Nigeria’s Crypto Ban Fuels Mistrust in Government
A central bank ban on crypto transactions is at odds with the government’s goal to build a digital economy around blockchain technology.
Nigeria is committed to building its digital economy, but the central bank’s recent cryptocurrency prohibition counteracts this goal and fuels mistrust of the government.
“Governments and businesses all over the world are realizing the powerful potential usability of blockchain… Nigeria, however, is lagging due to the government institutions’ sore-footedness and refractory approach to this undeniably ingenious innovation.”
So states the draft National Blockchain Adoption Strategy released by Nigeria’s National Information Technology Development Agency (NITDA) in October 2020. The strategy makes the case for Nigeria’s adoption of blockchain technology, including digital currencies, to build a digital economy.
Yet, on February 5, many Nigerians were surprised and angered when the Central Bank of Nigeria (CBN) announced a ban on the exchange of cryptocurrency by financial institutions and directed banks to close accounts trading in crypto.
Although CBN said its policy is a reiteration of a 2017 circular warning financial institutions about virtual currencies’ risks, this announcement is at odds with its efforts toward digital transformation. Following the announcement, the Security and Exchange Commission (SEC) paused its regulatory review of crypto pending CBN clarification. Meanwhile, the Senate has invited the heads of CBN and the SEC to brief them on this decision.
As oil prices tumbled in 2020, taking Nigeria’s forex reserves and the value of the Naira with them, Nigeria entered a recession, and inflation stood at nearly 16% as of December. CBN has pursued several avenues for increasing forex liquidity in Nigeria, including requiring International Money Transfer Operators to distribute remittances in USD instead of Naira, cracking down on exporters who do not repatriate revenue, and restricting the use of forex for some imports.
Restrictions on foreign spending have led some banks to limit monthly foreign transactions to as low as $100 a month. Direct remittances to Nigeria also dropped over 97% between January to September 2020, increasing the squeeze on forex.
CBN devalued the Naira twice last year, and the high cost of moving money into Nigeria has led Nigerians to seek alternatives through cryptocurrency. Nigeria is the world’s second-largest peer-to-peer (P2P) bitcoin market and the largest in Africa. Crypto trading, which totaled $566 million from 2015-2020, has increased yearly since 2015, with a jump of 30% in 2020.
Driving the crypto market’s growth is users tapping into crypto as a payment, investment, and trading tool amid increasing difficulties in accessing forex and the desire to hedge the value of funds. While the COVID-19 pandemic likely plays a significant role in the remittance decline, members of the diaspora are increasingly turning to cryptocurrency to send money and avoid stiff fees and the high CBN exchange rate that reduces the value of the exchange by up to 20-30%.
The crypto exchange platform, Yellow Card, reported growth of 1,840% in remittances processed on its platform in 2020, with Nigeria making up more than 50% of its users. This increase in cryptocurrency usage tracks with the overall growth of Nigeria’s Fintech sector.
Nigeria’s digital transformation
In Nigeria, the government has made concerted efforts toward streamlining and developing policy frameworks and national strategies to advance its digital transformation. President Buhari redesignated the Ministry of Communications as the Ministry of Communications and Digital Economy (FMoCDE) in 2019 and moved the National Identity Management Commission to this ministry.
Last year, FMoCDE released the eight pillar Digital Economy Policy and Strategy 2020-2030 and subsequently launched a Digital Nigeria skills development platform. In support of the digital strategy, the NITDA released the draft National Adoption Blockchain Strategy, and in September 2020, the SEC released its position confirming cryptocurrency as a security. As recently as January 2021, the CBN announced its regulatory fintech sandbox framework.
In light of Nigeria’s efforts to advance its digital economy agenda, the crypto decision seems counterproductive and reactive. While the crypto ban has led to an initial chill, with banks closing accounts and some owners withdrawing their funds, it is unlikely to impact crypto’s growth.
Instead, users may move to P2P trading platforms that facilitate trading without an intermediary and allow non-fiat payment methods. Already, there has been an almost 16% jump in Bitcoin usage for P2P lending since the announcement, and Binance, the world’s largest crypto exchange platform, recently introduced a new P2P option for Nigerians. Many Nigerians have attributed the decision to the CBN’s urgent need to inject and retain forex in the economy by any means. But if the goal was to increase forex or promote transparency, pushing users to P2P platforms undermines these aims.
Trust in government institutions has also taken a hit. Some view this as bureaucratic stifling of innovation or a desire to increase control and cut off a means of livelihood for many young Nigerians facing a projected unemployment rate of over 30% in 2021. The frustration expressed by Nigerians taps into a broader dissatisfaction with a government perceived as corrupt and non-responsive. The lack of public or industry consultation or policy coordination has reinforced this viewpoint, and Nigerians on Twitter launched a #WeWantOurCryptoBack campaign.
Others noted that political influence could be driving the decision after some #EndSARS protestors turned to cryptocurrency to raise funds when the government froze their bank accounts. CBN explained the decision by the need to protect consumers and counter the use of cryptocurrencies for criminal activities while emphasizing that the decision does not detract from the bank’s commitment to developing the fintech sector.
Enhanced policy coordination and consultation with the industry and users will be critical for the government to build trust, instill investor confidence, gain public buy-in, and push forward digital transformation.
