Exploring Nigeria’s untapped crypto market

The Nigerian Cryptocurrency market is in frenzy at the moment with various mining platforms witnessing immense traffic. However, the market is still largely unregulated. Many have been left wondering when the authorities will look at the huge market with a view to harnessing the huge benefits; BENJAMIN UMUTEME writes.

It was a bit of a surprise to many that were gathered at the headquarters of the Securities and Exchange Commission in Abuja, venue of the 2024 Annual Conference of the Association of Capital Market Academics of Nigeria (ACMAN) with the theme ‘Crypto Assets and the Nigerian Economy: Implications for Financial Markets Regulation’, when the Director General of SEC Emomotimi Agama stated that the country’s cryptocurrency market is worth over $400 million.

Agama further stated that the volume of the crypto market in Nigeria would hit $52.5 million in 2028, indicating a 12.66 per cent increase in four years (2024-2028).

According to Agama, despite economic challenges, the country has emerged as one of the leading countries globally in terms of crypto adoption and volume of transactions.

Data has shown that approximately 33.4 per cent of Nigerians own or use cryptocurrencies, therefore throwing up the call fiscal and monetary authorities to take advantage of the large number to further provide financial services for the over 38 million unbanked adults.

Analysts say that a crypto miner does not need to have a bank accounts but rather a wallet that enables them carry out their transaction.

He said, “Reports indicate that Nigeria’s crypto transaction volume reached $56.7 billion between July 2022 and June 2023, representing a nine percent year-over-year growth.

“The country’s crypto market is estimated to be worth over $400 million, with a significant portion of the population involved in cryptocurrency trading and transactions.”

“Cryptocurrencies can significantly reduce remittance costs, with Bitcoin transactions cutting fees by up to 50%. Nigeria is one of the largest recipients of remittances in Africa. Cryptocurrencies offer a more efficient and cost-effective way for Nigerians abroad to send money home. With traditional remittance fees often being prohibitively high, cryptocurrencies provide a cheaper and faster alternative.

Crypto assets’ emergence

In recent years, the rise of crypto assets has been remarkable, with global market capitalisation surpassing $1 trillion as of 2024. Bitcoin, introduced in 2009, was the pioneer, leading to the creation of thousands of alternative cryptocurrencies. As of now, the total market capitalisation of all cryptocurrencies combined stands at an impressive $2.59 trillion.

Crypto assets, also known as digital or virtual assets, utilise cryptography for security. They are broadly categorised into cryptocurrencies, like Bitcoin and Ethereum, and tokens, such as NFTs (Non-Fungible Tokens) and stablecoins.

A key feature of these assets is their decentralised nature, operating on blockchain technology without a central authority. Transactions are recorded on public ledgers, ensuring transparency and security.

Bitcoin remains the most widely recognised cryptocurrency, while Ethereum is notable for its smart contract functionality. In Nigeria, platforms like Bitkoin Africa and Quidax are driving local initiatives

This and a plethora of other digital currencies have not only captured the imagination of investors, but have also prompted regulators and policymakers worldwide to reassess traditional financial paradigms.

Crypto assets represent a revolutionary shift towards decentralized financial systems. Their underlying block-chain technology promises enhanced security, transparency, and efficiency in transactions. However, with these advancements come substantial challenges, particularly in the realms of regulation, security, and market stability.

Nigerian perspective

Nigeria, with its dynamic and youthful population, stands at the forefront of cryptocurrency adoption in Africa. Presently, Nigeria ranks among the first five countries in the world with the highest cryptocurrency usage.

Despite this, concerns persist!

The absence of a robust regulatory framework has left many investors vulnerable to fraud, market manipulation, and other malpractices as evidenced by the recent FTX and Binance fraud cases and the conviction of their CEOs in the United States. As policymakers, it is our duty to strike a balance between fostering innovation and ensuring the protection of investors and the stability of our financial system.

