Arrest of Binance executives shakes up Nigeria’s crypto ecosystem, again

Vertigo

Nigeria’s crypto scene has been rocked by another wave of regulatory crackdown, as two senior executives of Binance, the world’s largest crypto exchange, were detained by the authorities on suspicion of currency manipulation and illicit flows. The arrest comes amid a series of measures taken by the Nigerian government to curb the use of cryptocurrencies and stabilize the naira, which has plunged to record lows against the US dollar. 

Binance, which has a large user base in Nigeria, has been accused of enabling speculative trading and rate-fixing that have contributed to the depreciation of the naira. According to the central bank governor, Yemi Cardoso, Binance Nigeria handled $26 billion worth of transactions in the last year, from sources and users who could not be adequately identified. Cardoso said that some of the trading activity involved “illicit flows” that undermined the country’s financial stability and security. 

The arrest of the Binance executives, who are reportedly an American and a British citizen, occurred on Monday, after they arrived in the country on Sunday. They were allegedly asked to provide user transaction data at a meeting with security investigators, but they declined. Binance has not commented on the arrest, but it has suspended its peer-to-peer trading service in Nigeria, which allowed users to exchange the naira for USDT, a stablecoin pegged to the US dollar. 

The arrest of the Binance executives is the latest in a series of actions taken by the Nigerian government to clamp down on the crypto industry, which has grown rapidly in the country in recent years. Nigeria is one of the largest crypto markets in the world, with an estimated 12% of its GDP equivalent to cryptocurrency transactions in the year to June 2023. Many Nigerians use cryptocurrencies as a hedge against inflation, a means of remittance, and a source of income. 

However, the Nigerian government has been hostile to the crypto sector, citing concerns over currency stability, money laundering, terrorism financing, and tax evasion. In February 2023, the central bank issued a circular that banned banks and other financial institutions from facilitating crypto transactions, effectively cutting off the crypto exchanges from the traditional banking system. The ban was later lifted in December 2023, after the central bank announced a new licensing regime for crypto platforms, but the process has been slow and uncertain. 

In addition to the banking ban, the Nigerian government has also blocked access to several crypto websites, including Binance, Coinbase, Kraken, and others, through telecom providers. The government has also closed thousands of bureaux de change, which were used by some crypto traders to exchange foreign currencies. The government has also increased its interest rate to 22.75%, the highest in Africa, in an attempt to curb inflation and attract foreign investors 

The Nigerian government’s crackdown on the crypto sector has been met with resistance and criticism from the crypto community, civil society groups, and some lawmakers. They argue that the government’s actions are counterproductive, as they stifle innovation, deprive Nigerians of economic opportunities, and drive the crypto market underground. They also point out that the government’s policies have failed to stop the naira’s decline, which is driven by structural factors such as low oil prices, weak fiscal management, and poor governance. 

The arrest of the Binance executives is a clear sign that the Nigerian government is not backing down from its war on crypto, and that it is willing to use its coercive power to enforce its regulations. The arrest also raises questions about the legal and human rights implications of the government’s actions, as well as the potential diplomatic fallout with the countries of origin of the Binance executives. The arrest also casts a shadow over the future of the crypto industry in Nigeria, which faces an uncertain and hostile regulatory environment. 

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