BY EMEKA EJERE
The Nigerian cryptocurrency community has started using peer-to-peer exchange platforms to continue trading as financial institutions across the country have started closing accounts in adjustment to the ban on such transactions by the Central Bank of Nigeria (CBN), findings have shown.
The CBN had on February 5 directed all Deposit Money Banks (DMBs), Non-Bank Financial Institutions (NBFIs) and Other Financial Institutions (OFls) to close the accounts used for cryptocurrency operations, amid controversies.
In circular BSD/DIR/GEN/LAB/14/001, the apex bank ordered all financial institutions to identify persons and/or entities transacting in or operating cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately.
Any financial institution that breaches this directive, the CBN warned, will attract severe regulatory sanctions.
According to the CBN, dealing in crypto currencies or facilitating payments for cryptocurrency exchanges is prohibited.
The circular signed by Bello Hassan, Director of Banking Supervision and Musa I Jimoh Director, Payments System Management Department said the order took immediate effect.
It also recalled that the apex bank had in the past cautioned Deposit Money Banks (DMBs), Non-Bank Financial Institutions (NBFIs), Other Financial Institutions (OFls) and members of the pubic on the risk associated with transactions in crypto currency refers
Hundreds of Nigerians had angrily protested the ban on buying and selling of bitcoin and cryptocurrency in the country, with many taking to the social media to slam the federal government for what they considered to be a retrogressive action while others did so using other channels.
One of the loudest oppositions came from former Vice-President Atiku Abubakar, who urged the President Muhammadu Buhari administration not to shut down the cryptocurrency business.
In a statement he signed on Saturday (February 6), Atiku urged the government to regulate the sector rather than embarking on an outright shutdown.
He referenced the declining inflow of foreign capital into Nigeria from $23.9b in 2019 to $9.68b in 2020 and said the economy needs an expansion rather than a contraction.
The statement titled We need to open up our economy, not close it read in part: The number one challenge facing Nigeria is youth unemployment. In fact, it is not a challenge, it is an emergency. It affects our economy and is exacerbating insecurity in the nation.
What Nigeria needs now, perhaps more than ever, are jobs and an opening up of our economy, especially after todays report by the National Bureau of Statistics indicated that foreign capital inflow into Nigeria is at a four year low, having plummeted from $23.9 billion in 2019 to just $9.68 billion in 2020.
Also, the Digital Rights Lawyers Initiative (DRLI) has asked the Federal High Court in Lagos to quash the Central Bank of Nigeria (CBN)s letter prohibiting banks from dealing in cryptocurrencies and closing down of suspected bank accounts.
It further asked the court for a perpetual injunction restraining the apex bank from regulating and/or further regulating virtual currencies/ cryptocurrencies in Nigeria.
According to DRLI, the CBN lacks the power to regulate cryptocurrencies. The CBN and the Securities and Exchange Commission (SEC) are the first and second defendants in the suit marked FHC/L/CS/ 188/2021, filed on Monday, February 8, 2021.
The reason for the huge debate is not farfetched. Data from Paxfula cryptocurrency trading platform, showed Nigeria was second only to the United States in volume terms. Nigerians are one of the highest downloaders of crypto wallets.
The total value of all cryptocurrencies globally passed $1 trillion mark in January 2021. Bitcoin remains the market leader with a $676 billion market capitalisation, followed by Ethereum with a $136 billion market capitalisation. Tether, XRP and Litecoin round out the top five.
However, market sources said the decision of the apex bank was aimed at safeguarding the Nigerian economy from the adverse effects of unregulated cryptocurrency trading. Some analysts said dollar inflows meant for the Nigerian foreign exchange market and foreign reserves were being channelled into the cryptocurrency market.
Research & Consulting at Afrinvest West Africa Managing Director Abiodun Keripe said the apex bank had observed a dangerous trend, where foreign capital inflows into Nigeria are diverted to cryptocurrency markets with zero regulation, according to The Nation.
Keripe said the Nigerian cryptocurrency market records over N2.2 billion daily turnover. The market, he added, remains vibrant where upwardly mobile and youths earn income but is unregulated. He said Nigeria lacks digital assets needed for effective monitoring and regulation that would enable Nigeria regulators to track crypto exchanges across the world.
