- Traders go offline
Cryptocurrency traders have commenced offline operations outside approved exchange platforms following the Central Bank of Nigeria (CBN) directive that banks close their accounts.
The founder and leader, Cryptopreacher Blockchain Academy, Rume Ophi, yesterday, said commercial banks had notified cryptocurrency traders about the CBN’s directive and subsequent account closure.
The CBN had on Friday, directed Deposit Money Banks (DMBs), Other Financial Institutions (OFIs) and Non-Bank Financial Institutions (NBFIs) local financial institutions to close accounts belonging to crypto currency operators.
According to The Nation, she said with the accounts closed, the traders were trading outside the exchange platforms because they could no longer make payments through channels connected to the financial system.
“The banks are already sending us messages that they will no longer process Bitcoin payments. I have funds in my platform, and I do not intend changing it to naira anytime soon because of what is happening. I will leave the funds for a very long time. I know that from now to the next 10 years, the naira will continue to depreciate. It happened in Kenya, and that same plan was adopted and its working,” he said.
Ophi said the cryptocurrency traders in January met with Securities and Exchange Commission (SEC) on how to regulate their operations, only to be hit by the CBN clampdown.
“I think the government is not seeing reality in the world of today. This is technology, and you cannot fight technology. Agreed that technology has its bad side, they are supposed to be advised appropriately. SEC recognises cryptocurrency as a financial instrument. I was part of the committee that met SEC about a month ago, to look at how regulations can be brought in. Little did we know that the CBN will come and clampdown on us,” he said.
She said the steps taken by CBN would make it difficult for crypto investors to come to Nigeria, and foreign investors would no longer be putting Crypto Exchange Platform in the country. Also, those that already have exchange platform in Nigeria would be affected.
“We cannot process withdrawal and deposit using our platforms anymore, or through third party platform like Paystack or Flutterwave. But transactions will still go on, though it will be offline. This is not going to be easy for new entrants into the business, and new people may not come in,” she stated.
Continuing, Ophi said: “One of my customers just requested for $400, he will send me the naira equivalent of $400 and I will send him the Bitcoin. But previously, the transactions would pass through the trading platform and payment made through the banks.
“Also, before now, the customer would simply load his card with naira and pay through the platform. The transactions will now be happening outside the trading platforms, that’s how it was before the platform came into the country. The payment platform gives leverage to a lot of young people. New entrants believe their money is safe when they use the bank to process payment, but that is no longer happening after the CBN clampdown”.
Meanwhile, one of the largest cryptocurrency exchanges by market volume, Binance has removed naira from its trading pairs.
In a statement posted on its website, Binance advised users to transfer their peer-topper wallet for transactions.
“Binance will remove and cease trading on the following trading pairs at 2021-02-09 12:00 PM (UTC): BNB/NGN, BUSD/NGN, DOT/NGN, ETH/NGN, LINK/NGN, LTC/NGN, TRX/NGN, XRP/NGN.
Continuing, it said NGN is fiat currency and does not represent any other digital currencies, adding that cryptocurrency trading is subject to high market risk.
“Please make your trades cautiously. Binance will make best efforts to choose high-quality coins, but will not be responsible for your trading losses,” it advised traders.
Why Nigeria Banned Cryptocurrency – CBN
As reported by The Radiance on Monday under the above headline, while reacting to condemnations trailing its directive to Deposit Money Banks, DMBs, to desist from transacting in Cryptocurrencies, Nigeria’s apex bank, the Central Bank of Nigeria, CBN, had explained reasons for the ban.
In a statement on Sunday, Osita Nwanisobi, Acting Director, Corporate Communications, clarified that the CBN circular of February 5, 2021 did not place any new restrictions on cryptocurrencies.
He recalled that all banks in the country had earlier been forbidden, through CBN’s circular dated January 12, 2017, not to use, hold, trade and/or transact in cryptocurrencies.
Nwanisobi noted that the CBN’s position on cryptocurrencies is not an outlier as many countries, central banks, international financial institutions, and distinguished investors and economists have also warned against its use.
He said China, Canada, Taiwan, Indonesia, Algeria, Egypt, Morocco, Bolivia, Kyrgyzstan, Ecuador, Saudi Arabia, Jordan, Iran, Bangladesh, Nepal and Cambodia have all placed certain level of restrictions on financial institutions facilitating cryptocurrency transactions.
