Nigeria has witnessed significant growth in the cryptocurrency market in the last few months. According to data from Local Bitcoins, in the time period between December 28,2020 and February 14, 2021, the Nigerian trade volume on local Bitcoins was $15.9 million. In the same period, there were 13.782 new signups from Nigeria, indicating nearly 1,000 new registrations per day.
Against this volume of bitcoin investment, the event of Feb. 5, when the Central Bank of Nigeria (CBN) ordered all regulated financial institutions to close with immediate effect, all accounts related to cryptocurrency, has prompted the question: what is happening to Nigeria’s bitcoin market in 2021?
The order means cryptocurrency exchanges in the country will have to stop converting bitcoin-to-naira and sending it into local traders’ bank accounts. And bank accounts that have been used to facilitate cryptocurrency transactions are to be closed.
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With the order, the growing number of exchangers both local and international that have found a market in Nigeria will either shut down completely or find alternative ways to keep the transactions flowing.
Banks in Nigeria have already started closing accounts used for cryptocurrency transactions and the exchangers have halted naira transactions in their platforms. As a result, the Nigerian unified crypto exchange liquidity source has been disrupted, leaving every exchange to source for its own liquidity, thereby creating scarcity.
In the wake of cryptocurrency $1 trillion capitalization, the ban has disrupted the boom in Nigeria’s market, putting food off the table for many who earn a living trading bitcoin, or using blockchain to make international payments. And for Nigeria’s young people who are embracing cryptocurrency investment as a way to escape high rates of unemployment and avoid fraud, it is a huge setback.
Nigeria has a median age of 18.1, and young people make up the larger percentage of its population. With unemployment at 27.1%, young people are taking to internet technology to create self-employment, which includes buying and selling bitcoin. Smartphones, which Nigeria has also become a huge market to, make it possible for people to buy and sell cryptocurrencies at their fingertips.
For others in business, it offers the opportunity to move large volumes of money without paying hefty charges. It costs more than a 5% commission to move $10,000 from Nigeria, whereas, exchange platforms charge little or nothing, and can move far more than Nigerian regulatory laws allow.
The central bank said its decision to ban cryptocurrency is because people could lose their investments, and it is being used to facilitate money laundering and terrorism. It also said that the way bitcoin rise and fall means that people could easily lose their investment, and its inability to regulate it makes the use of cryptocurrencies in Nigeria a direct contravention of existing law. Those were among many reasons given for the ban.
On Thursday Feb. 11, a Nigerian senator, Sani Musa, said during the debate that “bitcoin has made the Nigerian currency useless and valueless.” This means that Nigerian government sees cryptocurrency as a threat to its economy.
The Nigerian Securities and Exchange Commission (SEC), who had in September last year, approved bitcoin as an asset, turned around to support the ban. A statement issued by the regulator on Feb. 13 said the CBN identified certain risks, which if allowed to continue, will “threaten investor protection,” as well as “financial system stability.”
As unfolding events indicate cooperation between the regulated financial institutions and the regulators, it appears that the future of bitcoin, or by extension, cryptocurrency investment in Nigeria is dim. And that means, the means of livelihood of many Nigerian bitcoin traders may be taken away.
But as bitcoin gains mainstream credibility following the increasing number of individuals and businesses accepting and buying it, experts, economists and prominent Nigerians are coming out to make a case for the asset.
Electric vehicle maker Tesla, on Feb. 8 announced it’s invested $1.5 billion in bitcoin as its founder and CEO Elon Musk, who is now the second richest man on earth, has recently been touting the cryptocoin, even using it as his Twitter header.
Fiyin Osinbajo, son of Nigeria’s vice president, said CBN’s decision to ban cryptocurrency will hurt Nigeria’s chances to attract investors and consequently, the country’s rank in the technology world.
However, in the face of the despair in the Nigerian cryptocurrency market, innovative forces are creating new ideas to beat the hurdle as economists join the throng of backlash trailing the ban.
For instance, Local Bitcoins has created a peer-to-peer bitcoin exchange platform, where the regulators have no control, to help traders from around the world to carry out cryptocurrency transactions. Founded in 2012, the Finland-based exchanger has become one of the most established bitcoin marketplaces in the world, with its platform that supports hundreds of different payment methods. It protects traders from social media scams through escrow-secure P2P services.
Peer-to-peer (P2P) bitcoin exchange service is a decentralized platform whereby two individuals interact directly with each other, without the need of a middleman to broker the deal. Instead, the two individuals negotiate their bitcoin selling and buying rate, and deal directly with each other.
Local Bitcoin and other trading platforms are innovating to make it easier for people to invest in bitcoin while the Nigerian fintech space waits on the regulators to rescind the order. The company wades in when there is dispute between traders and provides all parties with deserving resolution.
SEC said it is working with CBN to further analyze and better understand the identified risks to ensure that needed regulatory framework are in place, in case the ban is lifted in the future. But until the order is rescinded, the future of cryptocurrency market in Nigeria hangs solely on P2P.