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Nigeria’s New SEC Crowdfunding Rule And Its Implication For Public Investors And Startups In Nigeria

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Recently, the Nigerian Securities and Exchange Commission (SEC) announced that it had approved a new set of rules to guide crowdfunding activities in Nigeria. This is coming after the exposure draft that was published by the SEC in 2020. 

Crowdfunding has proven to be a useful fundraising option for startups in Nigeria, although a lot of fraudulent and highly-risky investment platforms with unreasonably high ROIs have also utilized crowdfunding to generate capital. Most of the Nigerian startups that engage in crowdfunding to raise capital are Agritech startups, like Farmcrowdy, Thrive Agric, Farmcart and ChubiAgro, who receive funds from the public to finance agricultural activities, offering a promise of paying back the capital plus a typical 15-30% ROI to investors after a few months. 

Before the introduction of the new rule, crowdfunding activities in Nigeria have been largely unregulated, which has left investors in a pool of financial risk. This new rule will redefine the rules of operations in crowdfunding engagements and protect investors from extreme risks. 

According to the new rule, startups(fundraisers) who intend to raise capital through crowdfunding will only be able to do so through a Crowdfunding Intermediary (CFI) that will facilitate the crowdfunding process. The funds will now have to be pulled from the public through an approved Crowdfunding Portal.

The CFIs must also ensure that the fundraisers disclose sufficient information to investors on what the funds are meant for and how they will be used. This will ensure that investors fully understand everything that is involved with the investment they are making. 

The SEC rule also provides clear details on who can raise funds through a Crowdfunding Portal that is operated by an approved Crowdfunding Intermediary. Crowdfunding is now restricted to;

  • Micro, Small and Medium Enterprises (MSMEs) incorporated as a company in Nigeria and have been operating for a minimum of two years
  • MSMEs incorporated in Nigeria which have been operating for less than 2 years but have a “strong technical partner that possesses a minimum of 2 years operating track record or has a core investor.

The rule also declares the maximum amount that can be raised by startups within a 12-month period, restricting the maximum amount to ₦100 million (260k) for Medium enterprises, ₦70 million ($182k) for Small enterprises, and ₦50 million ($130k) for Micro enterprises. However, exceptions are made for Commodities Investment Platforms, which the SEC defines as electronic platforms that connects investors 
to specific agricultural or commodities projects for the purpose of sponsoring such 
projects in exchange for a return. For CIPs, like Farmcrowdy, the maximum amount that may be raised through an approved Crowdfunding Portal within a 12-month period is N1 billion ($2.6m). 

Overall, one of the advantages of the new set of rules is that it puts a lot of requirements in place to protect investors from incurring avoidable financial losses or falling victim of a fraudulent fundraising activity. In line with the new rules, retail investors may be restricted from investing more than 10% of their net annual income, preventing them from putting in all or nearly all of their money and losing it. The official recognition and regulation of crowdfunding will also increase the trust of the public in crowdfunding activities since they are now well regulated, which, in turn, makes it easier for these startups to raise capital from the public.

However, the maximum amount that can be raised by startups that are not Commodity Investment Platforms is small relative to those of other countries. In the US, startups can raise as much as $5 million through crowdfunding, while South African startups can raise up to $2.5 million through crowdfunding. This is far above the maximum ₦100 million ($260k) that can be raised through crowdfunding by Nigerian startups.  
The requirements for startups that are eligible for crowdfunding also restricts very-early-stage startups from raising funds from the public to accelerate growth and expansion. 

 



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Jack Dorsey‘s Square to develop open source Bitcoin mining

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Jack Dorsey Bitcoin

On Friday, October 15, Twitter CEO Jack Dorsey announced that American fintech company, Square, would be looking to get into Bitcoin mining. Jack Dorsey who is also Square’s CEO announced this on Twitter which subsequently sent waves through the bitcoin market, surging its price to almost a record high, rising over $62,000 over the weekend. According to the Twitter boss, Square is looking to building an open source Bitcoin mining system that would be available to individuals and businesses.

Sharing his thoughts further on the initiative, he stated that “Mining needs to be more distributed” and that “the more decentralized [mining] is, the more resilient the Bitcoin network becomes. He also mentioned the apparent inaccessibility of mining stating that “Bitcoin mining should be as easy as plugging a rig into a power source.

Dorsey also believes that bitcoin mining “needs to be more efficient and that “clean and efficient energy use” would be undoubtedly beneficial to the digital currency in the long run.

Dorsey ended the thread by saying that a “technical investigation would be undertaken by a Square team led by Jesse Dorogusker, Square’s hardware lead. If successful, this initiative would be another of Square’s bitcoin focused projects which includes a Bitcoin hardware wallet.

