Nigeria's crypto ban: the silver lining

Here’s an interesting story that outlines a crypto market development we could see a lot more of around the world this year, and that introduces an intriguing regulatory twist:

The government of Nigeria has blocked access to cryptocurrency exchanges operating in the country in an attempt to stem the devaluation of the naira. There’s a lot to unpack in this one.

First, how does a government block access to websites? Usually, it’s through telecom operators, which can be asked to blacklist specific IP addresses. In the case of Nigeria, the Nigerian Communications Commission (NCC) ordered telecom companies to restrict consumer access to the websites of Binance, Coinbase, Kraken and many other crypto exchanges, including local operations.

Second, do these restrictions work? Sort of, but not really – they’re more an added friction which could deter many, but those who want to buy crypto assets will find a way. VPNs can get around IP restrictions. Websites can change IP addresses. And, according to Binance, only “some” of its Nigerian users have experienced issues accessing the site, with access to its app as yet unimpeded. CoinDesk reported yesterday that Coinbase has confirmed its website is still accessible in the country. And Nigerian users on X today report they can still access popular crypto sites. IP blocking is a game of whack-a-mole, hard to enforce and hard to maintain.

What’s more, peer-to-peer (P2P) platforms are particularly popular in Nigeria – according to blockchain forensics firm Chainalysis, Nigeria ranks first in global P2P exchange trade volume. While the IPs of well-known P2P platforms can be blocked, there are many smaller ones that have not registered and that could in theory dodge an IP freeze. On X earlier today, Ray Youssef – CEO of P2P platform Noones – showed users how to activate private browsing, which seems to grant previously denied access. And Telegram reportedly hosts some impromptu message boards that result in trades.

Third, and even more important, is why would the government do this? Here is where it gets particularly interesting.

Apparently, crypto exchanges are to blame for the devaluation of the naira.

The official reason given for the move against IPs is, according to the local Premium Times, the “continuous manipulation of the forex market”, and the decision was taken “following reports that currency speculators and money launderers were using [crypto platforms] to execute criminal activities”.

Also, presidential advisor Bayo Onanuga in a tweet on Wednesday accused Binance of “blatantly setting exchange rate for Nigeria, hijacking CBN [Central Bank of Nigeria] role”. Binance, meanwhile, published a notice highlighting its efforts to comply with the authorities, which did not go down well with many users.

If the official statements from government representatives sound like desperation, well, there’s ample reason for that: the naira has been one of the worst performers in the world against the dollar over the past year, and analysts don’t see much relief in sight.

Obviously, the 76% increase in Nigeria’s broad money supply over the past year is probably more responsible for the crash of the currency than are cryptocurrency purchases. But the government has over the past few weeks tried a host of increasingly desperate measures, which do not seem to be working. It looks like it’s time for a new scapegoat.

This could set a worrying precedent: blaming access to crypto assets for capital flight. As currency turmoil spreads, we could see more governments try to clamp down on crypto exchange access in order to slow any exit. It could even feed crypto opponents in developed countries a new tool with which to tarnish the entire industry, especially if (as Nigeria is attempting to do) “currency speculation” becomes associated with “money laundering”.

However, this blame could well backfire by calling more attention to the utility of crypto assets in wealth preservation.

Since this storm erupted earlier this week, local web searches for bitcoin haven’t moved much, but those for Binance spiked, according to Google Trends.

And anyone pulling up the BTC price in naira terms would see an asset that has appreciated almost 650% over the past year and 125% over the past month.

It’s not just that shouting “don’t look at this!” of course makes everyone look. It’s also that the government is imbuing crypto assets with a currency manipulation power they don’t really have, and in the process enhancing their appeal. This is particularly relevant in a society in which only 25% say they trust their government, according to Gallup.

In sum, this looks like yet another regulatory battle the crypto ecosystem will have to fight, certainly in Nigeria but most likely soon in other regions as well. But it’s one it will win, because it is very hard to ban crypto transactions, especially when the attempt to do so highlights their relevance.

(I talk about this and more in today's Crypto is Macro Now.)