From Ban to Boom: Nigeria Emerges as a Cryptocurrency Powerhouse
Nigeria has gradually transitioned to becoming one of the peer-to-peer crypto market leaders globally, as citizens seek secured transactions and decentralised financial solutions through innovative exchanges, amid crackdowns by local authorities, JUSTICE OKAMGBA reports
On January 12, 2017, the Central Bank of Nigeria for the first time issued a warning to all Deposit Money Banks and non-financial institutions about the risks associated with cryptocurrencies, also known as digital currencies.
The financial regulator expressed concerns that cryptocurrencies, particularly Bitcoin, which held the highest market capitalization, posed significant risks, including loss of investments, illicit fund flows, money laundering, terrorism financing, and other criminal activities.
However, commercial banks largely ignored these warnings and continued to facilitate cryptocurrency transactions, leading to a phenomenon that transformed many Nigerians, especially youths, into millionaires.
The hype surrounding cryptocurrency was undeniable, prompting a growing interest in the ecosystem. This changed dramatically in February 2021 when the CBN imposed a ban on financial institutions from processing cryptocurrency transactions.
It instructed banks to identify individuals or entities involved in cryptocurrency exchanges and close their accounts. Shortly after, the Securities and Exchange Commission followed suit, announcing that it would suspend the admission of anyone affected by the CBN’s directive into its Regulatory Incubation Framework for Fintech Firms.
“For the purpose of admittance into the SEC Regulatory Incubation Framework, assessment of all persons (and products) affected by the CBN Circular of February 5 is hereby put on hold until such persons are able to operate bank accounts within the Nigerian banking system,” the SEC stated.
At the time, the Nigerian government had several references to justify its cryptocurrency clampdown, with countries like Morocco, China, Iran, Bolivia, and Bangladesh having made similar moves.
The International Monetary Fund resident representative for Nigeria, Ari Aisen, said many central banks all over the world had taken a similar position on cryptocurrency.
“The issue with some of the cryptocurrencies is that perhaps some care should be taken about their activities. The use of cryptocurrencies is a concern,” Aisen told journalists in February 2021.
“That is why some central banks, not only in Nigeria, have these concerns about what kind of activities these cryptocurrencies are put in and how best to monitor those activities,” he noted.
After the CBN’s directive to stop cryptocurrency transactions, not all banks complied at the time. This prompted the regulator to launch investigations into financial institutions that were still carrying out cryptocurrency transactions.
In April 2022, the apex bank fined six commercial banks for N1.314bn over alleged non-compliance with a regulation on cryptocurrency accounts.
The banks include First City Monument Bank, Access Bank, Stanbic IBTC, Wema Bank, Fidelity Bank and United Bank for Africa. Access Bank was fined N500m, UBA was N100m, Fidelity Bank was N14.28m, WEMA Bank was N100m, FCMB was N400m, and Stanbic IBTC was fined N200m.
Before the CBN banned the cryptocurrencies, the European Central Bank President Christine Lagarde had called for global regulation of Bitcoin, citing its use in some money laundering activities and emphasising the need to close any regulatory loopholes.
“Bitcoin is a highly speculative asset, which has conducted some funny business and some interesting and totally reprehensible money laundering activity,” Lagarde said in an interview at the Reuters Next conference in January 2021.
These were troubling times for crypto traders who relied on cryptocurrency exchanges for their livelihood. Yet, collectively, the ecosystem adapted. Nigerians turned to peer-to-peer platforms powered by Binance—the world’s largest crypto platform—to continue their transactions.
The P2P method allowed Nigerian users to bypass banks and engage directly with sellers on platforms like Binance, where they negotiated prices and payment methods, often using escrow services for security.
Nigeria’s volume of crypto transactions grew by nine per cent year-on-year to $56.7bn between July 2022 and June 2023, according to the 2023 Geography of Cryptocurrency Report by Chainalysis, a United States-based international blockchain analysis firm.
KuCoin, a crypto exchange in its report stated, “According to our survey conducted in early 2022, 33.4 million Nigerians, which accounts for 35 per cent of the population aged 18 to 60, currently own or have traded cryptocurrencies over the past six months.”
Surprisingly, the Nigerian government later changed its stance on cryptocurrency assets in the country, with the CBN instructing the banks to disregard its earlier ban on crypto transactions.
This information comes from a circular dated December 22, 2023, with reference number FPR/DIR/PUB/CIR/002/003, signed by the Director of the Financial Policy and Regulation Department, Haruna Mustafa, at the apex bank.
The circular is titled “Guidelines on Operations of Bank Accounts for Virtual Assets Service Providers ” and emphasizes that current global trends have highlighted the need for cryptocurrency regulation.
It said, “The CBN, in February 2021, issued a circular restricting banks and other financial institutions from operating accounts for cryptocurrency service providers in view of the money laundering and terrorism financing (ML/TF) risks and vulnerabilities inherent in their operations, as well as the absence of regulations and consumer protection measures.
