Investigation: Unraveling cryptocurrency platforms’  deals against naira

 Beyond the illiquidity in the forex market which the Central Bank of Nigeria (CBN) is trying to reverse,  the misfortune of the naira has also been linked to exchange rate manipulators in the cryptocurrency industry.

Investigations have shown how cryptocurrency traders depreciate the naira by setting fake dollar to naira reference rates for over 12 million Nigerian cryptocurrency traders. With the lid blown open, experts are advocating cryptocurrency industry regulation and rate caps on trading platforms to save  the naira.

Founders of cryptocurrencies foresaw serious opposition to their operations at inception. They built a technology to protect their assets from restriction and confiscation no matter the jurisdictions they operate. Without a central issuing or regulating authority, and non-reliance on banks for transactions verification, cryptocurrency platforms have become too dangerous for economies where they operate.

Since January 2009 when the first Bitcoin was launched by a computer programmer or group of programmers under the pseudonym Satoshi Nakamoto,  cryptocurrencies trading has continued to  thrive unhindered at the expense of economies where they operate.

In Nigeria, the exchange rate manipulation role of cryptocurrency traders and platforms has become a source of worry to the Central Bank of Nigeria (CBN) and security agencies.

Aside several other factors causing the naira’s slide, like Nigeria’s ever rising import bills, medical tourism and tuition fees payment abroad, exchange rate manipulation by cryptocurrency traders remains a major contributing factor.

The naira, which exchanged at N1,750 to dollar at the parallel market and N1,665 to dollar at the official market got to that level of depreciation on the back of activities of cryptocurrency traders who set up bogus  exchange rate for unsuspecting public.

Experts noted that many manipulators operating through various channels are exacerbating the depreciation of the naira and contributing to inflation and economic instability.

Founder, Cryptopreacher Blockchain Academy (CPBA) and a co-founder of ThinkCrypto Global in Washington DC, Rume Ophi, explained how practices of bad eggs in the crypto industry is affecting naira exchange rate against global currencies.

He disclosed that some crypto traders with huge liquidity peg selling rates far above the market rates, and overtime, such rates are seen as normal, causing the naira to depreciate. For instance, if the naira is trading at N1,700 to dollar, a cryptocurrency seller can bring huge funds, and peg it at N1,800 to dollar, which is N100 above the market rate.

“People that have no intention to buy at that rate, will agree to make the purchase, but at the point of payment, they will cancel the offer. That activity will overtime, be seen as the real exchange rate for the naira,” he said.  

Ophi said such operators want the dollar prices to rise because of personal financial benefits or huge profit they will make from the transaction.

He said that beneficiaries  currency manipulation still have families who will also be affected by surge in prices of commodities due to their actions.

“I will be proposing a situation where the crypto trading rates are capped. There is a need on sensitisation for players to set cap on their platforms so that people coming to transact will have limit for rates to quote and buy,” Ophi advised.

He said that bureaux de change (BDC) always go to Binance and other cryptocurrency trading platforms to look at rates to benchmark on the price of dollar to naira. “Binance is providing rates for the market, with many BDCs going to the platform to watch rates, and mark up their rates with some margins. That activity continues everyday, and that was part of what got the naira to where it is today. I can also not exonerate some operators in the crypto industry, some of them may also not follow the best practices,” he said.

According to him, value of the naira is more of speculation, than foreces of demand and supply.

President, Association of Bureaux De Change Operators of Nigeria (ABCON), Dr. Aminu Gwadabe, explained that in crypto trading, Bitcoin (BTC) is traded as USDT, which is pegged at one US Dollar.

He said that for USDT to be profitable, naira must fall because cryto traders will get more naira when they sell. He said the during crypto trading, a traders’ naira accounts are debited, and their wallets credited with USDT equivalent.

Gwadabe said the naira is losing value because large volume of the local currency is now being traded on a virtual currency and whatever is earned remained virtual. He said that activities that go on in the crytocurrency market are not regulated, neither are they guided by any operational framework.

He said that in many countries with troubled currency due to cryptocurrency activities, government can mobilise secret traders that enroll on the platforms and quote cheaper rates to influence the domestic currency positively adding that the current cryptocurrency traders are part of the depreciation machine that manipulate the market against the naira.