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Financial Leaders from G7 Release Guidelines for Central Bank Digital Currency

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Source: World Atlas

At a meeting that was held in Washington, yesterday, October 13, G7 leaders discussed central bank digital currency and endorsed 13 public policy principles with regards to their implementation. The financial leaders from G7 agreed that CBDCs would complement cash and should not be detrimental to the monetary system. The G7 leaders have been discussing CBDCs this week concluding that they should do no harm and meet rigorous standards.

It should be noted that G7 includes finance leaders in advanced economic nations comprising of Canada, France, Germany, Italy, Japan, the U.S and the U.K. the G7 leaders make it mandatory that any newly launched CBDC should not harm the central bank’s ability to perform its duty of maintaining financial stability. In a joint statement by the G7 finance ministers and central bankers, they said that, 

“Strong international coordination and cooperation on these issues help to ensure that public and private sector innovation will deliver domestic and cross-border benefits while being safe for users and the wider financial system.” 

The joint statement further states that CBDCs are complements to cash and could serve as a liquid or safe settlement assets with an added advantage of anchoring existing payment systems. CBDCs issuance should be entrenched in a long-standing public commitment to transparency, rule of law, and sound economic governance. The statement added at CBDCs must be so efficient that they are fully interoperable on a cross-border basis. 

The G7 leaders agreed that they had a duty to minimize the incidence of ‘harmful spillovers to the international monetary and financial system” 

The G7 statement reiterated a similar statement earlier made by G20 that no global stablecoin project should begin operation until such a token has addressed legal, regulatory and oversight requirements. 

Countries like China and Nigeria are ahead of the pack with regards to the adoption of digital Yuan and Naira respectively. China’s crackdown on cryptocurrency may be a step forward for the country’s plan to promote its digital Yuan. Nigeria, on the other hand, postponed the launch of its eNaira in deference to the 61st anniversary of Nigerian independence on Oct 1. 

However, countries like the US and the UK are dragging their foot with regards to the introduction of CBDCs to their financial system. There are insinuations that America is in danger of being left behind technologically and financially if it doesn’t get serious with the implementation of CBDC in its financial system.

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Learning Guides

Understanding Speculation and Crypto Volatility

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Everyone who dabbles in the crypto industry learns almost immediately that the market is very volatile and oftentimes things can change very quickly. That volatility is the fundamental reason why some investors make absolutely stunning gains in so short a time and others lose a lot of money as well. Trading in crypto is one of the riskiest ventures any person can undertake and as they say, it’s not for the faint of heart. The risks can be mitigated of course and sometimes depends specifically on the coin or crypto asset being traded on, barring general market trends.

Nevertheless, to get to the bottom of the volatility concept, one must understand speculation in the market. To start off, the concept of speculation isn’t limited to cryptocurrencies, on the contrary, speculation has existed for as long as economics and trading has. But it is worth saying that speculation is often a feature of novel sectors, assets, commodities and the like. So, even though cryptocurrencies have been around for more than a decade, they’re still in their infancy as far as markets go. One could say that the market is still trying to find its feet.

One of the fundamental reasons why cryptocurrencies are so volatile is that they are fundamentally backed by nothing of value outside the attention that they get. Unlike many fiat currencies which are either pegged to another currency’s value or whose value is unilaterally determined by a central authority, cryptocurrencies only derive value as a function of how many people are willing to use is to transact, i.e. trust in the asset because other people trust it. As a rule of thumb, the larger the number of people who accept the asset, the more valuable it becomes.

This is one of the hallmarks of speculative trading. In the crypto world or in any market that’s novel and untested, many people are in it to win it which means their strategies in trade has the objective of making as much profits as possible in the short term. Therefore, the market enters a subtly dangerous cycle of rapidly changing prices of assets. Basically, investors typically buy assets when prices are low and wait. As more investors are attracted to the commodity for its low prices, it sets off a cascade where more people buy in, causing the price to steadily rise. 

However, all good things must come to an end and it almost always gets to a breaking point whereupon the price gets high enough for investors to begin to sell. This reverses the earlier cascade and as more and more investors pull out, the prices can fall dramatically causing even more to sell off in fear of losing whatever investments they have left. The prices having fallen resets the game and primes investors to begin buying again.

Volatility has been one of the talking points of many critics of cryptocurrencies often comparing it to a Ponzi scheme. And in certain cases, persons of interest with large pulls and audiences can substantially affect the rate at which prices rise and fall. Other factors include government regulations. Volatility at its core reflects the often chaotic nature of trade and market interactions and human hopes and fears.

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