The massive rally in bitcoin prices has created a lot of buzz around cryptocurrencies lately, but Nigeria is one of the countries where bitcoin has been widely accepted for some time. The West African country has the highest bitcoin trading volume in Africa and recently ranked second globally of any country after the United States. According to Bitcoin.com, Nigerians have traded more than 60,200 BTC (worth more than $566 million) since 2015 through Paxful’s P2P exchange.
Why Has Bitcoin Risen In Nigeria?
Numerous factors have contributed to the tremendous rise of Bitcoin adoption in Nigeria. One of the major reasons is stringent forex policies by the Central Bank of Nigeria (CBN). Also, a decline of the naira (the country’s fiat money) has made bitcoin appealing to Nigerians. For instance, on December 18, 2020, a communique from CBN directed deposit money banks to close all naira accounts for international money transfers operators to “ensure that all diaspora remittances are received by beneficiaries in foreign currency only.”
Nigerians have resorted to seeking alternative currencies due to dollar scarcity caused by the stringent banking laws. In fact, bitcoin adoption has grown significantly in other countries that have experienced diminishing confidence in national fiat currency and rising inflation, such as Zimbabwe.
In Nigeria, the bitcoin trade has increased by 19 percent annually from 2017 to 2020, with 2020 recording the highest volume (20,504.50 BTC). During the lockdown, the bitcoin trade increased by 30 percent, with the peak of the pandemic recording the highest volume. According to CoinDesk, new account registrations for Paxful increased by 137 percent between January and September 2020. The increased popularity of BTC is also evidenced in the gambling industry, with many bitcoin casino sites operating in Nigeria that are often located overseas.
A Looming Bitcoin Ban
While bitcoin and some other cryptocurrencies are decentralized, CBN is cracking down on their trade. On February 5, 2020, cryptocurrency enthusiasts in Nigeria received shocking news. CBN issued a reminder to all regulated financial entities that they were prohibited from facilitating businesses involved in cryptocurrency transactions. Therefore, transacting bitcoin is essentially prohibited.
CBN initially banned the provision of financial services to cryptocurrency exchanges in 2017. However, it allowed banks to facilitate customer exchange, provided they met certain requirements. The latest directive seems to make facilitation completely illegal. By regulating cryptocurrency transactions, the central bank aims to take more control of the international payment system.
The young and tech-savvy generation of Nigerians are using bitcoin to maneuver around the restrictive monetary and banking system. As such, P2P exchanges are the most popular methods of trading bitcoin. These decentralized platforms connect buyers and sellers without the need for third parties. This means that bitcoin traders can circumvent government regulation.
Meanwhile, the Nigerian naira has experienced divergent exchange rates leading to increased instability and uncertainty. As a result, the financial authorities are now putting in measures to shield the naira and micromanage foreign exchange supply. Due to these restrictions, bitcoin is considered a suitable alternative for international transactions.
Numerous, easy-to-use bitcoin exchange platforms have accelerated the adoption of bitcoin in Nigeria. The most popular platforms include Binance, Paxful and Luno. As per Bitcoinke, Paxful is currently the leading P2P exchange platform in the world, controlling about 52 percent of the global market share. Local platforms such as BuyCoins, Busha and Quidax are also quite popular. Besides these platforms, some people transact using informal channels such as WeChat, WhatsApp and Telegram.
With about 1.3 million accounts, Nigeria forms about a quarter of all registered accounts on Paxful. According to Nne Nwachukwu, the Paxful Nigeria regional manager, Nigerians mostly use the platform for peer-to-peer and arbitrage trading. A significant number also use local platforms for remittances.
Local apps such as BuyCoins allow Nigerians to buy and sell bitcoin using Nigerian debit cards. Many freelancers and expat Nigerians use BuyCoins, which processed transactions worth $140 million last year.
The central bank has not clearly defined the reason for the ban, listing only vague concerns about cryptocurrencies’ use in illegal activities. However, the ban may be due to the asset class’ dominance over the country’s fiat economy. Currently, assets worth about $4 billion are embedded in cryptocurrencies in Nigeria.
#EndSARS Protests And Bitcoin
According to CBN, the ban was instituted in good faith. To be specific, the central bank claimed that it wants to protect Nigerians from the speculative market. However, critics believe that the ban is associated with the recent #EndSARS protests against police brutality. Also, the government may believe that digital currencies are used to fund terrorist groups such as Boko Haram.
The protestors and aid groups resorted to accepting donations in bitcoin because the government restricted their access to financial services.
As noted above, last year, CBN issued a directive instructing banks to close all accounts that receive money in foreign currencies. This has affected people living in the diaspora, sending money home, as well as freelance workers who accept payments in foreign currencies.
Diaspora remittances are restricted only to domiciliary accounts. This type of account limits Nigerians to receiving payment in foreign currencies and exchanging them for naira. However, operating these accounts comes with strict measures, such as $100 minimum deposits and the requirement of multiple references.
But, that is not all. Since mid-2020, banks have limited the amount of money that Nigerian people can spend using their debit cards. Typically, banks are limiting withdrawals to $100. The reduction was necessitated by the shortage of dollars caused by a decline in oil prices, the country’s main export. People who want to import items or buy dollars have resorted to using bitcoin.
Where Things Will Go
A group of senators has already opposed the CBN order. In fact, they have summoned the central bank to expound on the latest development. However, some senators support the CBN directive, claiming cryptocurrencies have rendered the naira almost useless. Also, the Nigerian securities and exchange commission has endorsed the CBN directive.
CBN has taken issue with cryptocurrencies’ volatility and opaqueness. Other countries, like the U.S. and UK, also appear to be clamping down on cryptocurrencies. The Financial Conduct Authority (FCA) has banned the sale of cryptocurrency derivatives to retail investors to protect rookie investors from sudden and unexpected losses.
Many African countries, including Kenya and Ghana, do not recognize cryptocurrencies as a form of currency because they are hard to regulate. After Nigeria’s ban on cryptocurrencies, many African countries — such as South Africa, where bitcoin is widely accepted — are probably monitoring the development closely. Other central banks in these countries will most likely move into action to protect local fiat currencies by banning cryptocurrencies as well.
This is a guest post by Michael. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.