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The State of Bitcoin in Nigeria

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Bitcoin in Nigeria

Without a doubt, the rise of bitcoin and its underlying technology blockchain represent a historical technological disruption. While the technology has already found success in economically developed countries, bitcoin is just starting to gain momentum here in Africa. Over the past 2-3 years, we’ve seen growing interest in bitcoin and the technology behind its increase in African countries such as Kenya, South Africa, Ghana, and in Nigeria.

In this article you will be introduced to the state of bitcoin in Nigeria, the people’s perception of this new technology and how it is being used.

Nigeria’s Bitcoin Ecosystem

The bitcoin ecosystem in Nigeria has been experiencing tremendous growth over the past two years. This is evidenced by the growing number of bitcoin related queries on Google Trends charts as well as increasing bitcoin trading volumes in the West African nation.

bitcoin in nigeria

Nigeria is already witnessing the birth of new startups, initiatives, local meet-ups and social groups with the aim of educating interested parties about the fundamentals of bitcoin and blockchain technology as well as promoting its benefits. Some of this startups and initiatives include CDIN, PEX Bank, Cryptogene, Cryptomart, NGExchanger, and Nairaex. Additionally, top bitcoin companies such as Luno and ICE3X are already exploring the Nigeria market.

Cryptographic Development Initiative Nigeria (CDIN)

The Cryptographic Development Initiative in Nigeria (CDIN) is one of the blockchain focused groups that has successfully positioned itself as a pacesetter in this new industry.

The CDIN is a non-governmental organisation and platform that encourages the learning and practice of cryptography amongst relevant stakeholders from both the public and private sectors. It is subdivided into three groups: Crypto Nigeria, Blockchain Nigeria, and Nigeria Blockchain Alliance (NBA).

The CDIN has been able to deliver on some of its promises from educating the masses on the cryptocurrency. Through its Crypto-Nigeria arm, local meet ups have been arranged in order to tackle criminal activities by collaborating with government agencies and relevant bodies in fighting against crypto-related crimes, such as HYIP and Ponzi schemes that use bitcoin and other cryptocurrencies for payment.

Recently, the CDIN announced that the Nigeria government is willing to offer its support to the initiative. The organisation has announced a partnership with the National Electronic Fraud Forum (NEFF) for the Blockchain Nigeria 2017 conference. NEFF’s chairman, who’s also the director of banking and payment system of the Central Bank of Nigeria, Dipo Fatokun said:

“Please be informed that NEFF is willing to collaborate with CDIN and will assist with technical advice and/or speakers at the […] 2017 conference on Blockchain. Also note that as the collaboration progresses, Neff will also, count on your support.”

The Central Bank of Nigeria’s Stance on Bitcoin

The Central Bank of Nigeria seems to understand the potential that comes from bitcoin and blockchain technology. However, the CBN is concerned about the financial losses that traditional banks will incur as well the growth of bitcoin-related crimes, such as ransomware and pyramid schemes if the technology becomes widely accepted.

Factors slowing down the adoption of digital currency

The CBN issued a circular to banks, similar to a statement released by the Nigeria Securities and Exchange Commission to the public, on January 12, 2017. Both regulatory bodies warned against the usage of digital currencies like bitcoin as it is not a legal tender in the country and any bank or business that would deal or invest in such would do so at their own risk.

Furthermore, in a March 2017 meeting focused on digital currencies organised by the Chartered Institute of Bankers in Nigeria, the CBN through its Deputy Director for Banking and Payment Musa Itopa Jimoh reiterated the central bank’s view of cryptocurrencies like bitcoin.

“The Central bank cannot control or regulate blockchain. Just the same way no one is going to control or regulate the Internet. We don’t own it.”

Mr. Itopa Jimoh further clarifies the CBN’s previous warning that he believed was misunderstood by the public.

“A lot of people misinterpreted it that we wanted to stop bitcoin. We can’t stop bitcoin. Bitcoin is not an invention of 2015 or 2012; it’s not even an invention of 2010. So, how can the Central Bank of Nigeria, not central bank of the world, stop the running and implementation of bitcoin?”

