Nigeria is one of the world's largest Bitcoin markets. The country has seen a surge in the number of people purchasing cryptocurrencies - especially Bitcoin. While the motive has primarily been to increase profits and make gains, digital asset awareness is getting more prominent in the country.
Sadly, the country and its crypto enthusiasts got a shock earlier this year when the government announced a new policy to essentially outlaw cryptocurrencies from its financial system. It has been a momentous announcement that shocked many in the financial and crypto industries to their core. So, what exactly happened and led to this sudden switch?
A Precursor: Nigerians Enjoy a Good Relationship With Crypto
The tale of Nigeria and cryptocurrencies is one the world is all too familiar with - a country is struggling economically, and the citizens are getting the brunt of things. Looking to set themselves free, these citizens turn to a way to save in dollars. Sadly, they find many entry barriers and don't exactly trust the dollar to deliver the returns they need.
While many understand the volatility of Bitcoin, they continue to flood the market with buy orders. Soon enough, Nigeria's Bitcoin market became too large to ignore.
Data from Statista revealed that Nigeria is the world's leading country per capita when crypto adoption is concerned. Per the data, almost one in three people in the country reported using digital assets in 2020 alone.
Statista attributed this growth to the prevalence of mobile peer-to-peer payments, which allowed many to feel more comfortable exploring digital assets. These systems enable people to make transactions one-on-one instead of relying on a third-party service for their help.
Google Trends data also shows that Nigeria dominates the world in searches for "Bitcoin" - even until now.
The Central Bank Strikes
The relationship between the Nigerian government and cryptocurrencies remained relatively stable up until 2020. In fact, the country's Securities and Exchange Commission (SEC) announced in September that it would soon look into crypto regulation. Not many in the country got a whiff of that announcement, but it would definitely have been music to their ears nonetheless - at least, experts and analysts were excited about it.
Sadly, things took a sudden turn in February when the Central Bank of Nigeria (CBN) published a circular banning banks from doing business with crypto companies. The circular also directed banks to essentially block individual bank accounts that had been affiliated with crypto trading.
The announcement was a bombshell on all points. Several top exchanges in the country - including Quidax, BuyCoins, and Luno - had to pause withdrawals for a few days while they navigated the murky waters. Some other Fintech services that relied on users' ability to make transactions with virtual bank accounts were also affected by the circular.
In the coming days, lawmakers and industry experts quickly voiced their disappointment in the ruling, especially in the Central Bank's Governor, Godwin Emefiele. The Senate eventually called Emefiele and other policymakers on a hearing to explain their reason for the stance.
Differing Views on Cryptocurrencies
At a hearing before the Senate Banking Committee, Emefiele explained his views on cryptocurrencies, explaining that they aren't real money. In part, he said:
"Cryptocurrency is not legitimate money. Cryptocurrency has no place in our monetary system at this time and cryptocurrency transactions should not be carried out through the Nigerian banking system."
The policymaker added that while the ban was in place, his institution was still working to understand the digital asset space better.
As for the SEC, it hasn't given up on the prospect of crypto regulations. Timi Agama, the head of registration, market infrastructure, exchanges, and innovation at the SEC, pointed out that the crypto market has become too big to ignore. Agama told new sources that the country can't afford to miss out on the trillion-dollar crypto market and that they still hoped to provide regulations at the SEC.
"Part of the desire of the SEC even in the future is to provide a regulatory framework that will take care of all these challenges that we have seen internationally and the entire world is grappling with in terms of cryptocurrency and digital assets. For us at SEC and capital market, it is something to look at, the world cannot be moving forward and we will be static, no," Agama said in part.
The country's Vice President, Prof. Yemi Osinbajo, has also weighed in on the topic. At an economic summit organized by the CBN, Osinbajo pointed out that cryptocurrencies and blockchain have already challenged traditional finance in more ways than one. As he sees it, there is a need for the government to prepare for even more changes going forward.
Osinbajo pointed out that cryptocurrencies are diverse, with decentralized finance (DeFi) and other sub-industries getting more prominence.
"The point I'm making, is that some of the exciting developments we see call for prudence and care in adopting them and these have been very well-articulated by our regulatory authorities. But we must act with knowledge and not with fear," he added.
What Happens Now?
It's difficult to say what the future holds. Crypto exchanges and other companies continue to operate in Nigeria, with most of them tweaking their operations to stay afloat and launching peer-to-peer systems to circumvent the ban.
As for the policymakers, the CBN has reiterated that there is no place for cryptocurrencies in the Nigerian financial system. While they aren't discouraging people from trading cryptocurrencies, they don't want these assets to have anything to do with traditional banks' activities.
It is unclear how regulation will move on with the government adamant about keeping crypto out of the picture. For now, however, Nigerians can at least still enjoy the benefits of digital assets.