In one day, Nigerian government, through the Central Bank of Nigeria (CBN) strangled the budding cryptocurrency market in the country, and this decision has sucked the air out of the nascent market, leaving Nigerian cryptocurrency startups for dead.
As a nation identified as the second largest cryptocurrency market behind the United States, one would expect such profile to be an encouragement for the government to initiate policies that will support the market’s players.
But that wasn’t the case as CBN directed all accounts related to bitcoin and other cryptocurrencies be shut down by Nigerian banks and other financial institutions. This means Nigerian banks will no longer work with cryptocurrency Exchange platforms.
Nigerian startups in the cryptocurrency market will no longer have the benefit of using Nigerian banks as its gateway for cash, neither can users use banks to withdraw their bitcoin in naira or fund their cryptocurrency wallet. This will have more impact on Nigerian cryptocurrency startups than it would on it users.
While users can continue trading on these exchange platforms through peer-to-peer feature and exchanging their crypto for value, Nigerian cryptocurrency startups will struggle to attract investors due to the CBN ban, uncertainty surrounding the market and erratic government policies.
In Nigeria, there are five major cryptocurrency startups owned by Nigerians that will be affected by the CBN ban. These startups are BuyCoin, Quidax, NairaEx, Bundle Africa and Yellow Card.
BuyCoins was founded by Ire Aderinokun and Timi Ajiboye in 2017. BuyCoins allows its users to buy, sell, receive, send and store Bitcoin, Ethereum, Litecoin, USD Coin and USD Tether on its platform.
It allows users buy directly with their local bank account or debit card, that won’t be possible again since the CBN ban. BuyCoins had raised $1 million in 2018 from Y Combinator. CBN has now made selling their startup’s goal to investors for funds more difficult.
NairaEx was founded by David Ajala six years ago. It is one of the most popular bitcoin exchanges in Nigeria, serving over 130,000 users, with over 900,000 transactions.
It offers real-time & automated payments in bitcoin, allowing users to withdraw into any Nigerian bank prior to the CBN ban on cryptocurrency transactions. There will no longer be such partnership with Nigerian banks. While NairaEx hasn’t announced any investment, raising funds will now be like pushing a camel through the needle’s eye.
This cryptocurrency startup was established by Buchi Okoro and Uzo Awili, in 2017, the same year CBN first issued its warning against cryptocurrency trading in Nigeria.
Quidax went ahead to setup its platform, allowing users to buy and sell Bitcoin, Ethereum, Ripple, Litecoin and others. It also offers users deposit option like bank transfer and credit/debit card. Just last year, Quidax secured $120,000 following an investment from Techstars Toronto.
Yele Bademosi founded the digital wallet platform in 2019, after leaving Binance, world’s largest cryptocurrency exchange. Bundle Africa receives cash or cryptocurrency like its market rivals.
Bundle Africa is backed by Binance, which invested $450,000 as pre-seed capital in September 2019, with other African investors. It currently services only Nigeria and Ghana.
Yellow Card isn’t owned by Nigerians, but it is based in the country before the startup began to expand across other African countries. Yellow Card was founded in Nigeria by Chris Maurice and Justin Poiroux.
Since it began operation in Nigeria five years ago, it has processed over $35 million in transactions through Bitcoin, Litecoin, Ethereum and other digital currency. It also offers its users credit cards and bank wire transfer options. Last year, Yellow Card received $1.5 million as investment.
As an emerging market in cryptocurrency, these startups have been able to attract investment or seek for funds prior to the CBN ban, however, the new policy from the Nigerian government will now make boardroom talks more difficult than it already is.
But while the government was trying to stop the growth of the cryptocurrency market, it also shot itself on the foot. The ban on the use of cryptocurrency for transactions in Nigeria will not only have a lasting negative impact on the operation of these startups, it will also affect foreign investment into the country.
In the last three years, cryptocurrency startups in Nigeria have been able to secure over $3 million in investment, leading to job and wealth creation for the country that has been struggling with the stereotype of being hostile to innovations.
The CBN ban will frighten investors, pushing them to take their investment to South Africa and Ghana – two countries that are behind Nigeria in cryptocurrency usage in Africa. Drop in investors confidence will affect the country’s foreign direct investment, further reducing Nigeria’s forex reserves and employment opportunities.
By Fakoyejo Olalekan…
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