As Bitcoin Surges, Nigerians Are Facing Harsh FX-Related Interventions

As the first quarter of 2024 began, Nigerians were cautiously optimistic about the outlook for the year following the reversal of the Bitcoin ban in December 2023 and the changing stance of regulators towards Bitcoin and other digital assets. However, against the backdrop of the bitcoin price rally and ETF hype, events since late February have taken a drastic turn.

Background

The now-reversed Bitcoin ban of 2021 arguably started a snowball effect, as banning banks from directly tying crypto payments pushed Nigerians to P2P platforms to access Bitcoin and other digital assets. In hindsight, this move, coupled with the Naira’s tumultuous track record over the last few years, contributed to Nigeria becoming one of the largest global P2P markets for Bitcoin.

Despite the reversal and push for more clarity on Bitcoin regulation, the dominance and effect of P2P flows have affected the Naira’s FX rate by effectively establishing a parallel de facto FX rate that remains much higher than the official rate.

Following the Naira’s 70% depreciation, the Central Bank of Nigeria (CBN) decided to free-float the US Dollar peg in June 2023. Earlier this year, the Nigerian government devalued the Naira for the second time in eight months to unify its official and unofficial exchange rates. The aim was to address the chaotic FX rate situation and attract foreign investments.

Naira FX Market Manipulation Allegations

Further, the government has increasingly turned to finding ways to factor in and significantly reduce the effects Bitcoin, stablecoins, and other digital assets speculation have on the Naira’s FX rate.

Last year, the Nigerian Securities and Exchange Commission declared Binance illegal for not registering with them—the first domino in a chain of events central to the recent developments and presently in the courts.

In late February, access to popular crypto exchanges like Binance, Coinbase, and Noones was shut down in Nigeria, and it is still in effect as of this writing. The Nigerian Communication Commission (NCC) has yet to respond to publications’ requests for comment. Nevertheless, though this may have initially reduced traffic and activity to these sites, known circumventive measures ultimately make it ineffective in the long term.

Yet, Nigerians got more clarity on the overall situation during a press conference by the CBN, where the CBN governor, Olayemi Cardoso, mentioned, “We are concerned that certain practices go on that indicate illicit flows going through a number of these entities and suspicious flows at best.” He added, “In the case of Binance, in the last one year alone, $26bn has passed through Binance Nigeria from sources and users who we cannot adequately identify.”

Following that, Cardoso confirmed the involvement of the Nigerian National Security Advisor (NSA) in investigating crypto exchanges. Subsequently, Nigerian authorities arrested two senior Binance executives on February 28 regarding the investigation and requested a list of the top traders on Binance in Nigeria.

In the same period, unconfirmed reports surfaced of Nigerian authorities cracking down on executives of crypto-related services, forcing some CEOs and executives to flee the country.

Delisting of NGN, USDT, and USDC Services On Binance

The government is aware of circumventive measures that bypass the intended effect of the website shutdowns. Hence, it maintained its pressure on crypto exchanges. On March 5, Binance announced it was officially discontinuing all Nigerian Naira (NGN) services (including the BTC/NGN and USDT/NGN spot trading pairs) and advised customers to withdraw their NGN. It noted that it would convert all remaining NGN balances to USDT at 1 USDT = 1,515.13 NGN (which has since gone into effect).

Following the delisting and detainment of Binance executives, the Nigerian government demanded that Binance pay $10 billion. Bayo Onanuga, the special adviser on information and strategy to Nigerian President Bola Tinubu, confirmed that the reasoning is based on Binance allegedly profiting from illicit transactions while Nigeria suffered huge losses.

The Future of Bitcoin And P2P In Nigeria

Though regulators in Nigeria initially wide-cast the crackdown net in late February, over the last couple of weeks, the focus has narrowed to Binance, as they are the most significant identifiable player in the space. For now, the situation is less turbulent for stakeholders in the broader space than in February and March.

As for Binance, the situation has no end in sight—from one of the executives in custody fleeing the country to now facing a case in the country’s capital of Abuja; only time can tell what becomes of the exchange in the country.

It is also important to note that Binance’s customer data requests from Nigerian authorities set a worrying crypto industry precedent. We have indeed crossed the chasm on the repercussions for exchanges with a target on their back, and other players in the space are keenly following and taking notes on how to navigate this new terrain moving forward.

Nonetheless, Binance’s exit will prompt other P2P services in Nigeria to step in and meet Nigerians’ growing demand for Bitcoin and stablecoins.

While many things are in flux, it is safe to say that Bitcoin is not going anywhere. Bitcoin and stablecoin speculation may continue to impact the Naira’s FX future, but it is an overstatement to single them out as the sole factor in the Naira’s FX crisis.