“Is this the end?” Nigerian Crypto Traders Face State’s Latest Hurdle

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Young traders are considering ways to continue trading cryptocurrencies after the central bank freezes bank accounts.

Credit: Hundreds of Nori / Unsplash.

On November 9, Williams * awoke to desperate news. His bank account had been closed to “benefit from crypto transactions.” An accompanying message explained that his bank had received a “mandate from the Central Bank of Nigeria (CBN) to close all accounts using crypto.” Williams, who is now based in Ghana, was asked to visit the bank branch in Nigeria where he opened the account if he wanted to get his funds back.

Six days earlier, the CBN had in fact instructed banks to close the accounts of listed persons who had traded cryptocurrencies in violation of a directive of February 5, 2021. Oddly, however, this directive had not imposed any new ban on crypto-currencies. Rather, he reiterated a 2017 warning to banks not to deal in cryptocurrency and to ensure that its clients comply with CBN requirements for anti-money laundering and transaction monitoring.

Moving from these guidelines to ordering banks to close individual accounts has been a real step forward. Yet some banks not only complied with the CBN, but went further. FCMB, for example, has asked its nationwide branch network to report all bank accounts of customers between the ages of 18 and 30 with a high volume of transactions. The bank believes this could be proof that account holders are using Peer to Peer (P2P) exchanges, which are currently the only way to buy and sell cryptocurrency in Nigeria due to the ban by the CBN to buy through the banks.

The CBN’s opposition

The CBN explained its opposition to cryptocurrency by citing the CBN Act of 2007, which prohibits the use of any other legal tender in Nigeria. Some people use cryptocurrency for day-to-day transactions through apps like Lazerpay or to purchase foreign imports of clothing and electronics. Yet the same is true for the US dollar. The CBN warned Nigerians against using foreign currency as a medium of exchange in 2015, but it never went so far as to close bank accounts. Additionally, the CBN could ban the use of cryptocurrency as legal tender without preventing people from trading it completely.

For the most part, however, cryptocurrency is not used as a medium of exchange at all. It is more often bought as an investment and a way to protect against the volatile Naira.

Other reasons cited by the CBN for wanting to crack down on cryptocurrencies include their anonymity. “Why would an entity disguise its transactions if they were legal? “” Asked the bank’s press release in February. The answer, according to the governor of the CBN, is that cryptocurrencies are “rooted in a high level of illegality.”

Some other concerns cited by the CBN are the volatility of cryptocurrencies, their lack of intrinsic value, and their susceptibility to falling prices. The bank insists its ban is aimed at protecting the financial system and citizens from the risks associated with trading in speculative, anonymous and untraceable assets.

Whatever their motives, the central bank of any country has only limited powers to restrict the use of crypto. CBN cannot prevent citizens from investing in cryptocurrency, simply because of its volatility or anonymity. This is why it targets traders.

“Is this the end?”

For a generation of Nigerians, cryptocurrencies have given new hope in a country where average incomes have been on the decline for six years and the Naira continues to lose value. In 2020, cryptocurrency transactions generated in Nigeria amounted to over $ 400 million. The country was the third highest in the world for the value of Bitcoin traded. Despite CBN interventions, the value of cryptocurrency transactions traded in June 2021 was 25% higher than the equivalent month of the previous year.

A trader, Brenda, told African Arguments that she invested in Nigerian companies for four years before selling all of her shares and buying the cryptocurrency Shiba Inu (SHIB). She has since used the returns from this to purchase nine other types of ‘shitcoins’ (i.e. cryptocurrencies with little or no value or an immediate discernible purpose).

Since the CBN ban on allowing Nigerians to buy cryptocurrency with Naira in February, traders like Brenda have used Peer to Peer (P2P) platforms to buy and sell. The latest CBN actions aim to exclude P2P traders from the banking system. This has caused fear within the crypto community.

“What happens if Peer to Peer trading is no longer an option? Brenda asks. “Is this the end?”

Ose, another crypto trader, is concerned that CBN stocks will cause young people to take more risk as they seek new ways to participate in a global market that offers unprecedented returns and, in some cases, a relative monetary stability.

“Finding a P2P seller or buyer is going to be a Herculean task now,” he says. “The worst part is that people will try to use other informal P2P methods to complete the transaction. Although it is no different from P2P on [international crypto-trading platform] Binance and other exchanges are definitely less secure.

Innovate

Over the past month, various hashtags – ranging from #NigeriaCryptoDay to #BoycottFCMB – have popped up on social media as Nigerian traders reflect on how to get around this new hurdle. Some have suggested using Bitcoin vouchers (which are like prepaid gift cards that can be redeemed at a later date) or informal P2P forums. Others called on traders to leave the formal banking system entirely and use apps like AbitPay to pay for goods and services exclusively using cryptocurrencies, removing the need to convert between Naira and digital coins.

Some Nigerians have already started to move away from formal banks by using their savings to buy stablecoins, which are tied to the value of assets such as the US dollar or gold. For some, the latest CBN actions have only accelerated their desire to move their Naira savings into crypto wallets.

“My plan is to do what I did when they first broke out: keep my savings in stable coins and allow the market to absorb the pressure,” says trader Dozie. “I’m not worried. As long as people can still transact with their bank accounts, crypto will still work in Nigeria.”

Crypto traders may also find that the law is on their side. The CBN’s suspension of people’s bank accounts for committing an offense that does not exist is presumably illegal. In addition, FCMB’s age discrimination could be interpreted as a violation of basic human rights enshrined in Nigeria’s constitution. In fact, just a week before the CBN’s Nov. 3 directive, a Federal High Court in Abuja ruled its earlier attempt to freeze the bank accounts of cryptocurrency traders illegal.

In March 2021, just after the CBN banned the purchase of cryptocurrencies through bank accounts, the volume of cryptocurrencies sent from Nigeria jumped to $ 132 million, up 17% from the previous month. . Young Nigerians are known for their resilience in the face of hostile politics and hostile law enforcement. For them, the latest actions of the CBN could prove to be just one more obstacle to overcome.

* names have been changed to protect identities

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