The Nigerian Central Bank (CBN) has taken a significant step in the financial sector by lifting the ban on cryptocurrency transactions, a move that is expected to reshape the country’s digital economy landscape. This decision comes after a two-year restriction, reflecting a broader trend toward the adoption and regulation of cryptocurrencies globally.
According to a circular issued on December 22, 2023, signed by Haruna Mustafa, the Director of the Financial Policy and Regulation Department at CBN, the bank has directed all financial institutions to comply with new operational guidelines for Virtual Assets Service Providers (VASPs). These guidelines mark a shift from the CBN’s earlier position, which restricted crypto transactions due to concerns over money laundering, terrorism financing, and the inherent volatility of cryptocurrencies.
Under the new regulations, banks and other financial institutions are required to strictly adhere to the guidelines, which include stringent customer Know Your Customer (KYC) and anti-money laundering checks. However, it’s important to note that banks are still prohibited from holding, trading, or transacting in virtual currencies on their account.
The move is seen as a response to the growing popularity of cryptocurrencies among Nigeria’s young and tech-savvy population, who have been using crypto exchanges for peer-to-peer trading to bypass the financial sector. A report by the New York-based blockchain research firm Chainalysis highlighted a 9% year-over-year growth in crypto transactions in Nigeria, totaling $56.7 billion between July 2022 and June 2023.
Furthermore, the Securities and Exchange Commission (SEC) of Nigeria had previously issued rules in May 2022 on the Issuance, Offering, and Custody of Digital Assets and VASPs, providing a regulatory framework for their operations in Nigeria. The latest guidelines from CBN are aligned with these SEC rules and are in accordance with the recommendations of the Financial Action Task Force (FATF).
This regulatory shift is expected to bring more transparency to the crypto industry in Nigeria, encouraging customers to gravitate towards licensed platforms and potentially reducing instances of financial losses among customers. It also reflects Nigeria’s ongoing efforts to align with global financial trends and standards.
Nigeria Leads Cryptocurrency Adoption in Africa
As of 2023, Nigeria has emerged as a leader in cryptocurrency adoption in Africa. With an estimated 22 million cryptocurrency owners, Nigeria accounts for more than a third of the total number of crypto holders in Africa, which is around 53 million. This significant number of Nigerian crypto owners positions the country as the fourth highest globally in terms of crypto ownership.
The widespread adoption of cryptocurrencies in Nigeria can be attributed to various factors, including financial instability and high inflation rates. Many Nigerians view cryptocurrencies as a means to preserve wealth and hedge against local currency devaluation. This trend is also evident in the increased use of cryptocurrencies for peer-to-peer (P2P) exchanges and as a mode of payment in various sectors, including travel, hospitality, and online retail.
In the broader context of Africa, Nigeria is followed by South Africa and Kenya in terms of the number of cryptocurrency holders. South Africa has approximately 7.7 million people owning digital assets, while Kenya has about 6.1 million. Other African countries like Egypt and Tanzania also have a significant number of crypto owners, with each having around 2.37 million and 2.33 million holders, respectively.
The growing trend of cryptocurrency ownership in Africa reflects the continent’s increasing adoption of digital assets. Countries like Ghana are also experiencing a surge in cryptocurrency adoption, indicating a broader acceptance and integration of digital currencies in the African financial landscape.
Potential Crypto bull run in 2024
The potential for a cryptocurrency bull run in 2024 is a topic of considerable interest and speculation in the crypto community. Various factors are contributing to this anticipation:
Bitcoin Halving Event: One of the critical events that many analysts believe could trigger a bull run is the Bitcoin halving expected in 2024. This event, which happens approximately every four years, will see the reward for mining new blocks halved, thereby reducing the rate at which new bitcoins are created and, hence, lowering the available supply. Historically, Bitcoin has exhibited significant price increases following its past halving events.
Regulatory Developments: There are expectations of significant regulatory advancements in the crypto space by 2024. For instance, the potential approval of Bitcoin spot Exchange Traded Funds (ETFs) in the US could increase institutional participation in the crypto market. Additionally, the European Union is expected to implement a comprehensive regulatory framework for digital assets.
Technological Advancements and Mainstream Adoption: Continuous improvements in blockchain technology, along with increasing mainstream adoption, are expected to contribute to the market’s growth. The expected integration of crypto into broader financial systems and the expansion of decentralized finance (DeFi) could play a significant role in fueling a bull market.
Market Recovery and Investor Sentiment: Since the beginning of 2023, there has been a notable recovery in the cryptocurrency market, which has positively influenced investor sentiment. The total market capitalization of all cryptocurrencies witnessed a significant increase, and Bitcoin’s recovery from its previous lows has contributed to this positive trend.
Global Economic Factors: The broader global economic environment, including monetary policies like interest rate adjustments, could also influence the crypto market. For example, a shift in the U.S. Federal Reserve’s stance towards more accommodative monetary policies could create favorable conditions for riskier assets like cryptocurrencies.