According to news from BusinessDay, the Nigerian government has done a 180 and laid out some ground rules to allow cryptocurrency trading through a circular issued to all banks by the Central Bank of Nigeria (CBN) on Friday, December 22, 2023. This is coming after a two-year ban by a similar infamous circular from CBN that had everyone trading BTC under the table.

Regardless of the initial ban, Nigeria has witnessed a surge in the adoption of cryptocurrencies, especially among its young and tech-savvy population. With the ban in place, many of these individuals resorted to peer-to-peer trading offered by cryptocurrency exchanges, e.g. Binance.

It was a shocker to see that despite the ban, the volume of cryptocurrency transactions in Nigeria grew by 9% year over year to about $56.7 billion between July 2022 and June 2023 according to data from blockchain research firm- Chainalysis.

These statistics confirm that despite the ban in place, Nigerians maneuvered their way around to utilize cryptocurrency in conducting business, sending payments, as well as guarding their savings.

With the release of this new circular by CBN, what does it mean for Nigeria’s cryptocurrency industry? Is this the light at the end of the tunnel that everyone was waiting for or just another game by the govt to offer a glimmer of hope only to refute it again? What is the sentiment of Nigerians in the cryptocurrency space, experts, and businesses alike regarding this news?

Let’s explore all of these together.

2021 CBN Circular: Kiss Crypto Goodbye

With the void filled by lack of crypto regulation and fears of crypto being used as a money laundering scheme, whilst others used it to fit their businesses and as a means to financial freedom, the CBN stepped in with its infamous circular to issue the prohibition of Nigerian banks from backing cryptocurrency tied transactions. This circular meant to make people part ways with Cryptocurrency, also had some cons just as much as it had pros too.

Some businesses had to adjust and try to keep up with the changes brought about by the circular, whilst others had to completely shut down. However, just like a blessing in disguise– it brought about the growth of Nigeria’s P2P crypto market, which has now dominated the global cryptosophere.

Moving to November 2022, the Securities and Exchange Commission, Nigeria asserted that it had no plans of making cryptocurrencies a part of its digital asset trading goals until regulators can fully agree to standards that ensure it is safe for everyone.

During that time, the commission said it would only promote investments in digital assets that were sensible while also exploring blockchain technology as a means to drive traditional investments.

All of these clauses nonetheless, Chainalysis ranked Nigeria 1st based on its P2P exchange trade volumes, and 2nd for overall cryptocurrency adoption in its 2023 Global Crypto Adoption index report– an immense rise from the 17th and 11th rank it occupied in that category respectively in their report of 2022.

2023 CBN Circular: From Shadows to Sunshine

In a circular to all banks and financial institutions on Friday, the 22nd of December, 2023, with reference number FPR/DIR/PUB/CIR/002/003, the CBN communicated their "Guidelines On Operations of Bank Accounts For Virtual Assets Service Providers (VASPs)."

According to the CBN, global trends and guidelines from the Nigerian SEC were one of the reasons for lifting its previous restrictions on Bitcoin and other cryptocurrencies as well as an introduction of more clarity and guidelines for the activities of VASPs and digital assets.

These guidelines permitted activities between the diverse banks in the country, as well as fintech as it concerns opening accounts for virtual asset transactions and helping to promote foreign exchange inflows and trading of virtual assets. However, the CBN admonishes that the banks and fintechs are prohibited from holding, trading, or transacting with cryptocurrencies themselves.

This new regulation might just be a step by the Nigerian government in helping to provide better clarity for this industry that has been relegated to the shadows for years now. Now that the sun is shining bright for the Nigerian cryptocurrency industry, maybe it will become much more clear to the government how Bitcoin and other stablecoins can positively affect the Nigerian economy generally and the lives of the everyday Nigerian specifically.

Decoding the CBN's Impact On VASPs & Individuals in 2024: Boom or Bust?

Despite the CBN’s guidelines appearing as a step in a much more transparent regulation for virtual assets, it comes with stringent policies- Know Your Customer (KYC), Anti-money Laundering (AML), as well as a host of other checks, including the need for VASPs to obtain a license by the Nigerian SEC to operate bank accounts in Nigeria.

In Section 7.9 of the circular, there is a pertinent guideline that covers the currency to be used- "Transactions on VASPs and Digital Assets platforms shall only be in Naira" and other related guidelines that cover debit, credit, as well as settlement for FX positions on VASP platforms.

Furthermore, VASPs serving as exchanges in Nigeria have to adhere to the guidelines by the Nigerian SEC– meeting the minimum paid-up capital of N500 million (~$550,000), registration with the Nigerian Corporate Affairs Commission, and approval from the SEC to launch tokens.

As much as there appears to be agreement between the CBN and Nigerian SEC in regard harmonization of cryptocurrency regulations in Nigeria, there are still questions that remain unanswered.

Cryptocurrency is meant to give individuals freedom over their finances and help to promote decentralization- removal of a central party control; so what will be the effects of the KYC and AML guidelines, transaction limits for individuals, and VASPs, would individuals be required to declare their assets? Wouldn’t individuals’ anonymity be affected and decentralization breached? … the questions are unending.

As much as everyone expects that the regulations should usher in a boom in cryptocurrency adoption, the current state of the regulations is seemingly saying otherwise. However, before any conclusion can be made, it is best to wait for more clarity from CBN especially as banks and fintechs still have to implement the changes.

Fingers crossed that it doesn’t lead to a bust in the adoption of cryptocurrency in Nigeria.

Current Sentiments Regarding the New Regulations

There are currently mixed reactions regarding the new CBN regulations on the trading of virtual assets. For some, the Nigerian crypto ban hasn’t been truly lifted and is only a farce to show that some progress has been made.

According to a statement by Laolu Samuel Biyi, co-founder of Busha– Only a few fatal things like the T+3 settlement are updated. Some things aren’t clear yet and the SEC also excludes small players with its paid-up capital settlement requirement. However, Laolu feels the guideline is better than the narrative of a ‘crypto ban.’ (paraphrased)

For some economic experts, the decision to lift the restrictions on cryptocurrency is part of the minimal effort CBN is putting in to ease the pressure of naira losing value constantly. Another cryptocurrency expert has a negative sentiment about VASPs having to deposit 500 million naira to obtain a license and asserts that no VASP will do that.

Despite all the negative sentiments by cryptocurrency experts and individuals alike, Quidax- a cryptocurrency startup in Nigeria that provides ease in trading cryptocurrencies, is already leveraging on the relaxed ban by offering free deposits and withdrawals for their customers starting from December 24th, 2023.

In addition, Lasbery Oludimu- Yellow Card’s chief data protection officer is optimistic about the new policy. According to Lasbery, the guidelines bring clarity and will attract more users into the cryptocurrency space. (Yellow Card is s cryptocurrency company that allows users to send and receive money across Africa)

General Cryptocurrency Outlook For 2024: Wild West or Wall Street?

As we begin this new year– the year heralding the bull season– we will all watch to see the role Nigeria will play in the overall market dynamics of the cryptocurrency industry.

There is no doubt that this circular by the CBN will have effects that reverberate not just in Nigeria, but also beyond the shores of Africa into other continents as well.

If the result will be compared to the Wild West or Wall Street, we will get to find out.