulips.org, which collects data from crypto exchanges Paxful and LocalBitcoins.

The elevation to Bitcoin popularity is rooted in a steep decline in remittances during the pandemic, as well as the country’s state coffers and local currency, the naira, being battered by the twin blows of COVID-19 restrictions and plummeting oil prices.

Last year, some Nigerian banks reportedly restricted offshore debit card purchases and reduced cash withdrawals to prevent increasingly scarce US dollars from leaving the region.

Under this backdrop, Bitcoin and other cryptocurrencies skyrocketed in popularity last year, serving as both a buffer against the naira’s eroding buying power and a means of more quickly moving capital around.

“With Bitcoin, I could bypass the $100 limit on my naira debit card and do all my transactions seamlessly,” Bola Williams, a 33-year-old software developer, told Al Jazeera. “But the crypto ban has now made it even more stressful.”

However, it does not seem to have dampened interest in cryptocurrency. According to UsefulTulips.org, bitcoin trading volumes on Paxful and LocalBitcoins surpassed $9 million in the seven days ending March 8, up from about $7.55 million in the seven days ending February 8.

According to the details, despite the CBN directive, Nigerians are determined to use cryptocurrencies to increase their earnings, particularly in increasing inflation and restricted access to foreign exchange liquidity.

According to Eric Annan, co-founder of cryptocurrency trading site KuBitX, “the prohibition was never going to hinder a ship that was well gone on the sail.”

According to Annan, the CBN directive just helped increase the popularity of Bitcoin and pique the interest of crypto skeptics.

“No single government will hinder an innovation whose time has come to a generation who have contributed to the internet’s GDP [gross domestic product],” he said.

Political pushback

Any Nigerian lawmakers have objected to the CBN order.

Following the order’s publication, the Nigerian Senate summoned CBN Governor Emefiele to explain the possibilities and challenges that cryptocurrencies pose to the nation’s economy and stability.

During a briefing before the Senate Committee on Banking on February 23, Emefiele emphasized cryptocurrencies in money laundering, “terrorism” funding, illegal weapons sales, and tax evasion.

“Cryptocurrency is not legal money because it was not developed or supported by any Central Bank,” Emefiele said. “At this moment, it has no room in our monetary structure, and cryptocurrency transactions cannot be conducted through the Nigerian banking system.”

Crypto supporters reacted angrily to the appraisal.

“Whatever explanation prompted the CBN to limit banking services to crypto traders and exchanges could have been addressed by consultation and collaboration,” Chimezie Chuta, the founder/coordinator of the Blockchain Nigeria User Group, told Al Jazeera.

 

“In saying that ‘cryptocurrencies are not legitimate money,’ he has forgotten the origin, what money is, and its purpose,” he added, noting that “cryptocurrency is a property or commodity and thus not an illegal asset class.”

Vice President Yemi Osinbajo of Nigeria has also advocated for a less heavy-handed official solution – one that will vigorously govern bitcoin exchanges to resolve serious issues “without actually crushing the goose that would lay the golden eggs.”

“We’ve seen in many other sectors disruption makes room for efficiency and progress,” he said.

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