Is cryptocurrency allowed in Nigeria?

The cryptocurrency landscape has exponentially grown since the launch of Bitcoin (BTC) in 2009. Governments across the world continually strive to formulate rules, policies and regulations to curb fraudulent activities while fostering blockchain and digital asset innovation. For instance, Africa’s most populous country, Nigeria, has been active in defining its cryptocurrency regulation for the country’s tech-savvy and pro-blockchain youth population, who is eager to adopt digital assets. 

This article outlines the framework governing digital assets and cryptocurrency regulations in Nigeria. But before that, first, let’s look into the overall crypto market in Nigeria to understand the growing potential and the need for parallel regulatory requirements.

Cryptocurrency adoption and growth in Nigeria

Nigeria’s growing interest in cryptocurrencies was noticeable, but it jumped to the forefront during the crypto market crash in April 2022 when a Google Trends data analysis by CoinGecko indicated Nigeria to be one of the most crypto-curious nations. The search history of various nations was analyzed, and the results emphasized the popularity of cryptocurrencies in Nigeria even amid a crypto dip. 

Another report by Chainalysis put Nigeria among the top countries showing a high Global Crypto Adoption Index, especially in peer-to-peer (P2P) trading. KuCoin and Paxful are among the leading cryptocurrency exchanges in Nigeria for P2P trading and investing.

Such growth in Nigeria is fueled by inadequate financial services, high inflation, the depreciation of Nigeria’s fiat currency — the naira — and a young demographic (53.7% of Nigeria’s population aged 15–65). This tech-savvy Nigerian youth is today yearning for new opportunities for work, investment and financial independence. Blockchain and cryptocurrencies in Nigeria opened doors and presented new growth avenues. 

Increasing adoption of digital assets led Nigerian market regulators in May 2022 to publish a set of regulations for digital assets, signaling that the country is trying to find a middle ground between an outright ban on digital assets and their potential usage.

Related: IMF calls for tighter crypto regulation in Africa as the industry unfolds

Is cryptocurrency legal in Nigeria?

Cryptocurrencies are not recognized by the Central bank of Nigeria (CBN) as legal tender. In February 2021, the CBN banned commercial banks in Nigeria from engaging in any cryptocurrency transactions. The CBN, in a bid to protect citizens from black market criminal and fraudulent crypto activities, made it clear that the financial system and banking sector of Nigeria would not be linked to cryptocurrency trading

However, the bank has also acknowledged that cryptocurrencies have the potential to improve financial inclusion and transparency in the country in the foreseeable future.

Nevertheless, crypto is not illegal in Nigeria. However, there are no crypto laws in Nigeria and no legislation, legal act or provisions criminalizing the use of cryptocurrencies. On the contrary, cryptocurrencies are widely traded on cryptocurrency exchanges across Nigeria. They are simply not a part of the banking sector of the country. 

This is the reason why the peer-to-peer market became popular in the country. P2P trading, or exchanging crypto directly with another person, is heavily used in crypto trading in Nigeria. In fact, Paxful, a P2P exchange in Nigeria, shared that Bitcoin traded volume for Nigeria in the first two quarters of 2022 topped $400 million, making Nigeria its largest market globally. The CBN’s ban against cryptocurrencies exists, but Nigerians continue to engage in P2P trading.

There are also a number of local Bitcoin meetups and communities where people learn more about cryptocurrencies and how to use them. However, it is important to keep in mind that buying and selling cryptocurrencies carries a high level of risk, so it is essential to thoroughly educate oneself before making any investments.

Is cryptocurrency regulated in Nigeria?

Followed by the CBN’s ban and amid the growing popularity of cryptocurrencies in the country, the Securities and Exchange Commission (SEC) of Nigeria took on the task to frame crypto regulation in Nigeria. The SEC (Nigeria) in May 2022 published a comprehensive 54-page document titled “New Rules on Issuance, Offering Platforms and Custody of Digital Assets” on its website. 

This document opens doors for cryptocurrency service providers in Nigeria and details a guideline for banking and financial institutions of the country on how they may interact with digital assets.

The document also clarified and defined digital assets in Nigeria and iterated that all digital asset token offerings, initial coin offerings and any other blockchain-based offerings within Nigeria or by Nigerian issuers or foreign issuers engaging Nigerian citizens will be regulated by the Nigerian SEC.