Continuing, Ophi explained, that the adoption of cryptocurrencies is much higher in developing countries like Nigeria more than in developed countries, asides the United States, adding that Nigeria is leading in worldwide adoption of cryptocurrency.

“The reason is very simple: inflation is a chief cause of this. This is evident in markets like Nigeria, Zimbabwe, Tanzania. This is a way people can actually hedge themselves and get into other currencies and enable them offset that,” he revealed.

 Ophi appealed to Nigerian Senate to set up an independent panel to work out a legal framework that will serve as a sort of regulation for the space.

He said, “Like the US Senate, our lawmakers can hold a hearing on the role of government concerning crypto where stakeholders in this space will have a dialogue with lawmakers on cryptocurrency in Nigeria and how Nigeria and Nigerians can make the best of it.”

“You will realise that asides The United States, countries like Peru, India, Indonesia, and Nigeria are among the countries with the biggest increase in crypto wallet creation,” he said.

 Crypto traders are expected to buy or sell any currency at rate of choice by placing a buy or sell request and the currencies they wish to exchange. Then, they will view multiple offers already waiting for their request and pick the best of the offers and the funds are sent to their selected currency wallet.

 Crypto trading statistics

Consumers from countries in Africa, Asia, and South America were most likely to be an owner of cryptocurrencies, such as Bitcoin, in 2023.

Steps taken by other economies

 In 2021, the United States Congress set up a ‘“Demystifying Crypto: Digital Assets and the Role of Government” committee hearing , chaired by Representative Don Beyer — who has previously proposed legislation expanding the regulatory and legal framework for digital assets in the U.S.

In Nigeria, the Federal Government is working on blocking the online platforms of Binance and other crypto firms. Government accused the cyrpto firms of  continuous manipulation of the forex market and illicit funds movement leading to depreciation of the naira.

Naira continuous depreciation has made the authorities to think of viable ways to close loopholes through which the local currency is being undermined.

Presidency and regulatory sources say the government decided to move against Binance and other crypto firms following reports that currency speculators and money launderers were using them to execute criminal activities. Authorities believe the ‘criminal activities’ going on on platforms are contributing significantly to the weakening of the naira.

Binance, a digital assets platform, serves as a window for peer to peer transaction allowing users to advertise interest to sell or buy currencies of their choice.

In September 2023, Nigeria’s Securities and Exchange Commission (SEC) placed a disclaimer on Binance Nigeria Limited, saying the platform was “neither registered nor regulated by the Commission and its operations in Nigeria are therefore illegal”.

Despite the warning by the regulatory agency, the firm continued its operation, attracting huge patronage especially among urban youths and suspected speculators and money launderers.

Aside suspicions of economic sabotage, officials also speak of national security concerns as the platforms are often patronised by other criminal groups including for payment of ransom.

Law enforcement sources say the digital asset platforms are also routinely deployed for manipulation of forex values through fake deals that serve to prop up values or cause a fall.

The activities of the crypto firms are seen as  “sophisticated heist against the Nigerian economy”.

According to sources, by allowing simultaneous opening of buy and sell windows for a single user, manipulators often fake interest to sell dollars which they then buy at a speculated rate to themselves through the buy window.

According to analysts, this therefore gives the dollar a fake value against the naira which then sets a frenzy and mislead the market. This fake price is then often quoted by BDCs who raise their prices to meet the Binance benchmark even without any corresponding demand in that segment.

A senior executive at the Central Bank of Nigeria (CBN) described as “troubling” the bearish downward trade of the naira against the dollar in the last 10 days, attributing it to artificial devaluation caused by the speculative sites.

“Through manipulative rent seeking, Binance’s global reach results in higher USD to NGN exchange rates often being used as a benchmark for currency trading, misleadingly devaluing the Naira in global markets.”

The CBN new moves to save the naira include its fresh guidelines, policies aimed at deepening supply side to rein in spike. The new policies are expected to calm the forex market volatility and prop up the value of naira. The CBN also recently announced major changes, such as ending the limit on the spread between buy and sell rates in interbank foreign exchange transactions and removing restrictions on the sale of proceeds from interbank transactions.