Ophi Rume’s phone has not stopped ringing since Friday evening. The self-styled crypto-preacher has been taking calls from the moment the Central Bank of Nigeria (CBN) ordered banks and non-banking institutions to close accounts run by cryptocurrency exchanges .
He says the level of panic the order triggered led him to make an Instagram Live video in which he and some others explained to people what was happening and the implications for the market. In the video BusinessDay saw, participants were asking about what will become of their investments. One of them wanted to know whether the exchanges were going to shut down and what would happen to the money in the wallets.
“A lot of people are scared but there is no point to be afraid. Worst case scenario we will resort to peer-to-peer,” he told BusinessDay.
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From the moment the CBN letter went viral, many exchanges have released statements to assure their users what and inform them of new directions. BuyCoins, one of the earliest exchanges to issue a statement, told users they were working with regulators to ensure their services complied with the new directive. Meanwhile, all trading activities on its platforms continue as usual, and all user funds are safe.
Marcus Swanepoel, the boss of Luno, a company he co-founded in 2013, said the company plans to to keep supporting its Nigerian customers in a post on Twitter .
“Nigeria, Luno and DCG have your back. We’re all working 24/7 to ensure we get a positive outcome for customers and regulators. Will keep everyone posted on development,” Swanepoel wrote. Digital Currency Group acquired Luno in 2020 in a deal that will see the global exchange expand its presence beyond 40 countries as well as deepen its presence in Nigeria, its second-largest market in Africa.
“DCG is 100 percent committed to backing Luno and their customers in Nigeria,” Barry Silbert, founder and CEO of DCG said in a response to Swanepoel’s tweet. “We are determined to ensure that all Nigerians continue to have access to bitcoin and the financial freedom it provides.”
Luno has also joined a growing number of exchanges including Binance, Quidax, BuyCoins that have suspended deposits in naira and indicated that while withdrawals continue, there will be some delays.
The CBN in a letter addressed to deposit money banks, non-bank financial institutions; other financial institutions, and members of the public, the apex bank said dealing in cryptocurrencies and facilitating payments for cryptocurrency exchanges is prohibited.
“Accordingly, all DMBs, NBFIs, OFIs are directed to identify persons and or entities transacting in or operating cryptocurrency within their systems and ensure that such accounts are closed immediately,” the letter signed by Bello Hassan, Director of Banking Supervision noted.
The CBN also threatened “severe” regulatory sanctions to operators that fail to comply with the directive.
It is a situation that traders like Olaleye Awe said has impacted the local market negatively after the news broke on Friday. Interestingly, the global cryptocurrency market has remained unaffected by the CBN directive. The price of bitcoin hit $40,000 on Saturday morning while Ethereum, the second-largest cryptocurrency by valuation, has continued to trade above the $1,600 high it set in recent days.
Awe says the situation will benefit the peer-to-peer segment of the market that is yet to resolve issues around trust. Peer-to-peer trading allows individuals to trade with each other. The CBN directive and the consequent move away from exchange-based transactions leaves traders at the mercies of peer-to-peer traders. Individuals may run the risks of dealing with scammers who take their money and run away.
“I believe it is a transient thing. In the next one or two weeks, things will normalise but the local market will experience some form of loss in value, the market doesn’t like uncertainty. Hopefully, we will get some form of respite,” Awe said,
The industry leaders from different blockchain associations however are uniting to take on the government.
Blockchain is the underlying technology that powers cryptocurrencies. It has many use cases apart from cryptocurrencies. Thus, over the years hundreds of businesses have been created to champion these use cases.
Sources confirmed to BusinessDay that there have been a series of meetings by the associations to come up with a joint response. The strategies include preparing for a media charm offensive to calm nerves about the CBN order. Many of the leaders have been assigned to different media outlets on the international scene where they are expected to engage the public.
Alongside the media blitz which starts Monday, the coalition plans to directly approach the government for a series of meetings that could last the entire week.
Lucky Uwakwe, CEO of Sabi Exchange, the first local platform to list 18 DeFi, said they will pursue every option including engagement with lawmakers and court actions. In India, the Internet and Mobile Association of India (IMAI) sued the Reserve Bank of India (RBI) over a ban on trading cryptocurrencies such as bitcoin. Following the court action the Supreme Court of India allowed dealing in cryptocurrency and quashed the ban.
But there are no guarantees that the court process will be as swift to enable the market to come back to normalcy. The long wait could potentially see more trading activities going through the OTC market or peer-to-peer or the black market. Already, thousands of transactions happen in that market that exchanges cannot account for.
Uwakwe says exchanges have the option of increasing their peer-to-peer trading. However, this will mean that transactions are a little delayed unlike when it is through quick transfers. The biggest losers are the banks, he says. Providus, for instance, is going to lose a big global corporate entity like Luno which brings it millions of businesses. Luno processed approximately $4.5 million per day on average in 2020. The Nigerian Naira (NGN) has accounted for 15 percent of Luno’s trading volume.
Awe says there is a risk the Nigeria police may misinterpret the CBN directive and think trading in cryptocurrency is illegal. It could see the police threatening young people it suspects of trading in cryptocurrencies. To prevent this, he says it is better for the CBN to clarify that it has only directed banks to stop supporting the market.
“Even if the CBN comes out and says we are reversing this policy there will still be institutions that will sit on the former prohibition. I don’t think the CBN has any jurisdiction to outlaw crypto,” he said.