In spite the warnings from the government, the growing interest in bitcoin has refused to slow down. A key reason behind it is the persistent depreciation of the country’s local currency, the naira. Many people are beginning to see bitcoin as a good alternative to hedge their wealth against currency losses.

The remittance market is another major area driving the usage of digital currency. As a cost-effective and borderless payment network, bitcoin and other digital currencies are offering a long-term solution to Nigeria’s large remittance markets’ challenges.

Nigeria’s Bitcoin Startups

NairaExNigeria is also the home to several bitcoin startups with the largest being the country’s leading bitcoin exchange NairaEx.

NairaEx offers a quick and easy way of for Nigerians to purchase the digital currency using credit cards, debit cards, or bank deposits using local currency. There is also BTC.ng, which is a NairaEx run bitcoin publication that aims to close the big gap by educating newbies in Nigeria on everything happening in the bitcoin ecosystem.

Cryptogene is another Nigerian startup, which launched in late 2016 to focus on educating African on the benefits of bitcoin and blockchain technology.

Cryptomart and NGExchanger are two further startups in Nigeria’s bitcoin community while leading African bitcoin exchanges Luno and ICE3X are also exploring the Nigerian market. ICE3X, for example, enables Nigerians to buy bitcoin, litecoin, and ether with the naira.

How Nigerians Are Using Bitcoin

A recent study conducted by leading bitcoin wallet provider Luno reveals a great deal of faith in the future of the digital currency in Nigeria.

57 percent of the respondents believe bitcoin to be the future of money. When asked to state their main reason for buying bitcoin, 28.8 percent used it for investing while 20.3 percent used it for remittance purposes while others used it for trading and speculation purposes. Interestingly, a majority of Nigerians, 45.3 percent, would rather own bitcoin than gold. This is a large number in comparison to the 10.3 percent figure for gold ownership.

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Nigeria’s Capital Markets Regulator to Create Framework for Cryptocurrency Regulation

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Framework for Cryptocurrency Regulation

Nigeria’s blockchain community and cryptocurrency exchanges could get a clear stance on the classification of cryptocurrencies from the country’s Securities and Exchange Commission (SEC) before the end of the year.

A Framework for Cryptocurrency Regulation Is Coming

According to a report by Pulse, the regulatory institution is set to implement the roadmap for the fintech industry as it pertains to its capital markets. According to the roadmap, between the last quarter of this year and the first quarter of 2020, the SEC is expected to:

  • Decide on its preferred classification of cryptocurrencies (either as commodities, securities or currency).
  • Develop a framework for the regulation of Virtual Financial Assets (VFAs) and VFA Exchanges.
  • Issue guidelines and standards for whitepapers and ICOs.
  • Develop a framework for KYC and due diligence for cryptocurrencies, Virtual Financial Assets, tokens, and ICOs.
  • Define clear classification for tokens based on their unique properties. They could be payment tokens, asset tokens, utility tokens or others.  

The Acting Director-General of the SEC, Mary Uduk, revealed at a Capital Markets Committee briefing last month that the Working Group to drive the implementation of the roadmap would be chaired by Adeolu Bajomo, the Vice-President of the Fintech Association of Nigeria. 

Cryptocurrencies as Commodities or Securities But Not as Currency

traderOne of the recommendations that stands out in the roadmap, which was prepared by a committee comprised of officials from the regulatory agencies, the private sector, and a member of the blockchain community, is for the SEC to recognise cryptocurrencies as commodities or securities, and not as a currency. This classification is expected to have tax implications for investors.

This recommendation is in line with the central bank’s directive last year, which stated that “virtual currencies” were not a legal tender.

Cryptocurrencies have lacked a single, definite identity. For example, Germany is treating them as money and means of payment while the US uses the Howey test to decide whether a cryptocurrency is a security or not.

