Ali Yusuf, a 36-year-old Computer analyst felt he was losing out on the bullish run on the price of Ethereum, the second-largest cryptocurrency.
The price had set another all-time high on Thursday, rising to over $1,600 and Yusuf would do anything to get in on the action. But he needed to deposit money in his wallet on the Binance exchange. On Friday he commenced a transfer of N20,000 through his bank Stanbic IBTC. But the transaction could not go through as the bank responded by telling him to try another recipient.
“I abandoned the transaction after a third try and thought it was a network problem,” Yusuf told BusinessDay.
But it’s no network problem and Yusuf will not be able to buy that Ethereum asset in the foreseeable future. That’s after the Central Bank of Nigeria said its 2017 prohibition on cryptocurrency activities and exchanges remain unchanged. In fact, the apex has gone a step further to order banks to stop every financial relationship with cryptocurrency exchanges.
In a letter addressed to deposit money banks, non-bank financial institutions; other financial institutions, and members of the public, the apex bank said dealing in cryptocurrencies and facilitating payments for cryptocurrency exchanges is prohibited.
“Accordingly, all DMBs, NBFIs, OFIs are directed to identify persons and or entities transacting in or operating cryptocurrency within their systems and ensure that such accounts are closed immediately,” the letter signed by Bello Hassan, Director of Banking Supervision noted.
The CBN also threatened “severe” regulatory sanctions to operators that fail to comply with the directive.
According to a source in one of the cryptocurrency exchanges the directive will affect withdrawal and deposits into wallets.
By adding non-banking institutions, the CBN included payment gateways like Paystack and Flutterwave both of which facilitate the majority of cryptocurrency deposits and withdrawal activities in Nigeria.
Another source in another exchange who also pleaded anonymity to speak freely told BusinessDay that the directive doesn’t affect peer-to-peer (P2P) cryptocurrency transactions. According to a report from Paxful, Nigeria is the second largest market in the world in P2P.
Ophi Rume, a crypto expert told BusinessDay that the directive doesn’t affect users as much as it impacts exchanges.
“The exchanges platforms are the ones that will feel it. But it is a challenge for them to accept transactions. Some of us that are OTC do transactions offline. If you are in China, and I send you bitcoin and you pay into my naira account. I have suppliers that get bitcoin anywhere in the world. People will find a way around it,” Rume said.
While the CBN’s move doesn’t come as a surprise given it was almost the same stand it took in 2017, it however, seems to contradict the position of the Securities and Exchange Commission (SEC) which in 2020 said it has the power to regulate cryptocurrencies as “securities”. It went ahead to release a document that stated its position about the market.
Experts had seen the SEC’s document as a positive signal that the Nigerian government was finally ready to embrace the growing cryptocurrency market in Nigeria and around the world. Following in the SEC’s footsteps was the National Information Technology Development Agency (NITDA) which projected that it will make as much $6 billion by 2030 should the country leverage blockchain technology.
The agency’s positions partly sparked an increase in investors’ investments in 2020. Binance and Luno, the two leading cryptocurrency exchanges in the country poured more investments in education.
There are concerns that the CBN’s directive may reverse investors’ confidence in the crypto market.
But Rume says it is not just in crypto, that it will shake the confidence of foreign investors in the country.
“The technology behind cryptocurrency is bigger than any government. The take home is that the government has advertised cryptocurrency in Nigeria. People are now going to want to know what is this crypto about? It is going to affect investors coming into Nigeria because they will need to use banks,” he said.
A cryptocurrency expert who will not speak on record because of the sensitivity of the matter, said it may be a strategy by the CBN to get the exchanges to lobby and negotiate with it. It will be recalled that in 2017, the financial regulator had announced that it had put together a committee led by experts in the NDIC to understudy the crypto market. Three years after ,the bank is yet to disclose what the lessons of study were.
“I don’t think it is going to last for a long time,” the expert said. It is a long wait for customers like Yusuf.