Ali Yusuf, a 36-year-old Computer analyst felt he was losing out on the bullish run on the price of Ethereum, the second-largest cryptocurrency.
The price had set another all-time high on Thursday, rising to over $1,600 and Yusuf would do anything to get in on the action. But he needed to deposit money in his wallet on the Binance exchange. On Friday he commenced a transfer of N20,000 through his bank Stanbic IBTC. But the transaction could not go through as the bank responded by telling him to try another recipient.
“I abandoned the transaction after a third try and thought it was a network problem,” Yusuf told Businessday.
But it’s no network problem and Yusuf will not be able to buy that Ethereum asset in the foreseeable future. That’s after the Central Bank of Nigeria said its 2017 prohibition on cryptocurrency activities and exchanges remain unchanged. In fact, the apex has gone a step further to order banks to stop every financial relationship with cryptocurrency exchanges.
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.
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The CBN also threatened “severe” regulatory sanctions to operators that fail to comply with the directive.
According to a source in one of the cryptocurrency exchanges the directive will affect withdrawal and deposits into wallets.
By adding non-banking institutions, the CBN included payment gateways like Paystack and Flutterwave both of which facilitate the majority of cryptocurrency deposits and withdrawal activities in Nigeria.
Another source in another exchange who also pleaded anonymity to speak freely told Businessday that the directive doesn’t affect peer-to-peer (P2P) cryptocurrency transactions. According to a report from Paxful, Nigeria is the second largest market in the world in P2P.
Ophi Rume, a crypto expert told Businessday that the directive doesn’t affect users as much as it impacts exchanges.
“The exchanges platforms are the ones that will feel it. But it is a challenge for them to accept transactions. Some of us that are OTC do transactions offline. If you are in China, and I send you bitcoin and you pay into my naira account. I have suppliers that get bitcoin anywhere in the world. People will find a way around it,” Rume said.
While the CBN’S move doesn’t come as a surprise given it was almost the same stand it took in 2017, it however, seems to contradict the position of the Securities and Exchange Commission (SEC) which in 2020 said it has the power to regulate cryptocurrencies as
“securities”. It went ahead to release a document that stated its position about the market.
Experts had seen the SEC’S document as a positive signal that the Nigerian government was finally ready to embrace the growing cryptocurrency market in Nigeria and around the world. Following in the SEC’S footsteps was the National Information Technology Development Agency (NITDA) which projected that it will make as much $6 billion by 2030 should the country leverage blockchain technology.
The agency’s positions partly sparked an increase in investors’ investments in 2020. Binance and Luno, the two leading cryptocurrency exchanges in the country poured more investments in education.
However, the CBN says it will continue to do all within its regulatory powers to educate Nigerians to desist from use of cryptocurrencies — despite growing criticism.
Its directive to banks to close accounts of persons or entities involved in cryptocurrency transactions has been criticised, with former vice-president, Atiku Abubakar, asking the bank to rescind the decision.
Listing various reasons for its action, the central bank said not only are cryptocurrencies issued by unregulated and unlicensed entities, the patrons and users value “anonymity, obscurity, and concealment” and there are risks of “loss of investments, money laundering, terrorism financing, illicit fund flows and criminal activities”.
The bank, in a statement on Sunday evening, said it was determined to protect the country’s financial system from activities of “fraudsters and speculators”.