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Paradoxically, Nigeria has become the second largest cryptocurrency market in the world ... and now bans trading them

Less than a month ago, Nigeria's central bank issued a circular ordering the African country's financial institutions to close all those accounts that carry out operations using cryptocurrencies and they will identify the holders, under pain of "severe regulatory sanctions" in case of disobeying.

The circular itself does not prohibit owning cryptocurrencies, but it does make it impossible to operate with them. And when you stop for a moment to think it is not clear what is more shocking, that a country like Nigeria considers It is necessary to legislate so sharply on the use of cryptocurrencies... or that the world's second largest market for them has suddenly decided to crack down on their use.

We are not facing the first attempt by the central bank to restrict cryptocurrency trading in the country: it already tried in 2017, but then its actual effect was quite limited. Now, however, many Nigerian bank users report having seen their accounts frozen.

Nigerian banks long ago bet to also operate with cryptocurrencies, as they offered their clients much lower commissions when transferring cash between Nigerian and British accounts.

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Thanks to that, Nigerians have traded almost 600 million bitcoins in the last five years, showing an increase in the volume of transactions of 19% per year on average.

When the cryptocurrency is perceived as safer than the national currency

And, in that period of time, Nigeria has already been through two recessions. Currently its economic climate remains difficult: its national currency, the naira, suffered a devaluation of 24% last year, and there are already rumors that it could fall by 10% shortly, while the price index is at its highest point since the summer of 2008.

The BBC published yesterday a report that echoed testimonies from Nigerian cryptocurrency investors: most indicated that they had started to bet on them because they saw that, although their naira accounts increased, in the change to dollars they kept losing money.

In short, despite its volatility, Nigerians perceive that currencies such as bitcoin help reduce financial risk when living in a monetary environment subject to factors such as inflation, exchange rate depreciation, etc.

That contrasts with the performance of cryptocurrencies; In the words of entrepreneur Michael Ugwu,

"In some of my currencies I have made 50 times what I invested. In Bitcoin it has easily grown 10 times in the last year."

And now? Stripped of the option to turn to banks to use their cryptocurrencies, Nigerians are betting on going back to the transactions without intermediaries, the old-fashioned way... or even moving to more permissive neighboring countries (like Ghana or Sierra Leone).

Via | DW & Quartz