Traders In Nigeria Verges into Innovative Bypass of Country’s Crypto Ban

On Thursday, the Nigeria-based cryptocurrency platform, Luno, announced that it has approved a solution to enable Nigerians to withdraw and deposit crypto and tokens into their bank accounts directly. This is positive news considering the fact that the country’s crypto activities were almost entirely halted by a national ban on the use of crypto in the country. 

Now, with Luno’s proposed innovative and supposed legal bypass of the ban, Nigerians, who are the largest userbase of Binance in the continent, can trade freely through the Luno platform. 

Does this smell excruciating for Binance, Coinbase, and Kraken who are possibly looking to consolidate a competitive position in the world’s most populous black nation? 

The competition in Nigeria

As of June 2021, Luno had over 3 million users in Nigeria. However, due to their relatively high service fees, crypto enthusiasts appear to be more comfortable trading on the Binance Nigeria platform. Binance Nigeria, in 2020 boasted over $5 million in processed transactions from Nigerian users, according to Coindesk.

Although Binance had used the P2P trading feature to solidify its position in the hearts of the crypto-friendly population of Nigeria, the prices of tokens against the Nigerian Naira are entirely market driven. Luno, however, serves as an intermediary, generating revenue by capitalizing on the price spread in crypto assets. Also, this spread is greatly influenced by the platform and not necessarily the users. 

Breaking down the ban on cryptocurrency

In 2017, the Nigerian government extended an advice to its investing community admonishing the credibility of Bitcoin and other cryptocurrencies as a reliable investment vehicle. However, the country’s population had dived into the rapidly growing Blockchain ecosystem with no consideration whatsoever for the advice and position of the country’s leadership. 

In 2020, Nigeria was sitting pretty as the third country with the highest volume of crypto transactions, just underneath the United States and Russia. It’s citizens had completed transactions in excess of $400 million in the year 2020. 

In February of 2021, the Central Bank of Nigeria, the organization presiding over the financial affairs of the country, published a memo prohibiting financial institutions from facilitating crypto-related transactions in the country. Accounts of active crypto traders were blocked and companies operating under Blockchain technology were booted out. Patricia, one of the Blockchain startups in the country, had moved its head offices to London. Kuda Microfinance Bank, an aggressively innovative startup and purportedly soon-to-be unicorn moved its affairs to London as well, opening doors for an opportunity to explore the crypto industry when the time comes. 

However, the country’s government seems divided on the subject. While the President, General Mohammadu Buhari, remained incognizant of the subject, the Vice President had expressly advised that the country study the Blockchain and create a more innovative way to regulate its use instead of an outright ban. 

Nevertheless, the CBN explained that the memo is not an outright ban on the use of cryptocurrency in the country but a way to keep the banks from overexposing or dirting the mud with their involvement. Therefore, they are prohibited as a reiteration of a 2017 instruction to the country’s financial sector. 

Luno draws the battle line

What Luno is working on remains classified at the moment. However, it’s not worth ignoring the fact that the country’s volatile policies can create a halt to the innovations of its startup ecosystem. 

Nevertheless, it’s far from public imagination that a Peer-to-peer trading alternative would suffice in this case. From a more elite perspective though, Luno not being a direct marketplace for crypto exchange but an intermediary (or broker), a peer-to-peer feature could significantly hurt their revenue stream. But we sit tight on the edges of our seats, waiting to be awed.