The recent ban on cryptocurrency transactions could taper investment flows into the country as global investors are beginning to heavily eye the cryptocurrency space, Bismarck Rewane, Chief Operating Officer (COO) of Financial Derivative Company (FDC) has said.
The move by the CBN may fuel the pessimism of existing and potential investors (domestic and foreign) who were already skeptical about the uncertain policy environment. The attendant effect could be an increase in capital outflows, which is risky for the naira and infrastructure development.
He also warned that the ban could increase the level of poverty as jobs would be lost. The fast expansion of the Nigerian crypto market has created numerous jobs especially for the youths.
“The ban will affect individual home-based traders and these traders often have employees of their own. Stopping the operations of the emerging crypto market means more job loss, and this could trigger a faster increase in the rate of unemployment which is already at 27.1 per cent as at the second quarter of 2020.
In FDC’s bi-monthly publication, it said, just recently, Jay Z and Jack Dorsey announced a $23.6 million investment to fund Bitcoin development in Africa. In addition, there is a fast growing interest from Wall Street and the big players in the financial industry, such as JP Morgan and Morgan Stanley.
“This signals a huge potential for the crypto market in the coming years. There are high expectations of reduced volatility as investors could begin to increase cryptocurrency investments in emerging markets. This is good news but with the largest consum- ing market in Africa banning cryptocurrency transactions, this could limit potential investment in- flows that would boost economic growth.
Shadow economy
Bitcoin was created for the sole purpose of reducing bottlenecks in financial transactions, particularly across borders. The ban is unlikely to completely stop all transactions.
What is more likely is the rise of a crypto shadow economy in Nigeria, which could now increase the chances of money laundering and illicit financial flows. There would be no more advertisements by popular exchang- es on social media platforms and no transactions using financial institutions.
He believes that it will not be easy to be used for laundering. He made reference to Quartz who explained that, laundering money using cryptocurrency is like stealing from a jewelry store but leaving the map to your house at the crime scene. This is because all cryptocurrency transactions may not carry your real name but there is an ID reference and the details of all transactions made with that ID can be traced. The pseudonymous nature of cryptocurrency somewhat vali- dates the CBN’s concerns. But the truth remains that cryptocurrency is an emerging market with a huge potential for job creation and investment which is being undermined by arbitrary policy reg- ulations.
Rewane said, from all indications, the crypto market is not going anywhere soon. Therefore, it is vital for the CBN to invest in understanding the market and utilizing it to attract much-needed investment in- flows.
The CBN could also regulate the cryptocurrency exchanges and issue guidelines to encour- age forex inflows through these platforms, similar to its recent guidelines on diaspora remittances. The macroeconomic picture is still not inviting, and an uncertain policy environment coupled with multiple exchange rates will keep investors skeptical. Nigeria is already high risk for investors and with the rising total debt stock ($84.57 million as of September 2020), a widening fiscal deficit (estimated at N5.6 trillion) and an infrastructure gap estimated at $100 billion annually, there is need for fiscal and monetary policy consolidation to attract investment. An increase in capital inflows will boost productivity and output levels.