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Nigeria’s Crypto regulation as a solution for financial services

Sep 23, 2020

The Securities and Exchange Commission (SEC) of Nigeria recently announced that it will be regulating the trade of digital currencies in the country. Issuance and sponsoring of virtual digital assets will be supervised by SEC’s regulation. This move is intended to protect investors’ best interests and to promote transparency within the area, and the general objective of regulation is not to delay technology innovation, but to introduce measures that strengthen fair practices.

There is no specific clarification what legal framework will look like, but it is said that if the virtual digital assets can be classified as securities and they will be treated as securities and will fall under the jurisdiction of the SEC.

In 2018 Central Bank of Nigeria did declare that crypto-currencies such as Bitcoin, Ripple, Monero, Litecoin, Dogecoin and others, were not considered as the money or any other means of payment. Although new regulation has not introduced yet, such actions from Nigeria’s SEC indicates shift in the Nigeria’s attitude toward cryptocurrencies.

Although legal framework will not stipulate ‘securities’ as a ‘money’, fact that SEC identifies cryptocurrencies as a securities, is huge step forward. These changes have been promoted because more and more regulations have been applied to the cryptocurrency industry in other countries and changes has attracted more investors to other jurisdiction. It is believed that investors are more assured to establish their business in jurisdiction where regulations have been introduced to avoid bad consequences of fraud and other manipulations.

Currently Nigeria is the biggest crypto market in Africa and is considered as a crypto-hotspot. According to Google Trends, Nigeria is ranked first worldwide in Google searches for terms like ‘Bitcoin’, ‘Ethereum Nigeria, South Africa, and Kenya lead the continent in monthly crypto transfers. These activities have led SEC to introduce and implement adequate legislation. Major activities have been observed by retail investors, but new legal framework could encourage institutional adoption also. Larger institutions have higher compliance requirements, but regulatory have not provided enough guidance on digital assets in the past and this unclear regulatory landscape has made it riskier for larger institutions.

A lack of many of the traditional financial services that are often taken for granted in other more developed countries are lacking in Nigeria. One of the reasons for this is because financial regulators in a number of African countries, including Nigeria, have imposed significant restrictions on how citizens can spend their money. Main reason for this is the banking system that is disconnected from the rest of the world causing burden for international transactions. Therefore, there is a real need for alternative solution and cryptocurrency in Africa could fix this problem.

Additionally, some Nigerian banks had reduced their customers’ dollar-spending limits to as low as $100, causing major problems for some citizens. Reduction in dollar spending limits has forced Nigerians to seek dollars elsewhere. Therefore, it seems quite likely that part of Bitcoin’s apparent popularity in Nigeria has to do with the fact that it can be used to pay for some products that can be sold online and Bitcoin is being used for more practical purposes rather than trading and investing.

These conditions can make cryptocurrency adoption in the country truly explosive and could continue to extend outside Nigeria and into some of the other areas of the African continent. The traditional banks that are pillars of the developed financial world has become impractical and inefficient for Africa and crypto industry seems to take a part where traditional financial services have failed, and financial services can be accessible for millions of people who previously did not have or had a limited access to them.

In addition to these gaps in Africa, the fact that the continent’s population is bend toward younger generations means that Africa is likely to play an increasingly powerful role in the global economy. Therefore, the introduction of regulation for the cryptocurrency industry in Nigeria could bolster a space that is already poised to boom.

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