On Tuesday, 5th March, 2024, Binance Holdings Limited, colloquially known simply as "Binance" made the unequivocal announcement of their intention to exit from the Nigerian financial market. 1 This announcement comes against the backdrop of what is perceived by crypto-pundits as an uneasy relationship between cryptocurrency's operation in Nigeria, (particularly with Binance as we will come to see) vis a vis the Nigerian Federal Government and the apex money authority, the Central Bank of Nigeria.
This article intends to shed light on this announcement by offering context to help understand what exactly is going on, why has this relationship gone sour and what is the fuss all about, if at all any. So...
A. WHO IS BINANCE?
At its simplest, Binance is a global company which operates a blockchain ecosystem. However, Binance is best known and particularly renowned for being one of, if not the largest cryptocurrency exchanges in the world.
What this means is that Binance offers its users a platform that allows them to buy, sell, and trade in various cryptocurrencies like Bitcoin and Ethereum for other cryptocurrencies or for traditional fiat currencies (i.e., real currencies we use day to day like the US dollar or the Euro.)
The advantages and convenience of trading on such a platform cannot go understated, for example, there exists the potential for high returns as cryptocurrency values rise, significantly lower fees on transaction compared to traditional banking, global market inclusion provided one has an internet connection and many more, but perhaps, the most important advantage, which will invariably present itself in this article is decentralization.
B. WHAT IS DECENTRALIZATION IN CRYPTOCURRENCY TERMS?
Decentralization is a form of currency control where there is no one singular authority that dictates how the currency will move and operate in the world of finance which is essentially what Central Banks of Sovereign states do in conjunction with local banks (where applicable).
Instead, the particular cryptocurrency is operated as a collective in which every single user, through their individual computers, make "decisions" together towards the efficiency, fairness and security of the cryptocurrency system by checking each other's transaction logs automatically and sharing all transaction records in their particular system, thereby allowing the system to speaks for itself based on the totality of cross-verified, mutually shared information (Read: Trust).
At its core, this is looked at as a financial revolution. A revolution that could potentially replace/eliminate traditional economic, banking and financial operational mechanisms that were designed to allow only a chosen few powerful individuals to regulate (Read: Dictate) a currencies movement.
Needless to say, the powers that be in high places do not enjoy the prospect of such a revolution being adopted since they have made millions if not billions of dollars from the inception of classical banking and the existence of central regulation authorities by exploiting what could soon be the previous status quo as the world slowly but surely gravitates towards digital/cryptocurrency.
Despite the foregoing there are some legitimate arguments to be made for why a countries' governments should be wary of the march towards cryptocurrency trading, arguments that do not necessarily involve the aspect of a Sovereign State's reluctance to relinquish authority of its local financial system. A few key examples in brief include:
- The pseudonymous nature of cryptocurrency trading is a huge incentive for criminals to further their illegal activities e.g. human trafficking, arms dealing, sale and purchase of counterfeit or stolen goods, money laundering, terrorism finance and so on.
- Cryptocurrency values are volatile and citizens not investment savvy and still insistent on participating in this trade could potentially lose a lot of money which could have been redirected to more "stable" alternative investment forms that are government backed like Treasury Bills and Bonds making it a win-win for State and Citizen.
- Deprivation of tax from goods and services traded strictly through crypto will invariably cripple a country's economy since taxes are usually the primary way through which sovereign states operate government activities crucial to society at large like infrastructure construction, salary of essential public servants etc....
- A government's consumer protection initiatives are similarly crippled since these transactions are unregulated and therefore protective measures cannot be said to apply where government oversight is lacking, and the list could go on...
C. WHY HAS BINANCE DECIDED TO EXIT THE NIGERIAN MARKET?
From what we've covered so far it is apparent that cryptocurrency trading, though revolutionary, is also a sensitive balancing act for users, platforms and governments alike considering the advantages and pitfalls that come with it. This three-way balancing act forces a situation where a government, being responsible for the wellbeing of its citizenry while also ensuring certain fundamental freedoms are not curtailed may outrightly ban/criminalize such trading, or embrace such trading and do its best to regulate it, therein coming to terms with crypto as a reality of modern times.
According to the Global Adoption Index Report (2023) of Chainlysis, a crypto-intelligence firm that provides blockchain analysis tools and services to various entities, including government agencies, financial institutions, and cryptocurrency businesses globally; Nigeria ranked first globally for P2P exchange trade volumes and second overall for (their rate of) crypto adoption.2
This statistic is of importance because The Central Bank of Nigeria (CBN) on 5th February, 2021 barred banks and financial institutions from dealing in or facilitating transactions in crypto assets, citing money laundering and terrorism financing risks3. This move was anticipated to increase the adoption of the CBN's eNaira central bank digital currency (CBDC) which did not happen. Still, Chainalysis ranked Nigeria high in its Global Crypto Adoption Index, reflecting the demand for a currency unaffected by government policies and inflation (Read eNaira), which are features offered by some cryptocurrencies. This emphasized that Nigerians do not have faith in the naira or the central body that controls it.
