Luno, a crypto exchange platform, plans to reintroduce naira deposits and withdrawals on its platform in November, the company announced via email sent to users.
The move signals a defining moment in Nigeria’s cryptocurrency market predicament, which has seen exchange platforms restricted to Peer to Peer (P2P) services only.
“You will be able to deposit funds to and from the Luno platform using vouchers purchased and redeemed through a trusted third party provider,” Luno said.
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In February, the Central Bank of Nigeria (CBN), had banned regulated financial institutions from carrying out crypto-related transactions, dampening the boom that had put Nigeria at the top of crypto market.
As of December 2020, Nigeria traded more than $566 million worth of bitcoin, thus becoming the world’s second largest peer-to-peer (P2P) bitcoin market after the U.S., which traded $3.75 billion, according to data from crypto exchange platform Paxful.
The ban has narrowed Nigeria’s crypto market to P2P, hampering the sustainability of this growth. Recently, the CBN embarked on Central Bank Digital Currency (CBDC) development project. The CBDC called eNaira has been launched in a push to provide alternative to cryptocurrency that has increasingly become a better choice for Nigerians. Local banks have also been automatically onboarded to facilitate fast and reliable transactions for users.
The financial regulator had said that the cryptocurrency boom is a threat to Nigeria’s financial sector and national security as it is being used by criminals to facilitate money laundering and to sponsor terrorism.
Luno, alongside other exchanges, have been working to provide alternatives to the naira deposits and withdrawals that banks offer. Given the CBN ban, the exchange said using a “trusted third party” to facilitate such transactions is the only choice for now.
“We believe that this is the safest and easiest-to-use solution currently available to our customers in Nigeria and look forward to you experiencing it for yourselves,” the exchange said.
The launch of eNaira is expected to temporarily capture a section of Nigerians, who want to experience the CBDC service. This is because, compared with cryptocurrency, the eNaira is not profitable. Furthermore, the eNaira guidelines issued by the CBN have transaction limitations that huge fund merchants don’t want to reckon with.
However, the trade volume decline in Nigeria’s cryptocurrency market, which was induced by the CBN’s ban, emphasizes the need for the naira deposits and withdrawals gap to be filled, even without the help of the banks.
It is not clear who the “third party” mentioned by Luno is. What is clear is that the exchange’s move, if successful, may be the antidote the Nigeria’s crypto market needs to totally break free from the central bank’s shackles.
But Luno said it may come with a price: “The return of Naira deposits and withdrawals may cause significant price volatility, with the release of pent-up customer demand to buy and sell cryptocurrency causing unusual market behavior that could last for several weeks.”