Nigerians Turn to P2P Exchanges After Central Bank’s Crypto Ban

Crypto is Not Legal Tender in Nigeria

In 2017, it released a memo stating Bitcoin, and other cryptocurrencies were not legal tender in the country. While that communication indicated banks could deal with crypto – but at their own peril, last week’s directive seeks to completely take away their discretion to do so.

The CBN also gave an account justifying its decision, but many people are not buying it. Plus, Nigerians have been using crypto, and they’re not about to stop now.

Crypto in Nigeria

Via the release, the CBN stated they find “no comfort in cryptocurrencies at this time.” They may not, but Nigerians do and have been for a while now. According to data from Google trends, Nigerians flock to Google to search Bitcoin more than any other country in the world.

And in recent years, crypto has increasingly become the go-to currency for Nigerians living abroad for sending money back home. Businesses are also using Bitcoin as the medium of exchange in the import-heavy country to bypass international trade hurdles. As the central bank rations the US dollar, threatening many local businesses, Bitcoin more than comes in handy.

Last November, EndSARS protesters found a lifeline in Bitcoin when the government shuttered activists’ legacy financial channels.

A Closer Look at the Ban

In the letter, banks and other financial institutions were warned of “severe regulatory sanctions” for non-compliance. Following a global outcry, the bank released a five-page “justification” saying it was not placing new restrictions on crypto. Instead, it was reiterating its 2017 position that banks should not “use, hold, trade, and/or transact in cryptocurrencies.”

However, what they didn’t mention was the 2017 letter was by no means a ban but an exhortation to implement strict rules for cryptocurrency customers.

The CBN also said that by the mere fact that the central bank does not issue cryptocurrencies, their use is a “direct contravention of existing law.” It also resorted to debunked oldies – like cryptocurrencies have no intrinsic value and have “widespread use” for “illegal activities.” (Due to their anonymity/pseudonymity, cryptocurrencies have been used to conduct illegal activity. But so has cash.) CBN also said it was protecting “retail and unsophisticated investors” from potential losses due to crypto’s volatility.

The statement also had some eyebrow-raising highlights, like some of Warren Buffet’s past remarks about his no love for Bitcoin.

What’s Really Behind the Ban?

While the CBN has said its piece justifying the ban, some people believe other events triggered it. One of these could be the dramatic decline of remittances inflow in the past year. Data by Nairalytics shows a 97.3% decline in remittances between January and September 2020.

Remittances via traditional channels have nosedived from $2.05 billion to $54.4 million in just 9 months. Remittances are an important part of foreign exchange in an already foreign exchange-strapped country. This decline could be caused by a significant percentage of the Nigerian diaspora sending money back home via cryptocurrency. The central bank could be striking back in an attempt to rectify this undesirable course of events.

Another motivation could be as more Nigerians discover and start using crypto, it’s rendering the Nigerian naira weaker. In a Senate session after the ban, a senator complained about crypto making the Nigerian Naira “almost useless or valueless.”

The Reaction

After the ban, Nigerian crypto users took to Twitter to voice their displeasure with the hashtag #WeWantOurCryptoBack. The world’s biggest exchange by volume – Binance, as well as local payment app Bundle temporarily halted deposits.

The move also seems to be legally controversial. Lawyer Senator Iheyen of Infusion Lawyers told Techpoint Africa “no law in Nigeria criminalizes crypto” and that the action was “arbitrary.”

Also, there’s a growing sentiment that leading figures in the country’s space might need to start educating regulators about crypto.

P2P Trading for the Win

If the CBN thought they could ban crypto in Nigeria, then they’ll be in for a surprise. Crypto users are moving to peer-to-peer (P2P) platforms and going on with business as usual. For now, it’s impossible to buy crypto on Binance and other exchanges via Fiat on-ramps since banks and other payment partners have pulled out.

But users have another option: peer-to-peer markets. Binance’s peer-to-peer platform is one of such. Other options are Paxful and Localbitcoins.

Peer-to-peer transfers work this way: two users connect on a platform like Binance or even decentralized exchanges (DEXs) and transact directly. For example, a user wishing to buy Bitcoin or any other cryptocurrency will explore sellers’ options. They will then choose the most favorable offer and pay the seller via bank transfer or any other medium listed by the seller.

Binance CEO Changpeng Zhao (CZ) let crypto users know that they could convert their local currency to crypto and hold it. He adds that peer-to-peer trading could “likely flourish” after the ban. CZ’s statement was in response to a defiant reply by a Nigerian crypto user to his earlier tweet announcing the potential disruption of withdrawal services.

Twitter user Grant declared he could still trade via his Binance wallet. On Andreas Antonopoulos’s tweet reacting to the news, Nigerian crypto users responded with: “we continue buying Bitcoin,” “we will go P2P way,” and that the ban was even “expediting the inevitable.” Another user, @takinbo, informed his fellow crypto users that while the bank can shut their account, “no one can shut down your Bitcoin wallet.”

What This Means

Nigeria will now likely see a surge in P2P trading as users flock to these places to bypass the ban. It’s reminiscent of when Indians turned to P2P trading after the Reserve Bank of India’s order on banks to halt crypto dealings. This is the essence of crypto really – to have a financial model that can still thrive despite unfavorable and arbitrary decisions from governments.

Final Thoughts

The CBN can steamroll banks into stopping cryptocurrency transactions, but crypto’s heart will still beat in Nigeria. That’s because Nigerians are not about to let go of cryptocurrency – a choice and path out of the country’s flawed system. As banks and other financial institutions bow out, P2P exchanges are not.