Recently, the Securities and Exchange Commission (SEC) published a statement on the regulation of digital currencies and crypto-based companies or startups in Nigeria. According to the statement, the SEC will regulate crypto-token or crypto-coin investments when the features of the investments qualify as securities transactions.
Put differently, although crypto-assets do not currently have a legal tender status in Nigeria, given that the apex bank is yet to recognize it as one, every crypto asset would forthwith be treated as securities by the SEC, unless the company or startup proves otherwise.
Accordingly, issuers or sponsors are expected to satisfy the burden of proving that the virtual assets do not constitute securities by making an initial assessment filing with the SEC.
Our view is that the SEC statement must have been prompted by the growing popularity of digital assets amongst the Nigerian public. Recent statistics obtained from usefultulips, a BTC analytic data provider, showed that Nigeria recorded the highest volume of peer to peer Bitcoin transactional trades in sub-Saharan Africa over the last 12 months with more than $341.6mn, while the closest rival, Kenya and South Africa, had a transactional value of just $70.0mn and $68.4mn, respectively over the same period.
We do not think the statistics above are surprising. Our view is that despite the CBN’s refusal to recognize digital currencies as legal tender in Nigeria, the increased regulatory restriction on currency market activities by the CBN over the last 3 to 5 years may have accelerated the move towards crypto-currencies.
Certainly, this would have been amplified by the more recent dollar liquidity crisis which has widened the spread between the official and parallel market rate, creating a massive window for arbitraging via the use of digital currencies. Recall that the CBN has continued to increase the number of items listed as “illegitimate for FX transaction” after the initial list of 41- items were created back in 2016/17.
While we consider the SEC’s move as a step in the right direction that will ensure the regulation of cryptos as an alternative asset class for investors in a low yield environment, monitoring the activities of already existing crypto sponsors/issuers who operate virtually, online and mostly off-shore is a question we worry about.
United Capital Plc Research