Dogecoin Sheds 9.49 Percent as Crypto Market Tumbles
Dogecoin, a meme coin aggressively pushed by billionaire Elon Musk, plunged by 9.49 percent in the last 24 hours to 0.24853 a coin after hitting a record-high of $0.74 on May 8, 2021.
The coin that started as a joke has gained 5,180.84 percent from the year to date with the total supply hitting 129.97 billion.
In the last 24 hours, investors traded dogecoin worth $679.40 million at an average transaction fee of $0.639526.
Elon Musk had aggressively pushed dogecoin and at some point signals, Tesla could adopt the meme coin as payment for its products in replacement for the out of favour Bitcoin.
A large number of cryptocurrency investors blamed Elon Musk for the current downturn of the entire crypto space with Anonymous, a decentralized international activist/hacktivist collective/movement widely known for its various cyber attacks against several governments, government institutions and government agencies, calling him an opportunist with his overvalued product, Tesla.
The decision of Tesla to pull the plug on Bitcoin by halting its acceptance as payment for its vehicles kick-started the current bearish trend but it was escalated by China’s action – banning banks from facilitating cryptocurrency payments like Nigeria.
However, it would be extended by the Federal Reserve’s new hawkish stance as investors are expected to shift their investment interests from haven assets like gold, unregulated cryptocurrency and others to bonds and other dollar assets in general.
Coinbase Cofounder Issues Serious Crypto Price Warning As Bitcoin ‘Death Cross’ Fear Spreads
Bitcoin and cryptocurrency prices have struggled last week with the crypto market’s combined value slipping under $1.5 trillion—down from $2.5 trillion in May.
The bitcoin price, after getting an unexpected boost from Tesla billionaire Elon Musk last weekend, has resumed its decline over the last few days, falling back toward $30,000 per bitcoin.
Now, as bitcoin charts show the price 50-day moving average has fallen below the 200-day moving average—a pattern known as the “death cross”—Coinbase cofounder Fred Ehrsam has warned “most” cryptocurrencies and crypto-assets “won’t work” and “90 percent of NFTs” will have “little to no value in three to five years.”
Bitcoin’s “death cross,” despite its ominous name, appears to be a lagging price indicator. The last time the trading pattern occurred in March 2020, it heralded a huge bitcoin bull run that helped even smaller cryptocurrencies surge to all-time highs.
“People are going to try all sorts of things,” Ehrsam, who has gone on to found the blockchain investment firm Paradigm since leaving Coinbase in 2017, told Bloomberg this week, warning many of those smaller cryptocurrencies won’t survive. “There’ll be millions and millions of cryptocurrencies and crypto-assets, just like there were millions and millions of websites. Most of them won’t work.”
Coinbase, the San Francisco-based bitcoin and cryptocurrency exchange, went public this year at a huge $100 billion valuation but has since seen its market cap plummet, falling by a third amid waning interest among retail traders and global regulatory pressure.
Since bitcoin was created in 2009, thousands of cryptocurrencies have been created with crypto data provider CoinMarketCap currently counting just over 10,000 different coins.
Some, such as ethereum, the second-largest cryptocurrency after bitcoin with a market capitalization of $250 billion compared to bitcoin’s $660 billion, have established themselves as cryptocurrency mainstays—while others including EOS and, more recently internet computer, have made splashy debuts only to fade away over time.
Internet computer’s ICP token is down over 90 percent from its all-time high price set shortly after its launch in May, while EOS, which made headlines when it raised $4.1 billion ahead of its launch in 2018, is trading 80 percent lower.
Ehrsam also warned against investors betting on NFTs (non-fungible tokens). The popularity of NFTs, that use cryptocurrency technology to allow all manner of digital real estate from artwork to tweets, memes and YouTube videos, to be tokenized and sold via a blockchain, has exploded over the last few months—though data suggests the market is already significantly down on its early-May peak.
Banking Giant BBVA Opens Bitcoin Trading and Custody Service in Switzerland
Spanish banking giant BBVA’s swiss entity, BBVA Switzerland, has started offering bitcoin trading and custody services.
Announcing the news on Friday, BBVA Switzerland said the services will be available to all of its private banking clients from Monday, June 21. The launch comes six months after the bank began trialing the services in Switzerland.
“This gradual roll-out has allowed BBVA Switzerland to test the service’s operations, strengthen security and, above all, detect that there is a significant desire among investors for crypto-assets or digital assets as a way of diversifying their portfolios, despite their volatility and high risk,” said Alfonso Gomez, CEO of BBVA Switzerland.
While the bank currently only supports bitcoin, it said the aim is to also offer other cryptocurrencies in the future. As for the launch of the services in other countries, BBVA Switzerland said that would depend on maturity, demand, and regulation in those markets.
BBVA said its bitcoin services are novel as clients can manage their investments alongside traditional assets in the same portfolio. Customers willing to convert their bitcoin into fiat and vice versa can do so “without delays and without the illiquidity that affects other digital wallets or independent brokers,” said BBVA. That’s because the bank operates with several sources for converting cryptocurrencies, it said, without disclosing those sources.
BBVA’s services come as more mega-banks open up to the crypto space. In recent weeks, Goldman Sachs, Morgan Stanley, Bank of New York Mellon, and other financial institutions have moved to provide crypto services to their clients.
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