Crypto Adoption in Nigeria

Citigroup, a US investment firm, reported in January 2018 that Nigerians were the third-largest holders of bitcoin as a percentage of gross domestic product (GDP). The use has ranged from ­trading to making fast, low-cost cross-border transactions, saving on the high fees taken by commercial banks and traditional money-transfer services.

Nigeria has a fast-growing young population with a significant chunk below the age of 35. But there is still a small number of people with access to the financial system. Less than 50 million people with bank accounts in a population of over 180 million. Blockchain applications could be a great way to onboard millions of underserved people into the financial system.

With the SEC expected to take responsibility for the regulation of cryptocurrencies in the country soon, we can foresee more scrutiny of Nigeria’s biggest crypto companies, which could lead to a more secure crypto trading ecosystem down the road. 

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Poor Financial Infrastructure? Why Ghanaians Need Crypto More Than Ever

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Ghanaians Need crypto

Ghanaian investors continue to face difficulties as the Bank of Ghana (BoG) continues to probe fund managers for mishandling funds. Is it time for one of the fastest-growing economies to look at cryptoassets for financial freedom?

A Three-Year-Old Banking Crisis 

Why Ghanaians Need BitcoinThe Ghanaian banking crisis started on August 14, 2017. The Bank of Ghana (BoG) revoked the licenses of UT Bank Ltd and Capital Bank Ltd and approved a Purchase and Assumption (P&A) transaction with GCB Bank Ltd that transferred all deposits and selected assets of the two banks after they were found to be insolvent.

The following year, the BoG subsequently revoked the universal banking licenses of five banks, including UniBank Ghana Limited, Construction Bank, Sovereign Bank, Royal Bank, and Beige Bank. Additionally, it issued a license to a newly created bank – Consolidated Bank Ghana Limited – which is wholly owned by the Government of Ghana.

After a tough time dealing with the aftermath of the shake-up in the banking sector, the BoG then proceeded with revoking the licenses of 23 insolvent savings and loans and finance house companies just weeks ago.

These happenings in the country’s financial sector have led to several issues in the world’s fastest-growing economy in 2019

A Time to Consider Cryptoassets?

With the current turbulences in the financial ecosystem in Ghana, one may raise the question: “Is it time for Ghanaians to consider cryptoassets as investments with real asset ownership and transparency?”

Bitcoin and other decentralised cryptocurrencies are a natural fit in situations like these. For investors and consumers to escape the uncertainty of such a disorganized space, they will have to hold assets that they directly control.

Cryptocurrencies allow users to own their assets and give them independence from regulated, mainstream and established systems. With cryptoassets, no financial institution is responsible for the safekeeping of your funds and, therefore, cannot mishandle your funds.

Unlike the current situation where thousands of Ghanaians are not sure of the future of their funds due to the changes in the financial sector over the last three years, cryptocurrency users always have control of their funds and can access them at any time.

Imagine a pregnant woman in Kumasi, Ghana who kept her money in a savings and loans institution ahead of giving birth to cater for the hospital bills but cannot access her funds and is now stuck in the hospital because the institution has been closed down.

If she held bitcoin instead, she could pay in BTC or easily exchange it to cedi, to pay her bills without any issues.

Growing Interest in Cryptoassets in Ghana

Perhaps, the point made above has already been registered in the minds of many in the country who have shown interest in cryptocurrencies, especially bitcoin.

bitcoin in ghana

Currently, Ghana sits at number three on the list of countries on Google Trends for the search keyword “bitcoin” and Accra sits at number two for the keyword “buy bitcoin“.

With a more deliberate effort to push education and adoption – like the BlockTech Women Conference Accra 2019 held last week – the existing interest in cryptocurrencies could translate into growing adoption that could disrupt the current financial system in the West African nation.

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Is Bitcoin Really A New ‘Safe Haven’ Asset?

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Safe Haven Asset

The launch of the Bitcoin blockchain in 2008 was a low-key affair among a fringe group of cryptography enthusiasts. Just over a decade later, the pioneer cryptocurrency is a world-famous phenomenon with a market value of about $10,000 at press time.

