Nigeria’s crypto market struggles for answers months after ban

On a wall under the flyover bridge at Masha roundabout, a popular junction at Surulere Lagos is a message scribbled in white paint, ‘Bitcoin Exchange’. The writer has left a number for anyone interested to call.

Anyone who calls the number could be talking to either a legitimate trader or a potential scammer. There are tens of those messages scattered on different walls in densely populated neighbourhoods like Surulere across Lagos State.

Hundreds of these non-regulated peer-to-peer crypto exchanges are springing and conducting business with Nigerians. It is the growing perils the cryptocurrency market once dominated by traditional crypto exchanges now has to face.

On 5 February 2021, the crypto market in Nigeria awakened to a rude shock. While they slept the previous day, the Governor of the Central Bank of Nigeria (CBN) and a few advisers were completing the details of a letter that will reiterate a prohibition on financial institutions from carrying out any transaction with crypto-related businesses and a new order to freeze every bank account run by these businesses.

It wasn’t the first time the apex bank would issue a directive to banks not to do business with operators in the industry. But this time, the frozen accounts led to dire repercussions. It put out the lights on all traditional cryptocurrency exchanges. All of them issued statements suspending crypto transactions using the local currency naira and routing it through banks.

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Patricia, one of the exchanges, has since relocated its base of operations to Estonia. Luno, which was on a recruitment drive because it needed talents to expand into new countries in West Africa, suspended the campaign. At the individual level, traders like Olaleye Awe, had their accounts frozen and only regained them 2 months after a frustrating back-and-forth with the banks.

Owenize Odia, country manager of Luno also said the restriction may have contributed to the downward slide of Nigeria’s foreign direct investment. Foreign investors like Twitter whose CEO is significantly exposed to bitcoin investments moved to Ghana to set up their base of operation in West Africa. There have been other investors moving to Ghana because of the uncertainties in the business environment in Nigeria.

“Investors are sceptical of entering the market because of the uncertainty,” Odia said.

With the temporary shutdown of traditional crypto exchanges, peer-to-peer platforms have sprung up to replace them. Most Nigerian investors see bitcoin and other cryptocurrencies as a way to make money and hedge their money against the weak naira. The restriction by the CBN may create some difficulty, but peer-to-peer offers these Nigerians a way to continue to be in the market.

By resorting to peer-to-peer, experts say these exchanges are invariably going back to the original manuscript of Satoshi Nakamoto, the person or group of persons behind the blockchain and bitcoin.

“The restriction opened up the market to what bitcoin was actually meant to be,” Olaleye Awe, founder of Alpha Training Lab, said at the Crypto State 2021 conference held on Thursday.

Peer-to-peer transactions come with unrestricted boundaries and risks that were not entirely possible when investors had to go through traditional exchanges. Traditional exchanges imposed self-regulatory measures that kept investors safe. But with underground exchanges like the one painted on the wall at Masha, Surulere, investors are exposed to scams.

But the bigger test with the CBN directive for stakeholders in the crypto industry in Nigeria is how best to engage the regulator.

Lobbying has not been the strongest suite of stakeholders in the industry. Whatever lobbying that has existed, was sparsely undertaken by a very handful of foreign-based operators. Even then, there is a limit to how much the companies are willing to spend to influence policy decisions.

Back in the United States where lobbying is a big thriving industry and the crypto market is dominated by behemoths like Coinbase, a situation like the CBN crypto restriction would have warranted big spending on lobbying.

In May 2021, for example, Coinbase recruited Faryar Shirzad, Global co-head of Government Affairs, at Goldman Sachs Group as its top lobbyist. The crypto industry in the US is facing increasing scrutiny from US authorities including lawmakers over the industry’s reputation as a tool for criminal organisations to hide illicit transactions. Hence, in recent moves, cryptocurrency lobbying groups are gathering steam in Washington, hoping to shake off the reputation.

However, in Nigeria, lobbying is a luxury, too expensive for local exchanges. Engagements with government agencies are mostly on an individual level. For instance, Luno, a London-based exchange has often sent emissaries to negotiate with the Nigerian government. The company’s accounts have been frozen twice in 2018 and 2021 following directives on banks by the CBN to stop supporting the industry. On those occasions, it had to increase its lobbying to get back its accounts.

There are groups that have come up to engage the government on the behalf of the local operators in the past. The groups include Stakeholders in the Blockchain Technology Association of Nigeria (SIBAN) and the Blockchain Industry Association of Nigeria.

Senator Ihenyen, President of SIBAN said at the Crypto State conference that the CBN restriction has brought the operators in the market together more than ever. The coming together of the stakeholders gave birth to the Blockchain Industry Coordinating Committee of Nigeria (BICCoN). Inaugurated on 31 January 2021, BICCoN brought together three blockchain groups including Blockchain Nigeria User Group (BNUG); Cryptography Development Initiative of Nigeria (CDIN); and SIBAN.

BICCoN is however constrained by a lack of funds and powerful political networks to have any notable impact on regulatory policy.

Notwithstanding, Ihenyen who is also the Secretary of BICCoN says the association is pulling as much weight as it can and making the impact it was created for.

“Rather than drive crypto exchanges to the “underworld” regulators and the gatekeepers – crypto exchanges – should collaborate so exchanges share data on how they’re regulating their platforms,” Ihenyen said.