Disrupting financial systems

Economist Olamilekan Adefolarin in a chat with Blueprint Weekend said the global financial environment has been re-awaken to the disruption to traditional financial systems and fiat paper money exchange transactions by cryptocurrency courtesy of block-chain technology.

According to him, the global crypto ecosystem is impacting emerging economies like Nigeria as can be attested to with the country’s crypto market well over $400 million.

He noted that since 2020, the participation of Nigerians in the crypto space has grown in bound, especially with the innovation that it has brought in buying and selling, online payment, foreign currency conversion and exchange.

“And many Nigerians seeing the opportunity and high return on investment that crypto dealing offer they jump on it even though Nigeria authorities have yet to come up with legal backing and commitment to encourage citizen’s full participation.

“However, this lack of commitment by the Nigerian government is understood due to the nature of the crypto ecosystem as an unregulated block-chain financial technology platform. Conversely, governments across the world are taking proactive steps to safeguard their financial sector so as to avoid the total disruption that crypto could cause to the domestic economy, in a positive move other nations are creating an enabling environment to allow crypto to strive to better the economy,” he said.

For Agama, “The lack of a comprehensive regulatory framework has created uncertainty, which can deter both investors and innovators. Cybersecurity threats, including hacking and fraud, pose significant risks. A substantial portion of the population lacks adequate financial literacy, making them vulnerable to scams and risky investments.”

Effective regulation

The chairman, Senate Committee on Capital Markets and Institutions, Osita Izunaso, said the country required effective crypto regulation to benefit from the gains of the market.

Izunaso said the absence of effective regulation on crypto currencies had exposed so many investors to fraud and called for synergies from all stakeholders to harness opportunities in the crypto space.

He also noted that the complex nature of the crypto market underscores a critical juncture in our financial evolution. He stressed that, “As we navigate this complex landscape, it is imperative that we adopt a balanced and informed approach, one that embraces innovation while safeguarding the interests of all stakeholders.”

More importantly, the lawmaker said the quest for a legislative middle line that will safeguard Nigerians from the market’s volatility would be guided by the need for investor protection, market integrity, financial stability, and innovation and growth.

Challenges

With the vast market the crypto space presents, analysts are of the belief that challenges persist.

They opined that in spite of inherent challenges, regulatory authorities need to come up with a balanced approach if they are not only to harness the benefits but also mitigate the risks.

“Collaborative efforts from regulators, industry stakeholders, and the public are crucial for developing effective regulations. I encourage continued dialogue and cooperation to ensure a secure and innovative financial ecosystem,” he said.

The SEC Nigeria recognises cryptocurrencies as securities and is working on a regulatory framework to provide clarity and protection for investors which aims to balance innovation with the need to protect investors and maintain market integrity.

Also, in a bid to embrace digital currency while retaining regulatory control, Nigeria launched its Central Bank Digital Currency (CBDC), the eNaira, in October 2021. It aims to complement the existing financial framework and offer a secure, regulated digital payment option.

“The journey towards integrating crypto assets into the Nigerian capital market is fraught with challenges. Regulatory uncertainty, cybersecurity threats, and the potential for illicit activities as highlighted by the EFCC among others are significant concerns that must be addressed.

“However, the opportunities presented by crypto assets are equally compelling. They offer the potential for greater financial inclusion, providing access to financial services for the unbanked and underbanked populations. Additionally, the adoption of block-chain technology can enhance the efficiency and transparency of our financial system, reducing costs and fostering trust,” he stressed.

What to do

Adefolarin opined that the “government has a task to ensure the nation and citizens benefits from crypto to income generation and earnings, tax revenue, financial sector stability and financial inclusivity by first establishing law that are home grown market and global financial compliance.”

“Secondly, regulation of crypto financial transactions and exchange should be in naira so as to reduce pressure on our foreign exchange market.

“Thirdly, integrating crypto into our eNaira platform would go a long way to increase Nigerians acceptability and participation.

“Lastly, awareness and sensitisation of citizens on the use of crypto will help citizens better appreciate its workings.”