The Central Bank of Nigeria (CBN) in trying to defend the February decision to prohibit banks from supporting the cryptocurrency market in Nigeria said it was in the same boat with countries like Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal, and Cambodia.
Like Nigeria, these countries are designated developing nations. But unlike Nigeria, none of the countries are listed in the top ten countries that are leading the way when it comes to crypto usage. The list according to Chainalysis includes Ukraine, Venezuela, China, Kenya, the US, South Africa, Nigeria, Colombia, and Vietnam.
Among the top ten, China shares the same dim views of the market as Nigeria and Kenya.
Nevertheless, while China, the second-largest economic power in the world, may have other revenue streams to shore up losses from losing cryptocurrency investments, Nigeria which is struggling with scarce foreign exchange and a weak naira may not have that luxury.
Read more Crypto ban threatens Nigeria’s 6bn projected revenue from blockchain
It is a reality South Africa and Kenya share in common with Nigeria, Africa’s most populated country.
They also offer Nigeria two contrasting lessons; what happens when regulators fight against the market and when it is approached differently. While Kenya chose to imitate China, South Africa is taking a different strategy.
Kenya and crypto regulations
Kenya is not new to digital banking. The country accounts for the largest mobile banking service in Africa thanks to Safaricom’s MPesa which services about 98.8 percent of the population and accounts for 60 percent of the GDP.
But in 2015, the Central Bank of Kenya toed a similar line like the Nigerian CBN by issuing a public notice titled ‘Caution to the Public on Virtual Currencies’. It stated that cryptocurrencies were not legal tenders and remain unregulated in Kenya. This meant that “no protection exists in the event that the platform that exchanges or holds the virtual currency fails or goes out of business”. After outlining the risks associated with the market it encouraged people to desist from trading.
Kenya’s restrictions on cryptocurrency may have been applauded by some Kenyan banks including Safaricom’s CEO but it led to a massive spike in peer-to-peer transactions and further loss of revenue for the economy.
Citibank in 2018 suggested Kenyans hold 163 billion KES ($1.48 billion) in bitcoin. Paxful said in its report that Kenyans made 6 billion transactions and 178 million KES ($1.62 million) per week in 2020. Localbitcoins noted that 150 million KES ($1.36million) worth of transactions went through its platform per week.
“Blocking people from investing in early technology opportunities like various cryptocurrency protocols as they launch or from protecting their personal wealth by keeping it in bitcoin, as many others are doing, would obviously have bad outcomes,” Eloho Omame, managing director of Endeavor Nigeria, a firm that selects, mentors and accelerates the best high-impact entrepreneurs in the region. “Banning on- and off-ramps between bank accounts and exchanges will make it harder, but not impossible for small businesses and retail investors to trade cryptocurrencies. P2P exchanges exist for precisely this reason.”
South Africa and crypto regulation
While South Africa has yet to legitimise or put official controls in the market, it has rather chosen to engage the market operators.
The country’s initial statement on cryptocurrencies was issued in 2014 by the National Treasury (along with the South African Reserve Bank, the Financial Services Board, the South African Revenue Service, and the Financial Intelligence Centre). In that statement, it warned the public about the risks of transactions and investments in crypto assets, at the time referred to as virtual currency.
Currently, in South Africa, there are no specific laws or regulations that address the use of virtual currencies. Consequently, no legal protection or recourse is afforded to users of virtual currencies.
Due to their unregulated status, virtual currencies cannot be classified as legal tender as any merchant may refuse them as a payment instrument without being in breach of the law. In addition, virtual currencies cannot be regarded as a means of payment as they are not issued on receipt of funds. The use of virtual currencies, therefore, depends on the other participant’s willingness to accept them.
While virtual currencies can be bought and sold on various platforms, they are not defined as securities in terms of the Financial Markets Act, 2012 (Act No. 19 of 2012). The regulatory standards that apply to the trading of securities, therefore, do not apply to virtual currencies.
In essence, rather than create unnecessary panic in the investing public, it sought to educate the public and to let them make the decision on what to do.
The engagement with the industry has seen the country come up with tax policies through which it earned revenue from cryptocurrency trading despite not having a proper regulatory policy yet. Marius Reitz, Luno’s regional manager said an average of R90 million ($6.1 million) worth of Bitcoin is traded in South Africa daily.
Apart from trading, the country is the only place in Africa where mining activities have ever been carried out. It also attracts the most investments in crypto infrastructure according to Reitz.
For Nigeria’s Central Bank, experts say there are no clear cut approaches to regulating the crypto market, except through engagement.
“They should consult with investors, large and small business owners, cross-border traders, foreign exchange dealers, cryptocurrency exchanges, and national and sub-national authorities, including some who have already positioned themselves as pro-cryptocurrency,” said Omame.
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