Financial institutions are not permitted to settle bitcoin transactions, according to the Central Bank of Nigeria (CBN). Despite recent modifications to SEC regulations after more than 19 months, this effectively makes the use of Bitcoin illegal in the nation. Bitcoin has established itself as a digital asset and has been widely adopted and used by people.

How Will the Latest Regulation in Nigeria Affect Bitcoin?

On May 20, 2022, the Nigerian SEC released a set of regulations to regulate the creation, exchange, and storage of digital assets. Many of the alleged problems in the Nigerian bitcoin market are intended to be fixed by these new rules on digital assets. Similar to what SEC stated on September 14, 2020.

The long-awaited regulation, according to reports, is an effort to regulate how digital assets are used in Nigeria. The regulatory guideline outlines the laws that apply to cryptocurrencies besides bitcoin, including those that govern the establishment of new digital assets. But nowhere in the text does it mention bitcoin.

However, some of the new rules do apply to companies that might provide their customers with Bitcoin services. However, it might also offer services using different cryptocurrencies. The rule lists a number of organizations as qualified entities, including Virtual Asset Service Providers (VASP), Digital Asset Offering Platforms (DAOP), Digital Asset Administrators (DAC), and Digital Asset Exchanges (DAX).

The SEC also stated that a DAOP operator would be permitted. Only in the event that they could provide proof of their 500 million Naira "minimum paid-up capital" and a valid fidelity guarantee covering at least 25% of that capital.

The SEC may also deny a request to register a digital asset if its operation runs counter to public policy, puts investors in danger, or otherwise violates laws, rules, and regulations. The Commission further stated that the rules may be periodically revised in order to ensure that digital assets or securities have the proper regulatory liquidity.

Concerns have been raised concerning the outcomes if this law is successful, especially in nations where the use of BTC is rising. This rule may pave the way for a gradual easing of CBN restrictions. It's possible to prevent Bitcoin transactions by establishing know-your-customer regulations and monitoring transactions made on exchange platforms.

This could discourage Bitcoin users from using authorized cryptocurrency exchanges. Because it contradicts Bitcoin's essential principles of privacy and decentralization, which many find appealing.

Bitcoin and the Continued CBN Ban

Financial institutions are not permitted to provide transactions related to cryptocurrencies since the CBN ordered the suspension of accounts that provided cryptocurrency-related operations. The choice was taken at a time when Bitcoin's (BTC) price was sharply rising, and there was a significant influx of new users.

According to the CBN, the prohibition on Bitcoin in Nigeria restricted financial institutions' access to the cryptocurrency market rather than outright banning cryptocurrency-related activities there. Many people have described the action as CBN's attempt to prevent system failures. Particularly if financial institutions begin to make larger investments in the highly volatile cryptocurrency sector.

Different industry experts who thought the CBN's mandate was bad sparked conflicting answers. The SEC was now exposed to its laws and regulations as a result. Even if the SEC has already delivered on its commitment to present legal rules for dealing with digital assets. Financial institutions are still permitted to support cryptocurrency-related transactions after the implementation of this new rule.

To make it simpler to use Naira online, Nigeria launched eNaira, a Central Bank Digital Currency (CBDC), in October 2021. The eNaira is substantially different from Bitcoin even though both currencies are based on blockchain technology. This includes the fact that it derives its value from a digital version of the naira instead of from a traditional financial asset.

Although Bitcoin is becoming more and more popular in Nigeria, the government's official position has not changed. And the CBN's ban on Bitcoin remains in force in Nigeria.

Bitcoin Has Succeeded in Nigeria Regardless of the Regulation

The Nigerian government's Bitcoin restriction on commercial firms made it challenging for people and organizations to conduct cryptocurrency transactions. However, Bitcoin has been extremely successful in Nigeria.

Statistics from Paxful and LocalBitcoins have shown that Nigeria reports an unusually high number of peer-to-peer transactions. The fact that Nigeria saw a 15% yearly growth in P2P Bitcoin trade after the critical bank ban is also supported by the data.

Despite the dismal country, the price of bitcoin has managed to hold steady and is now beginning to show indications of recovery. Additionally, this has led to a public uproar in Nigeria for a number of the nation's economic organizations to formally approve the use of Bitcoin.

If Bitcoin remains a popular innovation in the upcoming years, CBN might opt to defy the trend. Remove the prohibition on domestic financial firms as well. SEC regulation, however, is merely a guide for bringing stability and control to the Nigerian Bitcoin market until that time.

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