Macro Analysis /
Nigeria

Nigeria's crypto ban might be about to end

  • Crypto activity continues to grow in Nigeria, despite the central bank's ban

  • Nigeria's SEC has issued rules for digital assets, indicating official recognition and acceptance of the asset class

  • The continued increase in crypto activity and the SEC's policy stance indicate time is running out for the ban

Nigeria's crypto ban might be about to end
Ayobami Omole
Ayobami Omole

Research Analyst

Tellimer Research
15 June 2022
Published by

The Nigerian Securities and Exchange Commission (SEC) recently released regulations on the use and ownership of digital assets, including cryptocurrency.

But the overall regulatory stance on crypto in Nigeria remains unclear, with the Central Bank of Nigeria (CBN) still banning financial institutions under its purview from dealing in crypto and facilitating payments for crypto exchanges.

In this report, we discuss the possibility of full acceptance of crypto in Nigeria. 

CBN's failure

It is no longer news that Nigeria is a hotspot for crypto activity, ranking sixth in Chainanalysis' 2021 Global Crypto Adoption Index. Beyond the liquidity-bolstered rise in crypto transactions worldwide, Nigerians have found crypto to be an essential tool for cross-border transactions, given the CBN's FX restrictions.

For example, banking customers are not allowed to perform dollar transactions of more than US$50 using their naira cards, forcing many people to use the virtual cards offered by fintechs and other crypto start-ups. And young Nigerians have also resorted to keeping their wealth in stable coins as the naira continues to depreciate.

The CBN has tried to curb this trend by prohibiting financial institutions from dealing in crypto and from facilitating payments for crypto exchanges, telling institutions to close the accounts of individuals dealing in crypto. However, crypto adoption continues to grow as Nigerians double down on peer-to-peer (P2P) transaction methods.

The CBN also launched the e-naira, a central bank digital currency (CBDC), to reduce crypto transaction volume in the country, but usage has been low – the e-naira fails to provide an extra layer of convenience over a bank debit card or app.

SEC's positive stance

Globally, the regulation of digital assets is becoming increasingly widespread as digital asset adoption grows. Nigeria joins a diverse set of countries such as the UAE, the Netherlands, Ukraine and the Central African Republic, among many others, in coming up with such rules. We believe this is very positive for consumer protection.

SEC Nigeria's categories for virtual assets or instruments

Is the CBN's ineffective ban soon coming to an end?

A few weeks after the SEC published its new regulations, the CBN sent Nigerian banks a reminder that crypto transactions through Nigerian bank accounts remain prohibited. Ie, although the SEC is regulating digital assets, effectively allowing some crypto activity, the CBN's ban remains in place.

Leaving aside from that disparity, the ban has had little effect in discouraging crypto transactions. Instead, as we predicted, the prohibition has shifted crypto trading to more decentralised platforms and encouraged the use of P2P features on centralised apps.

The truth about the CBN's ban on crypto trading is that it was an attempt to reduce demand for FX. As interest in crypto grows, more Nigerians are willing to trade by depositing local currency in these platforms, which convert the naira to the US dollar, likely in the parallel market, before obtaining BTC. As a result, these actions are adding to the demand for FX and, by extension, putting negative pressure on the naira, which the CBN has been keen on protecting.

But the past few months have shown that the CBN's strategy has been a total failure, with the differential between the parallel market exchange rate and the official rate continuing to widen.

NGN/US$ exchange rates

We believe that the SEC's regulations might be the first step towards Nigeria fully accepting crypto activity, although perhaps not in the near future, as it takes away a lot of control from the government. One indication of the path Nigeria might take is that many other countries are regulating digital assets in a way that reduces anonymity and requires intermediaries to report activity to the authorities.

That being said, as with many other of the CBN's policies, the end of the ban on crypto might coincide with the end of the CBN governor's tenure in 2024.

Related reading

Nigeria's SEC steps in to oversee the country's crypto boom (Busola Jeje and Janet Ogunkoya, 2020)

Nigeria's crypto crackdown creates more problems than it solves ( Busola Jeje and Ayobami Omole, 2021)

Bitcoin rally to drive central bank digital currency .. even before the collapse (Paul Domjan, 2021)

Central bank digital currencies to disrupt global banking models in 2022 (Busola Jeje, 2021)