Crypto traders defy govt renewed clampdown amid naira fall



With the naira going from being labelled the ‘best’ performing currency globally, to now being adjudged the ‘worst’ performing currency against the dollar in a space of 30 days, the federal government last week, reactivated its old tricks: Clamp down on crypto trade and ‘unregistered’ Bureau de Change (BDC) operators, commonly known as Aboki; two entities it had identified as ‘killers’ of the currency.

On Wednesday, the police in Kano State announced that it had arrested 17 suspected forex hawkers in Wapa area of Fagge Local Government Area of the state. This came two days after Dr. Emomotimi Agama, the Director General of Securities and Exchange Commission (SEC), announced during a virtual meeting with the Blockchain Industry Coordinating Committee of Nigeria, the umbrella body of all major blockchain and cryptocurrency Associations in Nigeria, that the commission had decided to launch a new regulatory framework for crypto exchanges and custodians.

Agama said the government of Nigeria was preparing to introduce new regulations to ban peer-to-peer (P2P) cryptocurrency exchange using the naira, in order to protect the local currency from manipulation by custodians and other industry firms, an announcement that sent social media buzzing for a period. But it was nothing new, and many doubted how the government wanted to go about banning P2P.

“Recent concerns regarding crypto P2P traders and their perceived impact on the exchange rate of the naira has underscored the need for collective action,” Agama had said.

After initially unbanning cryptocurrency – the previous regime of Muhammadu Buhari had banned the trade – the Bola Tinubu administration reversed course in February, and began aggressive clamp down on the trade in response to the rapid depreciation of the local currency, which had weakened persistently since it opted to float last year.

The clamp down, which included the arrest and detention of two employees of Binance, Tigran Gambaryan and Nadeem Anjarwalla, and restriction of access to practically all crypto exchange apps and websites, appeared to achieve huge results. The local currency rallied from a historic low of N1,900/$ in February, to N1,100 in early April, earning ‘best performing currency tag.’

But a big part of that were also the hike in interest rates and sale of treasury bills in dollars at about 22 percent interest rate, which according to the authorities, was oversubscribed by 245 percent. While questions remain about how the government would raise funds to repay in 12 months, the dollars raised may have helped the Olayemi Cardoso led CBN in its quest to ‘save the naira.’

Government recognised BDC operators were given dollars at subsidiaries rates, and mandated not to sell beyond certain threshold. It proved to be the magic wand. In days, naira gained almost 40 percent, and all was well again and looking up.

But not supported by improved export or any other fundamental, the good news was destined to be short-lived. In more recent days, the naira has reversed its gains, earning yet again, the tag of world’s worst performing currency in the last month.

On Friday, the naira slipped to 1,466.31 to the dollar at the official market, and N1470 in the parallel section, its weakest level since March 20, triggered by local scarcity of dollars, which had on Thursday halved from the day before to just $84 million.

Analysts suggest that an estimated $1.3 billion in naira futures billed to mature at the end of this month is playing a big role on market sentiment, as it is expected to create more demand for dollars. But it would appear that as far as the authorities are concerned, crypto has to be the main culprit.

Agama, the SEC boss maintained during the engagement last Monday that the country will not hesitate to utilise all the powers within its mandate to handle issues that are negative and pose a threat to national interest, arguing that the recent concerns regarding crypto P2P traders and their perceived impact on the exchange rate of the Naira have underscored the need for collective action and dialogue within the financial market ecosystem.

“There are basic practices as enshrined in the Investments and Securities Act 2007 and we expect that everyone will abide by those rules. However, for specific digital asset regulatory regimes that many have been calling for, we want to assure you that we are working tirelessly to establish an accommodating regulatory guideline for digital assets,” he had added, noting that the proposed regulatory guidelines which are currently being fine-tuned with suggestions by various stakeholders, will encompass various activities within the cryptocurrency ecosystem ensuring that every Nigerian playing within the industry with the potential to contribute to economic progress is included, supported and properly regulated.

The government concern in this regard appears justifiable. As at 2020, data from Paxful, a peer-to-peer bitcoin marketplace, indicated that the value of bitcoins traded in Nigeria over the previous five years was more than any country in the world, except the United States. And traders often arbitrarily fixed their own rates.

The data had shown that Nigeria traded 60,215 bitcoins worth more than $566 million between 2015 and 2020, a figure surpassed only by the U.S, where 535,660 bitcoins were traded between 2015 and 2020 with the value standing at $3.8 billion.

Nigeria remains Africa’s largest crypto economy, receiving the highest cryptocurrency value between 2022 and 2023, and the trend has continued to grow. A report by global research firm Morning Consult published on July 7, 2022 showed that despite the ban slammed on crypto trade by the Muhammadu Buhari administration in 2021, Nigeria was one of the six countries in which more than a third of the adult population bought or sold crypto-currencies, at least, once a month.