CBN said in China, cryptocurrencies are completely banned and all exchanges closed as well.
Nwanisobi said even famed investor Warren Buffett has called cryptocurrencies “rat poison squared,” a “mirage,” and a “gambling device.”
“Mr. Buffett believes it is a “gambling device” given that they are mostly valuable because the person buying it does so, not as a means of payment; but in the hope they can sell it for even more than what they paid at some point.
During an online forum hosted by the Davos-based World Economic Forum few weeks ago, Andrew Bailey, the Governor of the Bank of England, highlighted the extreme price volatility of cryptocurrencies as one of the biggest flaws and explained that this flaw makes it impossible for them to be used as a lasting means of payment.
“It is not surprising he would take that position because, Bitcoin, the best-known cryptocurrency, hit a record high of $42,000 per unit on January 8, 2021, and sank as low as $28,800 about two weeks later. This is far greater volatility than is found with normal currencies.”
Nwanisobi said first, in light of the fact that they are issued by unregulated and unlicensed entities, their use in Nigeria goes against the key mandates of the CBN, as enshrined in the CBN Act (2007), as the issuer of legal tender in Nigeria.
In effect, the use of cryptocurrencies in Nigeria is a direct contravention of existing law.
He highlighted the critical between a Central Bank issued Digital Currency and cryptocurrencies, adding that as the names imply, while Central Banks can issue Digital Currencies, cryptocurrencies are issued by unknown and unregulated entities.
“Second, the very name and nature of “cryptocurrencies” suggests that its patrons and users value anonymity, obscurity, and concealment.
“The question that one may need to ask therefore is, why any entity would disguise its transactions if they were legal. It is on the basis of this opacity that cryptocurrencies have become well-suited for conducting many illegal activities including money laundering, terrorism financing, purchase of small arms and light weapons, and tax evasion.
“Indeed, many banks and investors who place a high value on reputation have been turned off from cryptocurrencies because of the damaging effects of the widespread use of cryptocurrencies for illegal activities.
“In fact, the role of cryptocurrencies in the purchase of hard and illegal drugs on the darknet website called “Silk Road” is well known. They have also been recent reports that cryptocurrencies have been used to finance terror plots, further damaging its image as a legitimate means of exchange.
“More also, repeated and recent evidence now suggests that some cryptocurrencies have become more widely used as speculative assets rather than as means of payment, thus explaining the significant volatility and variability in their prices. Because the total number of Bitcoins that would ever be issued is fixed (only 21 million will ever be created), new issuances are predetermined at a gradually decelerating pace.
“This limited supply has created a perverse incentive that encourages users to stockpile them in the hope that their prices rise. Unfortunately, with a conglomeration of desperate, disparate, and unregulated actors comes unprecedented price volatility that have threatened many sophisticated financial systems.
“In fact, the price of ether, one of the largest cryptocurrencies in the world, fell from US$320 to US$0.10 in June 2017. The price of Bitcoins has also suffered similar volatilities.
“Given that unlike Fiat money, which is accompanied by full faith and comfort of a country or Central Bank, cryptocurrencies do not have any intrinsic value and do not generate returns by themselves.
“When one buys a stock, say of a conglomerate in the Nigeria Stock Exchange, its price reflects the activity and production of that conglomerate and the value people place on their goods and/or services. This price may rise as the conglomerate produces better goods/services and probably gains greater market share.
“The reverse would be true if the conglomerate does not innovate to improve the quality of its goods/services. In other words, the price of that stock reflects market fundamentals.
“In contrast, cryptocurrencies do not have fundamentals and would never have fundamentals. Investors only buy in the hope that its use and acceptability will rise, thereby pushing up its demand and price.
“But since new versions of cryptocurrencies come on stream with new mathematical models, an infinite supply may someday crash the price to zero.”
CBN stressed that its actions are not in any way, shape or form inimical to the development of FinTech or a technology-driven payment system.
The apex bank said to the contrary, the Nigerian payment system has evolved significantly over the last decade, leapfrogging many of its counterparts in emerging, frontier and advanced economies propelled by reforms driven by the CBN.
The statement said this was evident from the variety of participants, products, channels, cutting-edge technology in the payments system.
CBN said the system was validated by the astronomical growth of volume/value of transactions and the fact that Nigeria is an investment destination of choice for international financial technology companies because of CBN’s policies that have created an enabling investment environment in the payments system.
