Can Nigeria afford to ignore the $1.74trn Cryptocurrency market?

*Despite certain regulators and investment experts’ disapproving position on cryptocurrency accounts and transactions in recent times, the Securities and Exchange Commission maintains it sees cryptos as a channel for attracting much-needed foreign direct investments into Nigeria, stressing ‘the world cannot be moving forward and we will be static’

Gbenga Kayode | ConsumerConnect

Right from the global arena in recent times, experts are worried more about consumers’ making the right choices in their investment decisions in regard to cryprocurrency accounts and transactions in several economies across the world.

ConsumerConnect had reported that the European Central Bank (ECB) recently cautioned Bitcoin investors to be prepared to “lose all their money.”

Gabriel Makhlouf, a central banker on the cryptocurrencies and member of the Governing Council of the European Central Bank, said this in the institution’s latest warning Friday, January 29, 2021.

Makhlouf, who is also Governor of Central Bank of Ireland, had stated: “Personally, I’m not sure why people invest in those sorts of assets, but they see them as assets clearly.

“Our role is to make sure that consumers are protected.”

His Makhlouf’s comments echo skepticism from ECB leaders at the time, according to report.

Christine Lagarde, President of European Central Bank, December 2020 as well remarked that the cryptocurrency is a “highly speculative asset”.

But then, Bitcoin prices have more than doubled since November 2020, and topped about $53,000 by the third week of February 2021.

While stressing that the Cryptocurrency has a number of risky elements, US Treasury Secretary Janet Yellen Monday, February 22 at a New York Times DealBook conference stated that Bitcoin is an “extremely inefficient way of conducting transactions”.

According to Yellen, despite growing acceptance by institutions, such as Mastercard, Visa, and Tesla, she believes the world’s largest cryptocurrency still poses risks for investors and the general public, reports CNBC News.

She said: “I don’t think that Bitcoin … is widely used as a transaction mechanism.

“To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.”

In addition to its environmental toll and potential to be used in unlawful ways, Yellen said Bitcoin carries stability concerns.

Since its inception, the Cryptocurrency has reportedly proved to be extremely volatile.

In spite of gaining new support from large companies, the new US Treasury Secretary contended that volatility of cryptocurencies is still a risk that should be feared by investors.

Yellen further said: “It is a highly speculative asset, and you know I think people should be aware it can be extremely volatile; and I do worry about potential losses that investors can suffer.”

At the national level, it is recalled the Central Bank of Nigeria (CBN) in a letter dated February 5, 2021, specifically directed Deposit Money Banks (DMBs), Other Financial Institutions (OFIs) and Non-Bank Financial Institutions (NBFIs) against having any transactions in crypto or facilitating payments for crypto exchanges.

Bello Hassan, Director of Banking Supervision, and Musa Jimoh, Director of Payments System Management Department of the CBN, who jointly signed the letter said: “The CBN circular of January 12, 2017 Ref FPR/DIR/GEN/CIR/06/010 which cautioned DMBs, NBFIs and OFIs and members of the public on the risks associated with transactions in crypto currency refers.”

The CBN noted that “breaches of this directive will attract severe regulatory sanctions.

“Further to other regulatory directive on the subject, the bank hereby wishes to remind regulated institutions that dealing in crypto currencies or facilitating payment from cryptocurrency exchanges is prohibited.”

The Director of Banking Supervision added: “Accordingly, or DMBs, NBFIs and OFIs are advised to identify persons and/or entities transacting in or operating crypto currency exchanges within their system and ensure that such accounts are closed immediately.”

In further clarification to Bank’s earlier position on crptocurrency accounts and transactions in Nigeria, Mr. Osita Nwanisobi, Acting Director of Corporate Communications at the CBN, in a statement Sunday, February 7, 2021, threw more light on the CBN Circular of February 5, saying it did not place any fresh restrictions on cryptocurrencies in the country.

The CBN precisely noted that its latest decision was premised on the fact that cryptocurrencies are largely “speculative, anonymous and untraceable”.

Based on its untraceable nature, the apex bank stated that cryptocurrencies are increasingly being used for money laundering, terrorism financing, and other criminal activities.

Small retail and unsophisticated investors also face high probability of loss due to the high volatility of the investments in recent times, said the CBN.

For Kevin Amugo, Director of Financial Policy and Regulation at CBN, the ban was necessary to give the Bank ample time to address the anonymity of crypto transactions in the country, report said.

In view of the realities and its analyses, therefore, the CBN stressed that it has no comfort in cryptocurrencies at this time, and will continue to do all within its regulatory powers to educate Nigerians to desist from its use and protect the financial system from activities of fraudsters and speculators.

Likewise, ConsumerConnect reported that some investment experts have maintained that cryptocurrency is both confusing and alluring to most consumers.

Yet, as the investment value of the cryptocurrency market hits about $1.74 trillion in the last week, some Nigerians are enthused to ask if the country would actually miss out in this surging ‘crypto windfall’.

In the wake of the CBN ban, Nigeria’s Securities and Exchange Commission (SEC) has clarified its position on cryptocurrencies in the country.

It was learnt SEC, which hitherto had planned to formulate guidelines for transacting in cryprocurrencies, said it is rather committed to creating a clear-cut regulatory framework for trading in cryptocurrencies in Nigeria.

Both the SEC and the Central Bank of Nigeria will work collaboratively on devising a concrete regulatory framework for cryptos, according to report.

Mr. Timi Agama, Head of Registration, Exchanges, Market Infrastructure and Innovation of SEC, said that regulators in Nigeria could not afford to ignore the $1.74 trillion crypto market, report said.

Agama, who spoke at a virtual conference organised by the Association of Capital Market Academics of Nigeria in Abuja, FCT, Sunday, February 21, was quoted to have remarked that “part of the desire of the SEC even in the future is to provide a regulatory framework that will take care of all these challenges that we have seen internationally and the entire world is grappling with in terms of cryptocurrency and digital assets.

“For us at SEC and capital market, it is something to look at; the world cannot be moving forward and we will be static, no.”

According to him, both the Central Bank of Nigeria and Securities and Exchange Commission have agreed to collaborate and conduct a research with a view to finding ways of regulating the Cryptocurrency market in the country.

The SEC, he added, sees cryptos as a channel for attracting much-needed Foreign Direct Investments (FDIs) into the country.

Incidentally, a publication referenced a recent report by the National Bureau of Statistics (NBS), that 26 out of the 36 states of the Nigerian Federation did not receive any FDI throughout 2020.

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