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Crypto regulation in Nigeria: Catalyst for mass adoption or barrier to growth? – Ventures Africa

Two of the major issues investors and traders in digital assets face is the lack of regulation and clarity. On the former this week, the Nigerian Securities and Exchange Commission took its first major step towards regulating cryptocurrencies by releasing a set of rules to guide crypto investments in the country.

It is essential to ensure that digital assets “operate in a manner that is consistent with investor protection, the interest of the public, market integrity and transparency” as they provide alternative investment opportunities for the investing public, the commission said in a statement Monday. “Consequently, the SEC will regulate crypto-token or crypto-coin investments when the character of the investments qualifies as securities transactions.”

This move signals a shift from the previously hostile attitude of the Nigerian government towards digital currencies. The industry has been operating under several warnings and strong notices about the dangers of investing in crypto from regulators, including the central bank and SEC, while the federal arm has tried to ban them altogether.

But in spite of its ambiguous legal status, warnings from financial regulators, and the lack of support from the government, there has been a surge in Nigerians’ interest in digital offerings and currencies as trading exchanges continue to see increased adoption and trade volumes.

Nigeria is well ahead of its regional counterparts in terms of crypto trading and usage- ranking fifth in the world with some 11 percent of people that own or are using cryptocurrencies and its citizens account for the world’s third-largest holdings of bitcoin as a portion of gross domestic product, only behind Russia and New Zealand.

In the second quarter of 2020, Abuja led other African nations in the volume of Bitcoin transactions with data from analytics firm usefultulips showing that it topped the list with more than $34.4 million, while South Africa, the closest rival, had just $15.2 million in transactions.

The apex capital markets and investment regulator has now moved to provide a framework for the crypto-coin investment environment, which is “long-overdue” and a “positive step,” Luno Country Manager for Nigeria Owenize Odia told Ventures Africa in an interview.

“We see it as a positive step and long overdue. Regulation is very important considering that Nigeria is the largest economy (in Africa) and almost the most thriving market for cryptocurrency,” she said. The Nigerian naira has accounted for 15 percent of Luno’s trading volume this year and ranks 17th in the list of fiat currencies traded with Bitcoin across the globe and the second-highest in Africa.

The industry is still a grey area to most despite recent growth, and has often been associated with Ponzi-schemes and internet fraud, marring the space and scaring off potential investors. The onus has always been on dealers and exchanges to ensure they verify their customers while curbing illegal activities. “Even though we (Luno) are not required to do so, we self-regulate and apply the highest form of Know-Your-Customer processes,” Owen pointed out. “So we welcome regulation and we see it having a very positive impact.”

More so, the presence of rules guiding digital assets and blockchain investments will protect consumers,  and subsequently increase investor confidence and encourage adoption, Owen added. “Most people have been skeptical about delving into cryptocurrency because they felt they don’t have any backing from the government,” she explained. “With the SEC coming up with new rules regarding crypto, I’m sure it will definitely increase adoption and people will be comfortable dealing with crypto.”

That ought to propel further growth in the industry, but a number of experts have warned that regulations without a proper understanding of the cryptocurrency space could hamper innovation just when the industry is starting to grow.

“We are not against regulation. We are definitely in support of cryptocurrency regulations to ensure a safe climate for users. (But) regulation without a proper understanding of the cryptocurrency space is what we are wary of,” said Buchi Okoro, co-founder of Quidax, an African-focused cryptocurrency exchange.

Stakeholders have thus called for a collaborative approach to forming regulations for the industry. “We would rather it (regulation) is done with players in the space at the table to ensure innovation isn’t stifled,” Okoro told Nairametrics in an interview last year, a stance that was echoed by the Luno country manager.

“There won’t be downsides if they carry out effective regulation – collaborating with industry leaders and experts,” Owen noted. “It’s a new technology and it’s important they understand how it works before they try to come up with regulations. It’s good to work with industry experts.”

Luno for instance worked with the securities commission in Malaysia to help them come up with a framework that was used to form regulations and was the first company to be licensed in the Southeast Asian country, she noted.

The Nigerian SEC has, however, assured that the general objective of its regulation is not to hinder technology or stifle innovation but to create standards that encourage ethical practices that ultimately make for a fair and efficient market.

Owen expects the recent growth trend in the industry to continue, especially with backing from the government. “The boom has been ongoing for a while. With regulatory provisions, the industry will expand, we will see more players emerge in that space. And with increased education, digital payments will expand. It’s just scratching the surface of its potential in Nigeria.”

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