Nigeria's Central Bank bans banks from facilitating crypto exchanges

Nigeria's central bank has directed deposit-taking banks and other financial entities to promptly close accounts dealing in or running cryptocurrency exchanges, stating that such investments are "prohibited." Failure to comply with the guideline would result in 'serious regulatory penalties,' according to a circular sent to financial institutions on Friday and published on the website of the central bank.

Though cryptocurrencies have been common in Nigeria, digital currencies came into national consciousness in October 2020 in demonstrations against police brutality which saw organizers accept Bitcoins for financing after the government allegedly blocked local payment channels to raise donations.

Another speculative reason for the ban...

In January, several crypto companies operating in Nigeria announced their number of transactions for 2020. Here are some of the interesting figures for 2020: Bundle announced that it had raised $23 million on its own in November 2020. Quidax was said to have an average of about $778,000 a day in November, too. Bushahub, Buycoins, and Bitsika—with an overall exchange value just over $400 million.

Since a large part of crypto transactions are remittances, it has always been a point of worry to a central bank that sees the regulation of remittances as a means of achieving its exchange rate goals.

What is the effect of the ban on crypto on Nigerians?

Although it does not criminalize the possession of crypto, the current circular makes it more difficult for ordinary citizens to own and sell. At a time when many countries are finding ways to mainstream bitcoin, Nigeria’s central bank has effectively taken the country back by more than a few steps.

The local crypto sector, which is also one of the most innovative in Africa, will also face significant ongoing scrutiny. After a good year in 2020, local crypto entrepreneurs were supposed to spread their wings and travel. Potential fundraising and acquisitions were also addressed at the beginning of the year. These plans will now be put on hold as start-ups battle the uncertainties of the current legislation.

Crypto startups have already confirmed that they are in touch with regulators to see if this problem can be addressed. 

Thanks to everyone who has reached out. We are fully aware of the newest CBN circular and are going to be working with regulators to ensure our services are compliant. All trading on our platforms continues as usual, and all user funds are safe.

— BuyCoins (@buycoins_africa) February 5, 2021

Hey Quidaxians,
We have seen CBN's new policy but don’t worry your funds are safe and trading continues as usual.
However, all Naira deposits have been temporarily paused as CBN’s policy affects our payments partners.
Thank you for your support.

— Quidax (@QuidaxAfrica) February 5, 2021

It goes without saying that the crypto community has taken a few steps back through this announcement. It would be a long path to rehabilitation and complete government recognition. However, these businesses have proven time and time again that they are able to come up with no solution. Both bets are on crypto firms to make things work.