Table of Contents
The Central Bank of Nigeria (CBN) has banned financial institutions from settling cryptocurrency transactions. Thus outlawing the usage of Bitcoin in the country, despite recent changes to SEC legislation after more than 19 months. Citizens have continued to adopt and use Bitcoin significantly, and it has established itself as a digital asset.
How Will the Latest Regulation in Nigeria Affect Bitcoin?
The SEC of Nigeria published a set of rules on May 2022 to control the issuance, trade, and storage of digital assets. These new digital asset regulations aim to resolve many of the perceived issues in the Nigerian cryptocurrency sector. Just as SEC promised on September 14, 2020.
According to reports, the long-awaited rule is an attempt to control how digital assets are used in Nigeria. The regulatory guidance describes the laws governing cryptocurrencies other than BTC, including the creation of new digital assets. However, the word “Bitcoin” does not appear in the text.
Some of the new regulations do, however, apply to businesses that are thought to provide Bitcoin services to their clients. But might also provide services involving other cryptocurrencies. Companies like Virtual Asset Service Providers (VASP), Digital Asset Offering Platforms (DAOP), Digital Asset Administrators (DAC), and Digital Asset Exchanges (DAX) are listed as qualifying entities under the rule.
The SEC added that it would allow a DAOP operator. Only if they could show documentation of their 500 million Naira “minimum paid-up capital” and a current fidelity guarantee covering at least 25% of that capital.
If the functioning of a digital asset is against public policy, endangers investors, or otherwise breaches laws, rules, and regulations, the SEC may also reject the application for registration of the asset. In order to ensure that digital assets or securities have the appropriate regulatory liquidity, the Commission additionally said that the rules may be periodically reviewed.
There are worries about the consequences if this legislation obtains traction, especially in countries where BTC use is growing. This regulation may open the door for a progressive lifting of CBN prohibitions. By implementing know-your-customer policies and keeping track of transactions performed on exchange platforms, it is possible that Bitcoin transactions would be suppressed.
As a result, this might prevent Bitcoin enthusiasts from utilising regulated cryptocurrency exchanges. Because it goes against the fundamental privacy and decentralisation that many people find attractive about Bitcoin.
Bitcoin and the Continued CBN Ban
Since the CBN ordered the ban of accounts that offered cryptocurrency-related operations, financial institutions have been forbidden from aiding transactions linked to cryptocurrencies. The decision was made when Bitcoin (BTC) was experiencing a major price increase and a large influx of new users.
The Bitcoin ban in Nigeria, as CBN clarified, restricted financial institutions from investing in the cryptocurrency market rather than prohibiting cryptocurrency-related operations within the country. The action has been characterised by many as CBN’s attempt to stop system collapses. Especially if financial institutions start investing more heavily in the highly volatile cryptocurrency industry.
Conflicting responses were prompted by various industry experts who felt that CBN’s mandate was bad. This left the SEC vulnerable to its rules and regulations. Although the SEC has now fulfilled its promise to introduce regulatory guidelines on the handling of digital assets. The introduction of this new regulation does not prohibit financial institutions from facilitating cryptocurrency-related transactions.
Nigeria introduced eNaira, a Central Bank Digital Currency (CBDC), in October 2021 to make it easier to utilise Naira online. Even though it is built on blockchain technology, the eNaira is very different from Bitcoin. This includes the fact that it gets its worth from a digital form of Naira rather than from a financial asset per se.
Despite Bitcoin’s rising popularity in Nigeria, the country’s official position has not altered. And the CBN Bitcoin ban in Nigeria is still in place.
Bitcoin Has Thrived in Nigeria Regardless of the Regulation
The Bitcoin ban in Nigeria on economic enterprises made it difficult for individuals and organisations to perform cryptocurrency transactions. Despite this, Bitcoin has flourished in Nigeria.
It has been determined by statistics from Paxful and LocalBitcoins that Nigeria records an abnormal number of peer-to-peer transactions. Also supported by data is the fact that Nigeria had a 15% year-over-year increase in P2P Bitcoin trading following the crucial bank ban.
The Bitcoin price has managed to stay afloat despite the gloomy nation and is showing several signs of recovery. Additionally, this has sparked a public outcry in Nigeria for the formal approval of Bitcoin use by a number of the country’s economic institutions.
If Bitcoin continues to be a successful innovation in the years to come, CBN may decide to buck the trend. And eliminate the restriction on domestic financial institutions. But until that happens, SEC regulation is only a guide for bringing stability and regulation to the Nigerian Bitcoin market.