He said: The Nigeria Stock Exchange records an average of N2 billion daily transactions, the cryptocurrency market is in excess of that, and Nigeria is the biggest crypto market in Africa. Nigeria has sold over 600,000 Bitcoins in the last one year, with each Bitcoin worth about $38,000.
Keripe disclosed that funds, which previously entered the country as diaspora remittances are now flowing into the cryptocurrency market after CBN tightened policy mandating International Money Transfer Operators (IMTOs) to pay diaspora remittances beneficiaries in dollars.
In a statement on Sunday, (February 7), Osita Nwanisobi, Acting Director, Corporate Communications, CBN, who reacted to the controversies, clarified that the CBN circular of February 5, 2021 did not place any new restrictions on cryptocurrencies.
He recalled that all banks in the country had earlier been forbidden, through CBNs circular dated January 12, 2017, not to use, hold, trade and/or transact in cryptocurrencies.
Nwanisobi noted that the CBNs position on cryptocurrencies is not an outlier as many countries, central banks, international financial institutions, and distinguished investors and economists have also warned against its use.
In an e-mail sent to its customers on Friday and forwarded to Business Hallmark, First Bank Nigeria Limited stated that In line with the CBN directives, any account identified as transacting in or operating Cryptocurrency exchanges within its system will be closed accordingly.
The e-mail reads: Further to its earlier directives that dealing in Cryptocurrencies or facilitating payments for Cryptocurrency exchanges is prohibited, the Central Bank of Nigeria (CBN) has written the letter: BSD/DIR/GEN/LAB/14/001 dated 5 February 2021, to direct that all banks, non-bank financial institutions and other financial institutions should identify persons and/or entities transacting in or operating Cryptocurrency exchanges within their systems and ensure that such accounts are closed immediately.
In line with the Central Bank of Nigeria directives, please be informed that any account identified as transacting in or operating Cryptocurrency exchanges within our system will be closed accordingly.
We assure you of our continued support as we thank you for banking with us.
Confirming the enforcement, the founder and lead partner, Cryptopreacher Blockchain Academy, Rume Ophi, reportedly said commercial banks had notified cryptocurrency traders about the CBNs directive and subsequent account closure.
She said with the accounts closed, the traders were trading outside the exchange platforms because they could no longer make payments through channels connected to the financial system.
The banks are already sending us messages that they will no longer process Bitcoin payments. I have funds in my platform, and I do not intend changing it to naira anytime soon because of what is happening. I will leave the funds for a very long time. I know that from now to the next 10 years, the naira will continue to depreciate. It happened in Kenya, and that same plan was adopted and its working, she said.
Ophi recalled that the cryptocurrency traders in January met with Securities and Exchange Commission (SEC) on how to regulate their operations, only to be hit by the CBN clampdown.
I think the government is not seeing reality in the world of today. This is technology, and you cannot fight technology. Agreed that technology has its bad side, they are supposed to be advised appropriately. SEC recognises cryptocurrency as a financial instrument. I was part of the committee that met SEC about a month ago, to look at how regulations can be brought in. Little did we know that the CBN will come and clampdown on us, she said.
However, SEC has announced on Thursday it has put plans to regulate cryptocurrencies on hold in light of the CBNs decision to ban them.
For the purpose of admittance into the SEC regulatory incubation framework, the assessment of all persons and products affected by the CBN circular of Feb. 5, 2021, is hereby put on hold until such persons are able to operate bank accounts within the Nigerian banking system, the SEC said in a statement.
Meanwhile, one of the largest cryptocurrency exchanges by market volume, Binance has removed naira from its trading pairs.
In a statement posted on its website, Binance advised users to transfer their peer-topper wallet for transactions.
Binance will remove and cease trading on the following trading pairs at 2021-02-09 12:00 PM (UTC): BNB/NGN, BUSD/NGN, DOT/NGN, ETH/NGN, LINK/NGN, LTC/NGN, TRX/NGN, XRP/NGN.
Continuing, it said NGN is fiat currency and does not represent any other digital currencies, adding that cryptocurrency trading is subject to high market risk.
Please make your trades cautiously. Binance will make best efforts to choose high-quality coins, but will not be responsible for your trading losses, it advised traders.