The Central Bank of Nigeria (CBN) dropped a bomb on the country’s growing cryptocurrency community last week with its order to the banks and other financial institutions to ban crypto exchange accounts.
The order stated that all regulated financial institutions should ‘identify persons and/or entities transacting in or operating cryptocurrency exchanges or facilitating payments for cryptocurrency exchange’ and close their accounts ‘immediately.’
Though the order did not put an outright right ban on cryptocurrencies, it is enough to kill the locally grown demand for Bitcoin and other digital currencies.
The order was similar to what we have seen in India after which the exchanges struggled to receive any banking support and many shuttered. The situation changed in the sub-continent last year after the apex court overturned the order.
One of the Top Crypto Trading Countries
Nigeria is one of the top countries in terms of crypto demand, not only in Africa but also globally. According to market data compiled by Coin Dance, 60,215 Bitcoins were traded in Nigeria in the last five years, which is only behind the US.
Now, a banking ban of such kind could kill the market. In fact, the impact can be seen with the suspension of fiat deposits by Binance Nigeria and the local electronic payment, Bundle.
The confused Nigerian crypto traders took to social media to post their grievances and condemn the central bank’s order. They are now running campaigns like #WeWantOurCryptoBack.
CBN quoting Warren Buffet as an authority for their crypto policy 😂😂, dude's not even on twitter.. won't be surprised to see his face on the new 10000 naira note, @elonmusk would be disappointed #Crypto #TheCBN #emefiele #WeWantOurCryptoBack
— Donnie (@DonaldAbuah) February 8, 2021
Implementing an Existing Order
Amid backlash, the CBN issued a five-page statement Sunday clarifying that the banking restrictions on crypto companies were nothing new.
Indeed, the tone of the original February 5th order indicates that the central bank did not allow banks to serve crypto exchanges. It is only reinstating the previous order with an iron fist.
“…all banks in the country had earlier been forbidden, through CBN’s circular dated January 12, 2017, not to use, hold, trade and/or transact in cryptocurrencies,” the monetary regulator stated.
If any banks or financial institutions violate the orders, the regulator warned ‘severe regulatory sanctions’ against them.
The clarifications further pointed out the role of crypto in illegal activities and cited other countries that curbed the usage of digital currencies.
“Due to the fact that cryptocurrencies are largely speculative, anonymous, and untraceable they are increasingly being used for money laundering, terrorism financing and other criminal activities,” the letter read.
P2P to the Rescue
Meanwhile, the Nigerian traders are flocking towards the peer-to-peer platforms. As the transactions on these platforms directly happen between the two parties, it is hard to curb this front.
Trading volumes on P2P platforms like Paxful and LocalBitcoins already doubled from $8 million to $16 million in the second quarter of last year. Now, this number could grow even more.
However, the growing demand is unlikely to sustain along with the ban as only a savvy section will have the knowledge of purchasing digital currencies from P2P exchanges.
Gift cards are how we got the first bitcoins into Africa. Nigeria lead the way once we connected them to Asian gamers. These corridors are how we transform business. You can trade over 100 gift cards on Paxful for #bitcoin and even buy a discounted gift card with your btc https://t.co/uTxIwR6nOD
— Ray Youssef (@raypaxful) February 6, 2021