Nigeria and Turkey – two countries, whose local currencies have continued to suffer massive depreciation – each with more than 50% monthly active adult crypto traders – topped the list of 40 countries surveyed. South Africa, Russia, and India were also in the top 10.

Besides the need to make money and ease of cross border transactions, preservation of value ranks high on the motivation for crypto adoption in countries with unstable currencies like Nigeria, and for many traders in the country, no amount of government crackdown will dissuade them.


Ban, a ‘waste of time’


As was the case when the government first came down heavily on cryptocurrency trading in February, the announcement about banning P2P last week, led to frenzied conversations on social media, but both financial experts and crypto traders insist that any attempt to ban P2P would be a waste of time.

“How can they say they are banning P2P, which is an interaction between two parties?” Wondered a trader, who is currently out of the country and declined to have his name in print for safety reasons. “Just yesterday, I converted N15m to USDT for somebody. I have another N12m I’ll be converting next week, that’s not a problem at all. It’s only only those of you in the media that report these things as if they mean anything.

“I still use exchanges to do my transactions, currently Bybit and others are working fine. Binance is the only exchange that disabled P2P, and that’s because they were trying to see if cooperating with the Nigerian team could facilitate the release of their staff detained in the country.”

P2P service is a decentralized platform in which two individuals interact directly with each other, without intermediation by a third party. Meaning that the buyer and the seller transact directly with each other via the P2P service. Typically, in such trade, the buyer sends an agreed amount into the local bank account of the seller, who then releases the agreed quantity of crypto or USDT, a stable coin tied to the dollar, into the wallet of the buyer.

However, due to risks associated with doing this transaction in direct person to person platforms like WhatsApp or Telegram, where a seller can abscond after receiving funds from the buyer, traders prefer to use crypto exchanges like Binance, where there are mechanisms for preventing such fraudulent conduct.

Following the crackdown in February, Binance deactivated the naira feature on its P2P platform, and subsequently ceased all services in naira as it looked looked to secure the release of its employees detained in the country.

Nigerian users can no longer directly use P2P on Binance. This is what the government may hope to achieve with other exchanges, where Nigerian users still use P2P to buy and sell crypto, which could then restrict traders to the use of direct person to person platforms like WhatsApp with their attendant risks. However, it’s a feat that no other country, including China, Russia and Iran, has managed to achieve, even with more advanced technology.

“Did the federal government put Nigeria in P2P in the first place?” Wondered Kalu Aja, an author and investment expert, @FinPlanKaluAja2. “P2P means Person to Person. It means I and Ronke exchange $ for N, Ronke gives me N, I give her $. If this occurs and Ronke transfers Naira to my bank account for “upkeep” and I do the same offshore, how can you ban it? Can you ban what you don’t know is occurring? If you want a stronger Naira, export more crude oil and stop chasing shadows.”

Indeed, many industry advocates argue that a ban on P2P cryptocurrency payments is a task close to impossible.

“Decentralized means that it cannot be controlled by a centralized entity. Only centralized entities can be controlled or effectively regulated,” said Victor Owunna, an accountant and financial literacy advocate.

“It is also important to note that centralized systems are an important part of the value chain, but they represent the Achilles heel of the space…”



IMF weighs in


Meanwhile, the International Monetary Fund (IMF) last week, recommended that Nigeria license global cryptocurrency exchanges as a part of its economic reformation measures.

The Bretton Wood institution in a recent report said the bid to integrate cryptocurrencies into its financial system aims to secure Nigeria’s position in the African cryptocurrency market.

It recommends that “global crypto trading platforms be registered or licensed in Nigeria and subject to the same regulatory requirements applicable to financial intermediaries.”

It states: “Authorities should ensure the application of AML/CFT [Anti-Money Laundering and Countering the Financing of Terrorism] controls by crypto trading platforms and other virtual asset service providers through effective AML/CFT risk-based supervision.“

The report points out discrepancies in Nigeria’s balance of payments, particularly, in net errors and omissions, which reflect unrecorded financial transactions. These discrepancies are attributed to several factors, including the “shift to using crypto assets for cross-border transactions,” often not recorded through traditional banking records.

Previously, largely positive in 2020, the report portrays preliminary 2023 data that suggests “NEOs continue to be very large negative,” at close to $7.5 billion — 2% of Nigeria’s gross domestic product.

The IMF suggests that through regulation and licensing of cryptocurrency exchanges, Nigeria could attract international investment, support financial market stabilization and potentially improve remittance mechanisms, which is significant due to the Nigerian diaspora.

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