The situation for cryptocurrencies in Nigeria: between regulation and controversies

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The Central Bank of Nigeria (CBN) has recently found itself at the center of a heated controversy related to crypto regulation, after issuing a directive that has sparked contrasting reactions among industry players.

This directive requires all banks and financial institutions to identify individuals or entities that carry out transactions with cryptocurrency exchanges, applying a Post No Debit (PND) instruction to them for six months.

Dichotomies in crypto regulation in Nigeria

An NPD instruction limits the account holder from making debit transactions, effectively freezing the movement of funds for the specified period. This move is seen as an attempt to curb cryptocurrency transactions, especially those made through peer-to-peer (P2P) methods, which the CBN argues could be used for illegal activities, including the purchase and sale of USDT (Tether) in an unregulated manner.

The circular issued by the CBN seems to go against previous policies. In fact, in December 2023, a ban that prohibited banks from facilitating transactions for cryptocurrency exchanges was revoked, a policy introduced almost two years earlier.

However, the escalation of the devaluation of the local currency, the naira, and an inflation rate that has reached 29.9%, have pushed the government to reconsider its position on cryptocurrency platforms. The CBN has disabled websites associated with cryptocurrency trading, which had become known for establishing informal valuations of the naira, perceived as a threat to the financial stability of the country.

Binance Case in Nigeria

An emblematic example of the tensions at play is the case of Binance, one of the largest cryptocurrency exchanges in the world, which has undergone significant scrutiny by the CBN. The Central Bank has raised concerns about “suspicious financial transactions” that allegedly occurred through Binance Nigeria in 2023. According to CBN chief Olayemi Cardoso, approximately 26 billion dollars flowed through Nigeria via Binance that year, originating from unidentified sources and users.

The Binance executive, Tigran Gambaryan, based in the United States, is detained in Nigeria, and now faces five charges related to money laundering following meetings with Nigerian officials on regulatory compliance.

Facing growing criticism and accusations of unjustified freezing of accounts related to cryptocurrencies, the CBN has had to publicly deny such claims. The Bank argues that its actions are guided by the need to protect the integrity of the Nigerian financial system and to prevent illicit activities that could be disguised under the cover of crypto transactions.

Final reflections on crypto regulation in Nigeria

The situation in Nigeria reflects a broader dilemma that many governments are facing: how to balance the opportunities offered by cryptocurrencies with the need to prevent financial and criminal risks. 

The response from Nigeria, with its recent directive and freezing of suspicious accounts, suggests an approach of caution and strict control, but also raises questions about how such measures impact legitimate users and the future of crypto trading in the country.

The evolution of these policies will be crucial not only for investors and operators in the cryptocurrency sector, but also for Nigeria’s position in the global financial landscape.