The global cryptocurrency market had some wild positive moments in 2021. There were new all-time highs in bitcoin and other coins set, and new institutional investors trooping into the market. The market also saw some dark moments from China ordering a complete ban on cryptocurrency transactions, which led to an exodus of mining companies and exchanges from the country.
However, Nigerian crypto investors would remember the year mostly for the wrong reasons.
From imposing a ban on banks and other financial institutions to not support the cryptocurrency and closed down the accounts of crypto businesses on February 5, to banks targeting individual customers suspected to be trading cryptocurrencies later, it was a year the Nigerian authorities stated in clear terms they were not open to allowing the market be part of the financial system.
While the Central Bank of Nigeria (CBN) later clarified that it was not placing any new restrictions on cryptocurrencies given that 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, it said its decision was being replicated in many countries around the world.
Countries including China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal and Cambodia, have all placed certain levels of restrictions on financial institutions facilitating cryptocurrency transactions.
“First, in light of the fact that they are issued by unregulated and unlicensed entities, their use in Nigeria goes against the key mandates of the CBN, as enshrined in the CBN Act (2007), as the issuer of legal tender in Nigeria. In effect, the uses of cryptocurrencies in Nigeria are a direct contravention of existing law,” the apex bank noted in a statement.
The CBN restriction has seen many cryptocurrency exchanges significantly reduce their investments in the country, with some even relocating their offices from the country pending when there is a turnaround in regulatory position.
Patricia Technologies was one of those that announced it was moving its operations to the Republic of Estonia. Luno, which had over 3 million users in Nigeria, shut down its major operations in Nigeria for months before announcing a solution to how customers can receive their trapped funds. Binance, Quidax, BuyCoins, and others also suspended naira transactions and only allowed peer-to-peer transactions.
A major impact of the February restriction was the panic it created in the Nigerian market that led to many users quickly selling off their crypto assets, notes Ophi Rume, a crypto expert.
In November, an internal memo from one of the commercial banks disclosed that the CBN was monitoring non-compliance with the directive on the closure of all accounts involved in cryptocurrency for high-impact regulatory sanction.
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“In view of the above, all staff is hereby advised to identify entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately,” the bank’s memo read.
Harri Obi, PR/marketing manager, FTX Africa, says the crypto ban cuts across not just financial services.
“There’s a massive restriction on crypto advertising via traditional broadcast platforms plus some major social media platforms do not accept crypto ads. Twitter, which has always been the most potent medium for crypto marketing, is also banned in Nigeria,” Obi states.
Gaius Chibueze, Chief Executive Officer of Abit Network agrees with Obi that the crypto market attracted a lot of new investors. For example, over 500,000 investors joined the Abit Network ecosystem. About 90 percent of the signups were first-time investors in cryptocurrencies.
Some experts say the CBN’s tighter restriction on the crypto market was to pave the way for the launch of the eNaira, a Central Bank Digital Bank (CBDC) which it unveiled on 25 October.
Some silver lining
While the CBN appears not interested in exploring opportunities in cryptocurrencies, the entire government does not share the same sentiment. This may give the market some hope going into 2022. One of those not impressed by the CBN’s handling of the crypto market is several lawmakers who spoke against the restriction in February.
The Vice President of Nigeria, Yemi Osinbajo in February also questioned the rationale for placing a ban on the cryptocurrency market.
“Rather than adopt a policy that prohibits cryptocurrency operations in the Nigerian banking sector, we must act with knowledge and not fear and develop a robust regulatory regime that is thoughtful and knowledge-based,” the Vice President said.
On 10 December, Clem Agba, Minister of State for Budget and National Planning said uncertainty in regulating cryptocurrencies risks denying government and citizens the chance to maximise opportunities from the technologies. He also pointed out the challenge of who should actually regulate cryptocurrencies because of their different classifications as securities or currencies.
“Since our existing laws cannot explicitly stipulate who holds the power to regulate cryptocurrencies, there may be a need for an additional body to play that role,” Agba said.
In the absence of banks, however, the market has gone underground with individuals creating a form of exchanges that investors can use for crypto transactions. Some of the underground exchanges which run on Telegram, a social media platform, allow individuals to cryptocurrency transactions that must be authorised by designated administrative personnel. However, given the highly unregulated nature of these ‘black market’ transactions, investors’ capital stands the risk of disappearing at any moment’s notice.
Harry Obi says the ban did not stop an increase in demand for cryptocurrencies.
“We saw a lot more adoption of cryptocurrencies in the year 2021 by newbies, which is one of the causes FTX AFRICA championed through our Crypto Education Tour,” Obi told BusinessDay.
He sees the market growing larger in Nigeria even amidst the numerous regulatory restrictions surrounding the industry.
“I believe the crypto economy will defy all odds set against it and will keep advancing in 2022, as a lot of young Nigerians are beginning to pick an interest and as crypto educational programmes keep being introduced by crypto companies,” he says.
He notes that a sweet spot with cryptocurrency and blockchain technology is how fast they can innovate and grow with changing trends and this will happen a lot in 2022, with a lot of innovations and a lot of changes.
Chibueze says growth is imminent in 2022 as the market is expanding and still has a lot of room for growth. For instance, less than 1 percent of the world’s population is invested in cryptocurrency. He says the metaverse project by Mark Zuckerberg, CEO of Meta, former Facebook, will play a significant role in the expansion of the crypto market in 2022. Already new coins were created in 2021 bringing the total number to about 15,000 according to data from Coinmarketcap.
“It is going to be all about the use case and the community behind it. I think next year is going to be better. I see bitcoin closing around $70-$75,000 by the end of the year,” Chibueze said.
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