Crypto asset rules in Nigeria for crypto exchanges

Under the Nigerian SEC’s new rules, all crypto exchanges providing services in Nigeria are required to secure a permit, which gives the SEC access to their records. The digital asset rules, sometimes also commonly referred to as crypto asset rules in Nigeria, define a digital asset exchange (DAX) as “an electronic platform that facilitates the trading of a virtual asset or digital asset.” 

Activities that fall under the Nigerian Digital Asset Rules

They also clarify a virtual or digital asset as a digital representation of value that has the capability to be used for transfer, trade, payment or investment purposes, thereby bringing cryptocurrencies under its purview. 

As per the SEC’s regulation, these DAXs will now need to obtain a virtual asset service provider (VASP) license from the SEC by complying with the requirements of application processing, registration fee and other applicable fees.

Additionally, crypto exchanges are required to provide evidence of a minimum paid-up capital of 500 million nairas and a current fidelity bond covering at least 25% of the company’s minimum paid-up capital. 

A licensed DAX will be required to abide by SEC regulations and submit an undertaking to ensure the availability of records, ensure personnel and resources availability, security measures, and risk management, and appoint a chief information security officer in order to mitigate cyber risks. 

Can you cash out crypto for fiat in Nigeria?

Since the banking sector in Nigeria has clearly distanced itself from cryptocurrency following the CNB’s ban, it sure is difficult to cash out cryptocurrencies for fiat. Nigerian businesses and individuals have begun using cryptocurrencies as a way to send and receive payments, but conversion to local currency is challenging. 

In 2022, Breet App gained popularity in African nations, including Nigeria, as it allows selling cryptocurrencies for naira directly in a bank account. It is not a crypto exchange, which means one cannot buy crypto or trade in cryptocurrencies.

Breet App is simply an automated crypto-to-fiat mobile application available on Google Play Store and Apple Store and allows converting various cryptocurrencies like Bitcoin (BTC), Ether (ETH), Dogecoin (DOGE), Litecoin (LTC) and stablecoins to naira and withdrawing from a Nigerian bank account. 

One may use a cryptocurrency broker, such as BitPesa, which offers brokerage services that allow one to sell cryptocurrencies and receive payment in the local currency. Apart from this, P2P marketplaces help to find willing buyers who may pay local currency in exchange for crypto.

Is crypto taxable in Nigeria?

In Nigeria, the Central Bank of Nigeria issued a circular in February 2021 stating that cryptocurrencies are not legal tender and advising caution when dealing with them. There is currently no specific tax law regarding cryptocurrencies in Nigeria. However, the Federal Inland Revenue Service has stated that cryptocurrency transactions are taxable as capital gains.

As a result, the Nigerian government plans to tax cryptocurrencies and digital assets in the future if the proposed Finance Bill is approved. The bill will include not just capital gains from digital assets but also bring into the taxation regulations for digital lotteries and gaming businesses with digital assets. This proposed bill aims to tax crypto and digital assets in Nigeria in line with international taxation norms and enhance cross-border growth and regulation for Nigerian citizens and institutions. 

The future of cryptocurrency in Nigeria

While Nigeria has shown extensive grassroots adoption of P2P crypto markets and a high social acceptance of cryptocurrencies, it still lacks in other areas, such as on-off crypto ramps, crypto retail trading, decentralized finance (DeFi) and institutional adoption of cryptocurrency and blockchain-based ledger technologies. 

The future of cryptocurrency in Nigeria will be driven by these trends that one should look out for:

Cryptocurrency as a medium of payment

Cryptocurrency in Nigeria will be explored as a medium of payment not just for retail trade but also to serve as a dominant means of cross-border payments and quicker remittances compared to the existing slow and tedious fiat remittance challenges. Since Nigerians are crypto-friendly, many online marketplaces and corporations will accept cryptocurrencies as a form of payment for their services. 

Cryptocurrency as a medium of investment

Amid the ever-growing inflation and continuing naira depreciation, Nigerians already see cryptocurrencies as a store of wealth and a means of preserving their investment. The naira has depreciated in value for a decade now and has failed to establish confidence in the young population. As a result, many Nigerians have turned to Bitcoin and other cryptocurrencies for investments. 

With regulatory bodies now in place and the proposed Finance Bill being tabled, these investments will lead to legitimacy, rendering more confidence in cryptocurrency as a medium of payment, trade and investment for the average Nigerian citizen. 

Author: Shailey Singh