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What You Need To Know About Nigeria’s SEC Plans To Regulate Crypto Assets

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Nigeria takes one step further towards the legislation of digital or cryptocurrency assets and Blockchain related services, as the Securities And Exchange Commission (SEC) of Nigeria, clearly detailed how it intends to regulate the sphere. 

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Nigeria Flag

Cryptocurrencies around the globe have received widespread acceptance. This has, over time, projected unavoidable ambiguities in areas that surround its usage and regulation. While the rise of cryptocurrencies in Nigeria has been filled with enthusiasm, particularly amongst crypto enthusiasts, on the other hand, it seems to have given rise to an even bigger concern. 

One very silent but pertinent question remains in the mind of many Nigerian stakeholders: “Will Bitcoin be declared legal or illegal?”. 

Nigeria’s Long-Path to Cryptocurrency Legislation

Nigeria reportedly has the world’s third-largest number of digital currency users. Though the government initially aired early skepticisms based on the popularity and allure of the digital asset, the CBN has gradually adopted an intriguing middle-ground approach. 

In January 2017, the CBN issued a strict circular to all banks and financial institutions restricting transactions on digital currencies. On account of its volatility, banks and financial institutions were issued a strong warning not to hold, trade or transact in any virtual currency. They pointed out that transactions made in cryptocurrencies are anonymous, untraceable and unregulated, which makes them defenseless against fraudulent activities especially in the aspects of money laundering. 

The Nigerian Securities and Exchange Commission(SEC) also made a similar move in 2017. SEC associates Bitcoin with some very popular Ponzi schemes that have hit the country like Onecoin and MMM. They released a statement setting a warning signal to Bitcoin traders to utilize extreme alertness. The statement declares Bitcoin as risky and that it was probably invented to facilitate some “fraudulent pyramid schemes”

February 2018, following the 2017 circular, the CBN reiterated its position on cryptocurrencies. They released a more mildly-worded press release cautioning citizens that cryptocurrencies do not constitute legal tender in Nigeria and, is consequently, a mere gamble, while also emphasising a reluctance to hop into crypto regulation.

However, the Nigerian Deposit Insurance Corporation(NDIC) and the CBN have had plans to adopt cryptocurrency technology. By August 2019, the Fintech Roadmap Committee of Nigeria, constituted by the SEC, submitted the Fintech Report which comprises recommendations with respect to cryptocurrencies. This came following a call for a legal framework to regulate crypto by the Nigerian House of Representatives. 

Last year, a committee was set up by the SEC in a bid to create a regulatory framework for digital assets in Nigeria. There seems to be progress, since the committee was set up as the statement received from SEC on 14th September 2020 outlined how cryptocurrency assets will be regulated.

Nigeria’s Securities And Exchange Commission (SEC) Statement On Digital Assets Regulation

In a bid to stimulate ethical strategies that ultimately make for a fair and profitable market, the Nigerian government has released a statement which encompasses the regulation of digital assets based on their classifications and how they should be treated.

The statement asserts that the SEC’s stance is that virtual crypto assets are “securities unless proven otherwise”. Thus, the SEC will regulate cryptocurrencies or crypto investments when the characters of the investments qualify as securities transactions. The areas of regulation specified in the statement include:

What will be regulated: This includes all Digital Assets Token Offering (DATOs), Initial Coin Offering(ICOs), Security Token ICOs, and other blockchain-based offers of digital assets within Nigeria 

Who will be regulated: This includes any person, either an individual, corporate body or organization, whose activities involve any aspect of digital and Blockchain-related services. Such groups of individuals would be subject to the regulatory guidelines. 

Nigeria’s Securities and Exchange Commission Official Statement On Digital Assets Classifications And Treatment.

Any business or individual planning to launch a digital innovation is requested to fill an initial assessment form, after which the issuer or sponsor must register the digital asset properly.  

All digital assets, cryptocurrencies, and any blockchain-based offers of digital assets within Nigeria will be subject to the regulation of the commission.

With the new policy put in place, security risks would be alleviated. The stabilization of the markets would make for better investments for Nigerians.

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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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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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Market Watch

What China’s crypto clampdown means for investors

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Over the weekend, China, the biggest crypto mining country once again, began to clamp down on cryptocurrency. Ten Chinese agencies including the central bank and banking, securities and foreign exchange regulators have vowed to work hand in hand to expose illegal cryptocurrency activity.

China has always placed stricter rules on cryptocurrencies but the new rule has made all crypto-related activities illegal. According to the People’s Bank of China (PBOC), it is illegal to cryptocurrency trading and anyone that does so will be severely punished; this includes those within China that are working for overseas platforms. To fully phase out the cryptocurrency mining sector, the National Development and Reform Council (NDRC) said that it would launch a nationwide crackdown on cryptocurrency.

Over the years, China does not recognize cryptocurrency as a legal tender. In 2013, the Chinese government referred to Bitcoin as a virtual commodity that individuals are allowed to freely participate in. This freedom, however, precludes banks and payment companies from providing services that are Bitcoin related.

In 2017, Initial Coin Offering (ICO) was banned. The ban was also extended to the conversion of legal tenders to cryptocurrencies by trading platforms which led most of the platforms to shut down operations in China. The crackdown led 88 trading platforms and 85 ICO platforms to withdraw from the market as of July 2018.

To China, the crackdown on cryptocurrency is necessary as the country is trying to launch its official digital currency and the need to fulfil its 2060 climate targets. The crackdown was necessary as cryptocurrency was seen as infringing on people’s properties and ‘disrupting the normal economic order.’

The statement by PBOC on Friday was unequivocal as the current crackdown is distinct from the previous ones. In his statement on Friday, PBOC called Bitcoin, Ether and Tether ‘legally irreparable’ and should not be used. The new regulations forbid financial institutions, marketing and IT providers from supporting crypto-related activities. The activities of both crypto holders and miners are now considered illegal. This is what Henri Arslanian, a PwC crypto leader termed as “No ambiguity. No room for discussion. No grey areas” in his tweet.  

What does this mean for crypto holders worldwide?

The major effect of China’s crackdown on cryptocurrency is the increase in price volatility. While volatility is a common phenomenon in the crypto world, a crackdown initiated by the world biggest cryptocurrency mining country will have a huge effect on market price.    

After the PBOC interview, Bitcoin fell by 4% within 24 hours and is currently trading at $43,320. Ethereum fell by 6% and it is currently trading at $3,036. With the Evergrande debt crisis and the huge blow bedevilling the crypto market, a clampdown by China would most likely keep the market price on the red until another good news crops up.

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