This is certainly a remarkable turnaround, which only the most ardent early supporters could envision. That said, bitcoin as a currency has taken a life of its own and is gaining rather sophisticated market functions. One of these is the emergence of Bitcoin as a possible ‘safe haven’ asset. How ready is bitcoin to perform this unique function? Let’s find out.

Bitcoin currently has a solid market presence. Moreover, a great number of retailers in the market, especially online, accept bitcoin payments. This means that bitcoin users can freely operate and trade which is a great leap forward.

Trading is efficient and simple because of modern exchanges where you can trade for USD, trade BTC-EURX or any major fiat and crypto trading pairs. Generally, bitcoin is now a currency and an asset you can freely own and transact with ease. At the moment, there are over 250,000 bitcoin transactions each day across the world.

Incidentally, some of bitcoin’s intrinsic factors have made it play a unique market function. For one, bitcoin is a finite currency. Unlike fiat which is freely printed by Central Banks, there will only ever be 21 million bitcoin. Whilst this has placed a ceiling on mass adoption as a currency, the finite virtue has made it an attractive proposition as an asset.

The Case for Bitcoin as A Safe Haven Asset

goldFor a historically volatile asset, bitcoin being discussed as a potential safe haven asset is remarkable. In years gone past, equity investors would regularly purchase gold during periods of market uncertainty to distribute risk. Gold is a traditional safe haven investment due to its scarcity and value. Can bitcoin take up such a role?

In the first few days of August 2019, stock markets went wild on fears of a USA-China trade war escalation. Simultaneously, bitcoin booked impressive gains of more than seven percent as opposed to the drops in the major stock markets. This is certainly not a fool-proof case for bitcoin as a safe asset. Regardless, crypto enthusiasts took the development with glee as part of a general argument for bitcoin’s status as a safe haven asset. The major arguments include:

  • Bitcoin is effectively immune to geopolitical tensions like the trade wars.
  • By virtue of decentralisation, bitcoin is independent of government monetary policy. This means that bitcoin prices are entirely market dependent. Accordingly, bitcoin (though significantly volatile) is attractive because it has no direct correlation to the volatility of other asset classes.
  • Bitcoin’s scarcity gives it innate value, like rare metals. Satoshi Nakamoto capped bitcoin supply at 21 million.

Potential Drawbacks

Is it that simple though? The fact that bitcoin has a life of its own is an impressive aspect of its position as an asset class. However, the case for bitcoin as a safe haven asset is not as straightforward as it may seem.

goldTraditional safe haven investments are usually boring. Gold, for all the credibility it has, has generated an average annualised return of 0.32 percent over the last five years. As a matter of fact, its value most of the time is relatively consistent. This would be fitting for the name ‘safe haven’ as it remains safe in the midst of market volatility.

However, bitcoin, even in the most generous terms, would be a ‘colorful’ safe haven. Bitcoin may have a value trajectory unique from the regular stock markets. However, this does not take away bitcoin’s volatility issues. Therefore, investors are as motivated to diversify risk in a volatile stock market as they are to cash in on potential outsize gains.

Taking prices from August 2018 to August 2019, bitcoin has appreciated more than 100 percent. This is certainly a very impressive return from an investment perspective. However, it does little to lend credence to the general idea of a ‘safe haven’ asset.

Moreover, bitcoin still has to navigate a number of regulatory challenges with global financial entities because to truly gain the status of a mainstream ‘safe-haven’, regulators like the SEC have to be on board. Additionally, the stability of the coin against hard forks and security of secondary players like exchanges can add to its credibility.

Is It a Safe Haven Asset?

From the aforementioned, you can look at it both ways. For an investor looking to distribute risk and have an asset class whose volatility does not correlate to mainstream asset volatility, bitcoin can act as a safe haven investment. However, it fails to live up to the classic role of a safe haven like gold in the market. Regardless, this debate will only intensify as bitcoin matures and grows further.

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