More than 5 million customers across cryptocurrency exchanges in Nigeria are frantically looking for ways to withdraw billions of naira in funds trapped on the platforms.
Following the Central Bank of Nigeria (CBN) directive on banks not to provide financial services to cryptocurrency businesses in the country, exchanges had announced a suspension of deposit and withdrawals services using the local currency.
According to an industry source close to Luno and Quidax, there are about 3.5 million Nigerian customers who are currently affected by the decision. Unique customers across the entire exchanges in the country surpassed 5 million.
“In light of the recent circular from the CBN advising financial institutions to close bank accounts held by cryptocurrency service providers, Luno has been forced to disable all naira withdrawals and deposits,” the London-based exchange said in a statement recently.
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Luno recently welcomed over 7 million users on its platform. Nigeria is a key market for Luno. In 2020, Marius Reitz, general manager, Luno Africa, said Nigeria was its biggest market in terms of account openings and daily active customers.
“We’ve seen good growth in Nigeria over the last quarter in terms of new openings and daily active customers,” Reitz said in an interview, noting, “On both these metrics we’ve seen Nigeria surpass South Africa, but the market is still smaller in terms of bitcoins volumes traded.”
Quidax, a local exchange, also suspended its deposit and withdrawals in naira and said it had already begun to implement a contingency plan it set up for such a time. Although it has never released its numbers, Quidax is considered among the top local exchanges in the country with very significant user numbers.
Experts say local exchanges would be the most impacted due to their short liquidity. Chiagozie Iwu, CEO of Naija Crypto, a local exchange, told BusinessDay that the impact of the ban could see many of the operators of the exchanges closing up or relocating their businesses to countries with a more favourable outlook on cryptocurrencies.
South Africa and Ghana are some of the few countries on the African continent that have expressed intentions at creating a tax policy for the cryptocurrency businesses in their respective regions.
As the CBN prohibition drags, customers of the various exchanges get more anxious about moving their funds to ‘safety’. Safety for some is transferring their entire wallets to exchanges that enable peer-to-peer transactions or sell them for cheap to buyers.
A source at Quidax said the company had seen a drastic reduction in the volume of trade from about 30,000 and 25,000 to 5,000 on a daily basis. Naija Crypto also confirmed that there had been a drop in trading in local exchanges as customers shift to the peer-to-peer or black market.
The move to the black-market puts these customers at greater risk, said Iwu. Unlike exchanges, there is an absence of controls in the black market, hence trade activities are undocumented and could get lost or missing, which may force parties involved to breach the contract. There is also the rampant activity of scammers who take money from desperate traders and vanish.
The peer-to-peer market has also seen a lot of high inflation. In other words, there are more customers that are eager to offload their assets from the various exchanges, but buyers are taking advantage of their desperation to get their hands on crypto-assets at ridiculously low prices. This is despite the fact that global prices have been on a bull run recently.
The CBN had in an explanation it released after the February 5 directive said the prohibition was to stem the increasing use of cryptocurrencies for money laundering, terrorism financing and illicit transactions. However, experts say recent data do not support the position of the apex bank.
“Nigeria is one of the safest crypto markets in the world when it comes to the use of cryptocurrencies. Nigeria is not even on the map for illicit transactions for cryptocurrency transactions, but you find the likes of the US, Russia, Germany, and Vietnam,” Senator Ihenyen, president of Stakeholders in Blockchain Association of Nigeria (SiBAN), told BusinessDay.
Nigeria’s absence on the list is mainly because the use case of cryptocurrency in Nigeria has been more of peer-to-peer transactions and cross-border remittances.
“Money laundering is not an area that strikes out in all of the data that we have analysed, including Chainalysis. Nigeria rates very low when it comes to using of cryptocurrencies for terrorism, illicit transactions. Of course, there will be exceptional cases where cryptocurrencies have been used by a certain group to do one or two transactions, but that is not enough justification to close an entire industry from access to financial services. We believe there could have been a better way to do that,” Ihenyen said.
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