Crypto still thriving in Nigeria – despite recent challenges

Nigeria, the most populated country in Africa, is one of the most popular homes of crypto in the world. And this remains so, even though the Nigerian government has not been particularly crypto-friendly recently. Restrictions are being imposed frequently.

Nigeria’s usage of cryptocurrency is the highest in Africa. The growth rate over the past years has been around 9 percent. Of the half dozen or so countries that have reported constant growth since 2021, Nigeria’s growth rate is actually in third place – in the world.

But in early 2021, the Central Bank of Nigeria barred banks and financial institutions from dealing in crypto assets or facilitating crypto transactions. The official reason for this was money laundering and terrorism financing risks. 

However, moving into 2024, the Central Bank of Nigeria has dropped its restrictions on banks and financial institutions facilitating cryptocurrency transactions.

“Current trends globally have shown that there is a need to regulate the activities of virtual assets service providers (VASPs) which include cryptocurrencies and crypto assets”, according to the Central Bank of Nigeria director of financial policy and regulation, Haruna Mustafa.        

But the crypto market situation in Nigeria is still very volatile! And there is a wider picture that needs to be seen and understood here. What is the background then, to the popularity of crypto in Nigeria – and the government’s rather serious issues with it?

First of all, Nigeria is not only the largest but also one of the fastest-growing populations in Africa. The population is currently estimated to be around 225 million people, but this is not even the key factor here. Rather, it is the fact that around 45 percent of the population is estimated to be 15 years or younger, which presents the base of the crypto growing ground. The young and tech-savvy population can exploit the falling prices of devices like smartphones, to access new technologies, and actually, about one-third of Nigerians between 18 and 60 years old are estimated to be investing in or trading cryptocurrencies.         

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But since 2016, Nigeria has gone through more than one economic recession, caused not only by falling oil prices but also other long-term economic challenges.

This has in turn fuelled inflation, and contributed to a lack of access to more traditional forms of finance.

And this circumstance has also made less conventional transaction formats – like crypto – more attractive.

The crypto situation in Nigeria needs to be followed very closely, for those interested in the market. For example, in February 2024, The Financial Times reported that the Nigerian authorities had blocked some of the world’s largest cryptocurrency exchanges amidst the Nigerian currency, the naira, falling to record lows. Telecoms companies were for example ordered to restrict consumer access to the sites of companies like Binance, Coinbase, and Kraken.

The naira has been devalued twice in around eight months. At the start of January, the naira rate to the dollar was less than 900. Towards the end of February, the rate was 1600 naira to the dollar.  

One aspect that is worrying authorities in Nigeria, is the fact that despite digital assets remaining an interest that is mainly confined to young investors, Nigeria is now second only to India, for the amount of private wealth being stored in cryptocurrency. This is according to data provider Chainalysis.

Operators in Nigeria dealing in crypto have to tread very carefully, though. For example, earlier this month, the BBC and other media outlets reported that the Nigerian government demanded almost 10 billion dollars in compensation from the cryptocurrency firm Binance.

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The government claim is that Binance has manipulated foreign exchange rates through currency speculation and rate-fixing, which have seen the naira lose almost 70 percent of its value.

Binance has for some time been one of the most popular cryptocurrency platforms in Nigeria. But Binance is now blamed for being one of the platforms that has been feeding a black market for foreign exchange, and will now have to stop all transactions and trading in the naira.

According to the Reuters News Agency, cryptocurrency transactions the equivalent of 12 per cent of Nigeria’s GDP took place last year, up to June 2023.

But, and this is a big b-u-t: The impact of government regulations going forward, will of course be massive. So what gives, then? What is the future of cryptocurrency in Nigeria?

One thing that is quite obvious, is that the role of the Nigerian governmental agencies will be very influential.

The Central Bank of Nigeria (CBN), The Securities and Exchange Commission (SEC), and the Federal Inland Revenue Service (FIRS) are all likely to come up with regulations that will affect crypto-friendly users not only in the coming years but perhaps even in the coming months!

There are many positives going forward though, for those believing in the crypto market in Nigeria.

One is that the social acceptance of crypto in Nigeria is already very high. So-called “peer-to-peer” payments and remittances are already being conducted in crypto. And the popularity of crypto in Nigeria in general, indicates that it should be just a matter of years before crypto will be accepted as legal tender by supermarkets, online marketplaces and other companies and corporations dealing in day-to-day transactions.

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Also, it is a well-known fact that cryptocurrency investment is an enabler for people residing in countries with weak currencies, to make better returns on investment, compared to using traditional investment methods. One example is the betting industry, where cryptobetting firms have been experiencing significant growth lately.

And for small and medium-sized enterprises in Nigeria, so-called SMEs, Initial Coin Offerings (ICOs) can prove to be very useful. ICOs are a blockchain-based means of raising funds through crypto. This works by investors using cryptocurrencies to purchase security tokens from the companies seeking the investment. This can be compared to IPO (Initial Public Offering), where companies list their shares on a stock exchange, to raise funds from the investors.

Also, cryptocurrency is likely to become more popular as a means of cross-border payments, since traditional methods for this, like SWIFT, are slow and also come with a transaction cost.

So, despite the current rather harsh scrutiny of crypto platforms in Nigeria from the government and government agencies, the pros may still outweigh the cons. Even if the naira should continue to struggle, as for many people crypto provides an outlet from being entirely reliant on cash transactions and the national currency.

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