“However, current trends globally have shown that there is a need to regulate the activities of virtual asset service providers, which include cryptocurrencies and crypto assets. Following this development, the Financial Action Task Force in 2018 also updated its Recommendation 15 to require VASPS to be regulated to prevent misuse of virtual assets for ML/TF/PF.
“Furthermore, Section 30 of the Money Laundering (Prevention and Prohibition) Act, 2022, recognises VASPs as part of the definition of a financial institution. In addition, the Securities and Exchange Commission in May 2022 issued Rules on Issuance, Offering and Custody of Digital Assets and VASPs to provide a regulatory framework for their operations in Nigeria.
“In view of the foregoing, the CBN hereby issues this guideline to provide guidance to financial institutions under its regulatory purview in respect of their banking relationship with VASPs in Nigeria,” the circular read.
Binance crackdown
When the new CBN Governor, Olayemi Cardoso, signaled a possible shift in the bank’s stance on cryptocurrency, it sparked excitement across Nigeria’s crypto community. However, few realised this was merely the calm before the storm.
By on February 20, 2024, Nigerians could no longer access , buy or sell ads for USDT on Binance’s P2P platform, effectively halting all crypto trading involving the naira. This restriction also affected other major crypto exchanges such as Kraken, Coinbase, and Quidax.
The move followed a crackdown led by the CBN under Cardoso’s leadership, aimed at tightening regulations on cryptocurrency activities and curbing currency manipulation.
The CBN Governor disclosed that $26bn flowed through Binance in 2023 alone, attributing the transactions to sources that could not be sufficiently identified.
In response to the restrictions which attracted lots of criticisms, many crypto traders adapted, turning to messaging apps like WhatsApp and Telegram to continue peer-to-peer transactions, defying the ban.
The co-founder of Finna Protocol, Adebayo Juwon, challenged the figures presented by the CBN governor, raising questions about their accuracy.
“How were these numbers calculated? Are they based on outflow or inflow? 90 per cent of P2P trades involve two Nigerians trading among themselves,” he wrote on X (formerly Twitter).
Juwon also pointed out that Binance enforces strict Know Your Customer protocols, requiring users to verify their identities.
Having previously worked at the now-defunct crypto exchange FTX, Juwon added, “Nigeria’s crypto user base exceeds that of South Africa, yet its trading volume is lower. Even Seychelles, a small island nation, reports more institutional trading volume than Nigeria’s entire retail sector.”
The crypto expert further argued that the clampdown on crypto exchanges wouldn’t halt P2P trading. “A significant portion of P2P transactions occur on WhatsApp, not just on Binance,” he revealed.
The conflict between the CBN and Binance intensified shortly when Binance executives—Head of Financial Crime Compliance and a U.S. citizen, Tigran Gambaryan, and the Regional Manager for Africa and a British-Kenya, Nadeem Anjarwalla flew into Nigeria in an attempt to defuse the rising tension.
However, they were arrested by the National Security Adviser, who also confiscated their passports. Both were charged with tax evasion and money laundering involving over $35m.
In a dramatic turn of events, on March 1, the Nigerian government imposed a staggering $10bn fine on Binance—an amount many in the crypto community likened to a ransom demand.
The Special Adviser on Information and Strategy to President Bola Tinubu, Bayo Onanuga told the BBC at the time that Binance was not registered in Nigeria and had no official presence in the country.
He alleged that individuals used the platform to manipulate dollar-to-naira exchange rates, which he claimed negatively impacted the value of the local currency.
Onanuga further explained that Binance was already cooperating with the Nigerian government, providing useful information, and had suspended naira-related transactions on its platform.
Despite the growing regulatory pressure, Nigerians remained steadfast in their crypto trading activities. The pressure from the Nigerian government forced the world’s biggest crypto platform to finally announce its exit from the country on March 5, halting all services related to the Nigerian naira.
While Binance allowed users to continue accessing other cryptocurrency services, it required that all remaining NGN balances be converted to USDT by March 8.
Meanwhile, Binance executive Gambaryan is currently detained in Nigeria, while his colleague, Anjarwalla, managed to escape custody in March using a passport that was allegedly smuggled in.
Gambaryan, whose health conditions have raised concern in recent times after multiple court appearances has been denied bail due to fears that he may attempt to flee the country.
United States lawmakers have urged President Biden to intervene in the case, expressing concerns about Gambaryan’s health and well-being, arguing that the charges are baseless and a tactic to extort Binance.
In response, Nigeria’s Minister of Information countered these allegations, asserting that Gambaryan’s detention is legal under Nigerian law.
Delisting naira from P2P platforms
Aside from the SEC, CBN, the Economic and Financial Crimes Commission, is actively involved in cracking down on cryptocurrency adoption.
In April, the EFCC’s Chairman, Ola Olukoyede, revealed that the agency has identified a scheme even more problematic than the widely scrutinised Binance platform.
According to Olukoyede, the EFCC has frozen approximately 300 accounts in an effort …
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