Surviving a sucker punch

Afterburn Of CBN’s Sucker Punch: Nigeria’s Crypto Startups Stagger But Stand

By  |  February 9, 2021

2021 was supposed to be Nigeria’s crypto year. On the back of a strong showing in the previous year during which Nigeria was recognised as the world’s No.2 bitcoin market after the U.S., 2021 was billed as the year of much bigger exploits.

In fact, it was a common prediction that this would be the year when the fintech-crypto convergence would finally begin to happen. That is, Nigeria was finally going to see some of its many high-achieving fintech startups offer crypto features and the crypto-native companies will become similar to traditional fintechs.

It all seemed inevitable, until very recently when Nigeria’s financial industry regulator, the Central Bank of Nigeria (CBN), not only made that fintech-crypto dream impossible but also made the cryptocurrency startups themselves very uncomfortable.

In a widely-publicised circular that first came to light last Friday (February 5), the CBN effectively took away the ability of cryptocurrency exchanges operating in the country to collect payments from banks, ordering all banks and financial institutions in the country to immediately close all accounts tied to entities that participate in crypto stuff.

Simply put, this means that users on crypto platforms like Luno, BuyCoins, Binance, Bundle, and others can no longer fund their accounts via their bank accounts as they typically do. Essentially, these companies have now lost their ability to accept deposits from users who trade on their platforms. In Nigeria, those deposits typically come in via the local bank accounts of verified users.

In a follow-up statement, the CBN justified its decision to cut off the bank-to-crypto exchange link-up with the rationale that cryptocurrencies are a threat to the country’s financial system.

Unsurprisingly, the CBN supported its stance with some sprinkling of: “cryptocurrencies aren’t a legal tender and are issued by unregulated and unlicensed entities, cryptocurrencies are speculative assets where investors can lose their money due to volatility, and cryptocurrencies are used for money laundering purposes and to finance terrorism.”

Of course, each of the above points can be debated and even rebuffed with solid arguments but the fact remains that the man with the power has once again done a number on the man with the ideas.

Consequently, crypto startups, though stunned and blindsided by the sucker punch, have been scrambling to keep it together in Nigeria these past few days. And while it might be too charitable to say they have taken it into their stride already, there’s no doubt that these companies have kept their footing despite suffering such a setback.

Some of the local crypto exchanges like BuyCoins, Busha, Bundle, Patricia, and Quidax, as well as international exchanges like Binance and Luno, are quite popular in Nigeria.

Besides that, there are also notable peer-to-peer exchanges (p2p) like Remitano, Paxful, and LocalBitcoins where one can trade directly with other people. Peer-to-peer trading volumes are reportedly as high as USD 18 Mn per week in Sub-Saharan Africa, with Nigeria accounting for 50 percent of these volumes.

Since that shocker from last Friday, the common position among crypto exchanges in the country has been: We are engaging with the relevant authorities, no panic, funds are safe, crypto isn’t banned and trading continues as normal, withdrawals are possible (though it might take longer than usual), but deposits are completely off the table at this time.

At the moment, all the local and international cryptocurrency exchanges with operations in Nigeria have paused naira (NGN) deposits following the CBN directive. International exchanges like Binance and Luno have released statements urging users to take advantage of their peer-to-peer trading (P2P) platforms at this time.

P2P trading works such that the crypto exchange acts as an escrow in a transaction where a seller releases a specific amount of crypto to a buyer after receiving a specified amount of payment.

As an illustration, Mr. Seller releases crypto to the exchange platform (escrow). Then Mr. Buyer receives local bank account details of Mr. Seller from the platform. Now, Mr. Buyer pays money directly into the local bank account of Mr. Seller, and upon confirmation, the crypto held by the platform is released to Mr. Buyer. Of course, the platform earns commissions for facilitating this process, just like they earn from the usual trades.

It is expected that the CBN directive, having stifled deposits on formal crypto exchanges,  will cause a huge spike in P2P trading in Nigeria, via both the formal and informal channels.

It is worthy of mention that informal crypto trading via social media and social messaging channels such as WhatsApp, Telegram, Instagram, and WeChat, is believed to make up more than half of the USD 200 Mn volumes traded across all channels monthly in Nigeria.

Apart from Binance and Luno, BuyCoins, one of the biggest players on the local front, is also promoting its P2P platform as a way to keep trade going. However, its bitcoin-powered international money transfer product, SendCash, which enables fiat-to-bitcoin-to-fiat transfers to Nigeria and Ghana from anywhere in the world, is completely out for now.

Another local crypto exchange, Bundle, saw its CEO, Yele Bademosi, put out a statement on Monday, February 8, in which he mentioned that “cash and crypto-assets on Bundle are safe and trading is going smoothly” and that issues of delayed withdrawals were being handled.

Bademosi also revealed that they are building a P2P platform. “We will work on creating a mobile-first Peer-to-Peer (P2P) platform that will allow you to swap assets with other Bundlers quickly, securely, and simply,” he mentioned.

Doubling down despite the downturn, it was revealed that Bundle was “concluding integrations that will add over 160 fiat currencies as well as global KYC to the app,” and also engaging with the relevant regulators.

Others like Yellow Card and PATRICIA have also made necessary adjustments, though withdrawals are proving a little problematic at this point. The local crypto startups have all staggered and stumbled especially, but they are still standing.

UPDATE: Quidax, the Africa-focused cryptocurrency exchange, has also paused deposits into the platform and put withdrawals on hold due to certain issues that the company says it’s currently working to resolve. It also says trading will continue as normal within the platform, though the number of buyers and sellers has dipped. A Quidax Community Town Hall has been scheduled for Wednesday, February 10, at 4 pm WAT.

Featured Image Courtesy: HonestCrypto

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