Cryptocurrency Not Responsible for Nigeria's FX woes, Analysts Say

The recent shutdown of Bureau De Change (BDC) operators in Nigeria's capital Abuja was not caused by the cryptocurrency peer-to-peer (P2P) market, according to leading Nigerian crypto analysts.

Local media reports stated that BDC operators in Abuja announced ceasing operations due to a lack of available US dollars to trade.

The BDCs cited the growing cryptocurrency P2P market as a contributing factor to their struggles. However, analysts firmly reject the notion that crypto P2P trading is responsible for forex shortages leading to the shutdown.

Cryptocurrency's Limited Role

According to Nigerian Web3 legal advisor Kue Barinor Paul, the accusations levied against crypto are baseless.

He emphasized that cryptocurrencies play only a minor role in Nigeria's overall forex activities. More significant factors like price fluctuations and Nigeria's reliance on imports contribute far more to forex shortages.

Paul explained that BDCs deal in physical fiat currencies, while crypto transactions involve digital assets like stablecoins. Hence, there is no direct competition between the two markets. Blaming crypto P2P trading for BDCs' illiquidity is merely a distraction from the real issues at hand.

The P2P Crypto Market

Nigeria currently has the largest P2P crypto market globally, partly due to the 2021 central bank ban on cryptocurrencies. However, a December 2022 circular lifted the crypto ban, allowing banks to facilitate digital asset transactions again.

Many Nigerians struggle to conduct forex transactions through traditional banks. Crypto P2P offers far lower fees compared to the banking sector for transferring foreign currencies. This makes it a more convenient option than banks for forex trading.

According to analyst Rume Ophi, crypto P2P promotes transaction inclusion in Nigeria's free forex market. It provides easy access to foreign currencies and hedging against naira inflation.

Regulation, Not Blame

As the world moves toward digitalization, technological innovation is critical. Paul sees an opportunity for traditional players like BDCs to collaborate with digital currency operators. However, proper government regulation of both sectors is necessary for this to happen.

The government must understand how crypto works to regulate it efficiently, noted Ophi. With appropriate cryptocurrency regulations in place, the crypto space and BDCs could co-exist and benefit from each other's strengths.

Final Thoughts

Crypto plays a limited role in Nigeria's forex activities. Proper regulation, not blame, is the solution moving forward. There is ample room for collaboration between traditional finance and digital currency if the government takes a balanced regulatory approach.