Despite this ban there was a steady uptake in the aforementioned P2P exchange trade volume and crypto adoption which Chainalysis put Nigeria at 17th and 11th respectively in 2022. In short, therefore, the ban did not have the desired net effect that was hoped by the Federal Government and the Central Bank of Nigeria.
Consequently, a change of strategy was required and this came in two forms;
First, the Nigeria's Securities and Exchange Commission (SEC) in May 2022 published regulations for digital assets that signaled an attempt at trying to find a middle ground between an outright ban on crypto assets and their unregulated use.
Secondly the lifting of the aforementioned ban by the Central Bank of Nigeria on 22nd December, 2023 amidst strict measures aimed at regulating crypto-trading in Nigeria.
These progressive moves that seemingly extend an olive branch to the crypto-industry then beg the question, why is Binance, a titan of the crypto-exchange trade industry abandoning all forms of trade in its products where the Nigerian Naira is concerned in 2024?
It is the writer's opinion that Binance has been the subject of continuous scrutiny by the Nigerian authorities and finally the proverbially camel's back has broken. Below are some illustrations of how this conclusion could be arrived at, in no particular order, but merely to serve as an illustration of the multiplicity of hostile instances that Binance has had to deal with:
- On 9th June 2023, Binance was specifically ordered by the Securities and Exchange Commission to halt its operations in the country and was further directed to immediately stop soliciting Nigerian investors in any form whatsoever. This despite the fact that Nigeria's crypto-adoption and trade rate remained high as earlier pointed out in the Chainalysis report WHICH WAS NOT UNIQUE TO BINANCE AND FURTHER THAT THERE WAS A BAN IN EFFECT AGAINST ALL FIRMS. The assertion was that Binance was targeted because they were neither registered nor regulated, yet consumers were able to access the Platform. Why didn't the SEC order apply all across the board to all other firms in Binance's position, and yes there were other firms in that same position? Why was Binance being singled out specifically? 4
- The Nigerian government says it has demanded almost $10bn (£8bn) in compensation from the cryptocurrency firm, Binance. It alleges that Binance (again specifically) manipulated foreign exchange rates through currency speculation and rate-fixing, which have seen the naira lose nearly 70% of its value in recent months. To some the Nigerian Government is looking for a scapegoat and Binance fits the bill for its own failings
- On Wednesday 21ST February, 2024 local media reported that Nigeria's telecom regulator, the Nigerian Communications Commission (NCC), received instructions from the country's apex bank to in turn order telecoms companies to restrict consumer access to the websites of companies like Binance. On Thursday consumers had only intermittent access to some sites. The controls mark a U-turn on cryptocurrencies in Nigeria, which President Bola Tinubu's government had seen as part of its sweeping market-friendly reforms, designed to attract overseas investment to its struggling economy.5
The Office of the National Security Adviser has also detained and confiscated the Passports of two executives of the Binance crypto exchange after they flew into the country under (what is rumored to be) an invitation to meet with Nigerian officials. Yet the same
Government through the House of Representatives Committee on Financial Crimes has issued threats of arrest warrants following the MD of Binance, Mr. Richard Teng's refusal to honor a summons dated 12th December, 2023 to appear before the committee. Binance has sent counsel and representation through Senator Ihenyen to communicate that its executives are reasonably apprehensive of coming to Nigeria. The Senator argues that the executives worry for their safety and security since their fellow executives are in custody whereas the committee is hellbent on enforcing Section 89 of the Constitution which gives the National Assembly the power to issue a warrant of arrest to compel appearance for the purpose of investigation. How the Nigerian Government intends to enforce the warrant remains to be seen since the company top management do not reside and are not based in Nigeria.
D. CONCLUSION
From the above article three things are abundantly clear:
- There is a propensity for Nigerians to have their private wealth stored in cryptocurrency because the Naira has been an unreliable store of value forcing Nigerians to consider whether their money is safer in cryptocurrency. Essentially the citizens have lost faith in the Naira.
- The Nigerian Federal Government is desperately trying to curtail the freefall in the value of the Naira and having a historically untrusting relationship with the crypto world for a myriad of reasons, some legitimate others unfounded, is poised to make the cryptocurrency world share in the blame of why the Naira has been ceding ground thus making companies like Binance an easy target for such finger pointing
- The cryptocurrency platforms cannot seem to trust the government's true position as far as their operations are concerned. Such instability, from a government no less, cannot possibly attract positive investment. Investors thrive on market stability.
There could have been measures taken to keep Binance in the Nigerian market and still have concessions made to appease the Federal Government and still send a resounding message to all other cryptocurrency platforms if indeed the accusations leveled against them are proved to be true. It is this writer's opinion that this sudden exit leaves a lot to be desired in terms of conflict resolution, but that is a story for another paper...
https://www.linkedin.com/company/gresyndale-legal/
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.