More than a year since Nigeria banned bitcoin services, its SEC has released updated regulations. Will the bitcoin market be affected?
An order from the Central Bank of Nigeria (CBN) barring financial institutions from servicing cryptocurrency transactions, effectively “banning Bitcoin” in the country, withstands more than 16 months later, despite the Nigerian Security and Exchange Commission (SEC) recently releasing new regulations for digital assets and the continued significant adoption and use of Bitcoin in the country.
HOW WILL THE LATEST REGULATION IN NIGERIA IMPACT BITCOIN?
Last month, the Nigerian SEC released a set of regulations aimed at governing the issuance, exchange and custody of digital assets there. These new sets of digital assets regulations are a follow-up to a September 14, 2020 commitment to work on regulation that would solve many of the perceived problems with the cryptocurrency market in Nigeria.
The long-awaited regulation was purportedly a move to guide the use of digital assets in the country. The word “Bitcoin” does not appear in the rules document, and the regulatory guide outlines rules that would govern cryptocurrencies outside of BTC, including the issuance of new digital assets.
But some of the new rules would apply to businesses that presumably offer Bitcoin services to customers, though they may offer other cryptocurrency services as well. The regulation defined entities that qualify as digital asset actors to include digital asset offering platforms (DAOPs), digital asset custodians (DACs), virtual assets service providers (VASPs), and digital assets exchange (DAX). The SEC further stated that it would accommodate DAOP operators, so long as they tendered evidence of a “minimum paid up capital” of 500 million naira and a current fidelity bond covering at least 25 percent of the minimum paid-up capital.
The SEC also added that it might reject an application for registration of digital assets if its operation will be against public policy, be detrimental to investors, or violate any of its laws, rules and regulations. The commission further stated that the rules could be reviewed from time to time to arrive at the needed regulatory fluidity of digital assets or security.
While the regulation could set the path for a gradual loosening of CBN restrictions, it also raises concerns about the effect it would have when it gains traction, particularly for the growing use of BTC in the country. An expected outcome could be the stifling of bitcoin transactions, including know-your-customer rules and the tracking of transactions carried out on exchange platforms. Consequently, this could discourage Bitcoin enthusiasts from using regulated cryptocurrency exchanges, as it defies the essence of decentralization and anonymity, which attracts many to Bitcoin in the first place.
BITCOIN AND THE CONTINUED CBN BAN
It has been more than a year since CBN banned financial institutions from facilitating cryptocurrency-related transactions and further ordered that accounts serving cryptocurrency operations be shut down. This move came at a time when bitcoin was recording massive price gains, and the country’s population was turning to it en masse.
The ban, as the CBN explained at the time, did not outlaw cryptocurrency-related activity in the country, but rather the involvement of financial institutions in the cryptocurrency market. Many framed this move as CBN’s way of preventing a systemic failure, should financial institutions start to dabble deeply into the highly-volatile cryptocurrency market.
While the SEC has now fulfilled its promises of introducing regulatory guidelines for the treatment of digital assets, the introduction of this new regulation does not remove the ban on financial institutions facilitating cryptocurrency-related transactions. This gives insight into the mixed reactions elicited by several industry experts, who have opined that the authority of the CBN as the chief financial regulator in the country makes the SEC susceptible to its rules and regulations.
In October 2021, Nigeria launched the eNaira, a central bank digital currency (CBDC) in a bid to promote the digital use of the naira. While the eNaira runs on blockchain technology, it differs from bitcoin in many ways, including the fact that it is not in and of itself a financial asset, but rather a digital form of the naira from which it draws its value.
The continued ban from CBN and facilitation of the eNaira suggest that the country’s official stance on Bitcoin is not changing, despite its increasing adoption throughout Nigeria.
BITCOIN HAS THRIVED IN NIGERIA REGARDLESS OF REGULATION
While the ban on financial institutions made it difficult for individuals and entities alike to facilitate cryptocurrency transactions, Bitcoin has thrived in Nigeria nonetheless.
Data from Paxful and LocalBitcoins have demonstrated that Nigeria records high peer-to-peer (P2P) transactions. Data has also shown that Nigeria witnessed a 15% year-over-year increase in P2P trading of bitcoin after the central bank ban.
Despite the bearish state of the bitcoin price, it has managed to stay afloat and shows many indications of bouncing back. This has further spurred agitations from the Nigerian public for the formal legalization of bitcoin use among the country’s financial institutions.
With Bitcoin demonstrating itself as a technological innovation that will thrive well into the future, it is possible that the CBN will make a turnaround and lift this ban on financial institutions in the country. However, until that is achieved, the SEC regulation remains merely a blueprint to achieve some sort of regulation and stability in Nigeria’s cryptocurrency space.
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