Young traders are brainstorming ways to keep trading cryptocurrencies following the Central Bank’s freezing of bank accounts.

Credit: Sajad Nori/Unsplash.

On 9 November, Williams* woke up to despairing news. His bank account had been closed for “benefiting from crypto transactions”. An accompanying message explained that his bank had received a “mandate from the Central Bank of Nigeria (CBN) to close down all accounts engaging in crypto”. Williams, who is now based in Ghana, was told to visit the bank branch in Nigeria where he had opened the account if he wanted to retrieve his funds.

Six days early, the CBN had indeed instructed banks to close the accounts of listed individuals who had allegedly traded cryptocurrency in contravention of a 5 February 2021 directive. Curiously, however, that directive had not placed any new ban on cryptocurrencies. It had rather reiterated a 2017 warning to banks not to deal in cryptocurrency and to ensure its customers are compliant with the CBN’s anti-money laundering and transaction monitoring requirements.

It was quite a leap to go from that guidance to ordering banks shut down individual accounts. Yet some banks not only complied with the CBN but took its cue further. FCMB, for instance, instructed its nationwide network of branches to flag any bank accounts of 18-30-year-old customers with a high volume of transactions. The bank believes this could be evidence of accountholders using Peer to Peer (P2P) exchanges, which are currently the only way to buy and sell cryptocurrency in Nigeria due to the CBN’s ban on purchases through banks.

The CBN’s opposition

The CBN has explained its opposition to cryptocurrency by citing the 2007 CBN Act, which prohibits the use of any other legal tender within Nigeria. Some people use cryptocurrency for day-to-day transactions through apps like Lazerpay or to purchase foreign imports of clothes and electronics. Yet the same is true of the US dollar. The CBN warned Nigerians against using foreign currencies as a medium of exchange in 2015, but it has never gone as far as to shut down bank accounts. Besides, the CBN could ban the use of cryptocurrency as legal tender without preventing people from trading in it completely.

For the most part, however, cryptocurrency is not used as a medium of exchange at all. It is more often bought as an investment and a way to hedge against the unstable Naira.

Other reasons the CBN has given for wanting to clamp down on cryptocurrencies include their anonymity. “Why would any entity disguise its transactions if they were legal?” asked the bank’s February press release. The answer, according to the CBN governor, is that cryptocurrencies are “embedded in a high level of illegality”.

Some other concerns cited by the CBN are the volatility of cryptocurrencies, their lack of intrinsic value and susceptibility to a price crash. The bank insists its ban is aimed at protecting the financial system and citizens from the risks of trading in speculative, anonymous, and untraceable goods.

Regardless of its motivations, any country’s central bank has only limited powers to restrict the use of crypto. The CBN cannot stop citizens from investing in cryptocurrency, merely because of its volatility or anonymity. That is why it is targeting traders.

“Is this the end?”

For a generation of Nigerians, cryptocurrencies have provided new hope in a country where average incomes have been declining for six years straight and the Naira continues to lose value. In 2020, cryptocurrency transactions generated in Nigeria amounted to over $400 million. The country was third highest in the world for the value of Bitcoin traded. Despite the CBN’s interventions, the value of cryptocurrency transactions traded in June 2021 was 25% higher than in the equivalent month the previous year.

One trader, Brenda, told African Arguments that she had invested in Nigerian companies for four years before selling all her stock and purchasing the cryptocurrency Shiba Inu (SHIB). She has since used the returns from this to buy nine other types of “shitcoins” (i.e. cryptocurrencies with have little to no value or immediate discernible purpose).

Since the CBN’s ban on allowing Nigerians to buy cryptocurrency with Naira this February, traders like Brenda have used Peer to Peer (P2P) platforms to buy and sell. The CBN’s latest actions are aimed at freezing P2P traders out of the banking system. This has caused fear among the crypto community.

“What happens if Peer to Peer trading is no longer an option”, asks Brenda. “Is this the end?”

Ose, another crypto trader, fears that the CBN’s actions will push young people to take more risks as they seek new ways to participate in a global market that offers unprecedented returns and, in some cases, relative currency stability.

“Sourcing out a P2P seller or buyer is going to be a herculean task now,” he says. “Worse is, people will try to use other informal P2P methods of carrying out the transaction. While it’s not any different from P2P on [international crypto-trading platform] Binance and other exchanges, it’s definitely less safe.”

Innovating out

In the past month, various hashtags – ranging from #NigeriaCryptoDay to #BoycottFCMB – have popped up on social media as Nigerian traders brainstorm on how to bypass this new hurdle. Some have suggested using bitcoin vouchers (which are like pre-paid gift cards that can be redeemed at a later date) or informal P2P forums. Others have called on traders to leave the formal banking system altogether and use apps like AbitPay to pay for goods and services exclusively using cryptocurrencies, thus removing the need to convert between Naira and digital coins.

Some Nigerians have already begun moving away from formal banks by using their savings to buy stablecoins, which are tethered to the value of assets such as the US dollar or gold. For some, the CBN’s latest actions have only accelerated their desire to move their Naira savings into crypto wallets.

“My plan is to do what I did during their first madness: hold my savings in stablecoins and allow the market absorb the pressure,” says trader Dozie. “I’m not worried. As long as people can still do transactions with their bank accounts, crypto will always work in Nigeria”.

Crypto traders may also find that the law is on their side. The CBN’s suspension of people’s bank accounts for committing an offence that does not exist is presumably illegal. Additionally, FCMB’s discrimination based on age could be construed as a violation of the fundamental human rights enshrined in Nigeria’s constitution. In fact, barely a week before the 3 November CBN’s directive, a Federal High Court in Abuja had declared its earlier attempt to freeze the bank accounts of cryptocurrency traders unlawful.

In March 2021, just after the CBN banned the purchase of cryptocurrency through bank accounts, the volume of cryptocurrencies sent from Nigeria rose to $132 million, up 17% from the previous month. Nigerian youths are known for their resilience in the face of hostile policies and unfriendly law enforcement. For them, the CBN’s latest actions may turn out to be just one more hurdle to overcome.

*names have been changed to protect identities