On Friday, the CBN sent out a circular to commercial banks reminding them that "dealing in cryptocurrencies or facilitating payments for cryptocurrency exchanges is prohibited" and has ordered all banks to close any accounts transacting with cryptocurrencies.

While the edict will cause headaches, and make it more difficult to purchase cryptocurrencies directly using Naira, the toothpaste is already out of the tube.

Amidst Naira deflation as well as regulatory and governmental risk, the total volume of cryptocurrency trading in Nigeria has risen significantly - Nigeria is the second biggest peer-to-peer bitcoin market on the cryptocurrency trading platform Paxful.

A few months ago, I was (naively) surprised to learn how the volumes of peer-to-peer transactions taking place over WhatsApp and Telegram in Nigeria.

And on local exchanges, over $200 million of bitcoin is traded per month (whereas what was traded on the Nigerian Stock Exchange in Q2'2020 was just $131 million).

In light of the CBN's announcement, Michael Kimani shared a must-read thread recounting similar experiences in Kenya after the Central Bank of Kenya regulated against cryptocurrency exchanges in 2017.

In short, Kenya has, not surprisingly, seen a massive spike in P2P trading - over Ksh300 million in weekly volumes across peer-to-peer exchanges like LocalBitcoin and Paxful.

No doubt, a glimpse into the future for Nigeria.

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On Crypto and Narrative

I don't mean to insinuate in this section that the reason why the CBN is cracking down on crypto exchanges is due to narrative; the regulators and government have their own priorities, which is beyond the scope of this newsletter.

I do, however, wonder sometimes if crypto and bitcoin maximalists aren't doing themselves any favors.

Here's an article from the crypto exchange Binance, for example, entitled The Complete Beginner's Guide to Decentralized Finanance (DeFi). They write,"DeFi will take power from large centralized organizations and put it in the hands of the open-source community and the individual."

Yes, that's true, and yes, that might be a good thing. But is it any wonder why regulators, banks and other incumbents fear this kind of technology?

I wrote something similar about narrative and the avant-garde a few months back. The mainstream often rejects (or ignores) the innovations from the frontier, but there's a role for intermediaries or translators to bridge that gap between the two cohorts.

And I suspect there has a correlation between mainstream adoption and a reduction in formal remittances, for example, as people learn that crypto isn't just about trading and speculation, but that it's a technology with regular use cases, like sending money across borders more affordably.

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Who is Your Customer?

As the dust settled on the Robinhood and GameStop saga of last week, we learned that the reason why Robinhood had to halt trading of volatile stocks due to clearinghouse and regulatory issues.

Nonetheless, it was an opportunity for Robinhood competitor Public to talk about alignment with their customers.

Zero commission trading apps like Robinhood make their money, in part, through something called Payment for Order Flow, where institutional investors and hedge funds are their customers. Public decided that they were going to stop participating "to remove this conflict of interest from our business model".

I've been thinking a lot about this in the context of the African tech ecosystem, where there are concerns about the viability of "free" consumer products from a business model perspective, and while behemoths like M-Pesa still charge transaction fees.

In Nigeria, Carbon just launched a Buy Now Pay Later product called Carbon Zero, offering zero interest loans to consumers. This product, modeled after Affirm in the US and Klarna in Europe, amongst others, charges merchants per conversion, an offering seen to help merchants of big ticket items like Peloton or PS5 to convert an otherwise pricey sale.

I think the question, like so much else, is whether there is enough volume to make this model sustainable in a market like Nigeria. Or perhaps for Carbon, their diversified revenue streams will make it a bit easier than if this product was a standalone company. Time will tell.

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Stay safe,

Justin

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