Nigeria’s Central Bank Issues Another Warning On Cryptocurrency Investments

  • Nigeria' central bank issued a warning agaisnt cryptocurrencies, reiterating one issued earlier this year
  • The financial institution may have reasons to mistrust cryptocurrencies, although adoption has been growing in the country

Nigeria’s central bank, the Central Bank of Nigeria (CBN), recently issued a warning reiterating that cryptocurrencies aren’t regulated in the country. As such, those who wish to invest in them are doing so at their own risk.

The warning puts legitimate cryptocurrencies like Bitcoin, Litecoin, and Monero in the same group as OneCoin, which is widely believed to be a Ponzi scheme. CBN’s warning aims to inform residents and financial institutions that they face risks if they get in on the crypto space, such as market volatility and exchange bankruptcy.

The warning adds that cryptocurrency-related organizations, such as Nigerian cryptocurrency exchange NairaEx, are “not licensed or regulated by the CBN.” This, the document clarifies, means those dealing with cryptocurrencies aren’t protected by law.

It reads:

“Virtual currencies are traded in exchange platforms that are unregulated, all over the world. Consumers may therefore lose their money without any legal redress in the event these exchangers collapse or close business.  “

Central Bank of Nigeria

The circular follows one sent by the financial institution earlier this year, in which it advised local banks to distance themselves from cryptocurrencies by telling them not to “use, hold or transact” with the technology.

The financial institution, however, may have reason to mistrust cryptocurrencies. As Quartz Africa reports, the country recently had to deal with a Russian Ponzi scheme dubbed Mavrodi Mundial Moneybox (MMM) that saw its population lose over $50 million after getting over two million users.

Once the scheme collapsed, MMM’s administrators attempted to get former users to buy bitcoin, associating the scheme with the flagship cryptocurrency. Since then, Nigerian lawmakers have branded bitcoin as a scam, and warned that those dealing with it are “gambling.”

Interestingly, according to data from CryptoCompare, bitcoin trading in the Nigerian Naira, the country’s fiat currency, has surpassed the $1.2 million mark in the last 24-hour period, despite the central bank’s warnings.

Various reports show that Nigeria was one of the countries that most used “bitcoin” as a search term online, according to Google Trends in 2017. Other countries showing heavy interest for the cryptocurrency in online search engines were South Africa, the Netherlands, Austria, and Slovenia.

OneCoin Denies Being a ‘Hybrid Ponzi-Pyramid Scheme’

The controversial OneCoin organization has recently responded to the Central Bank of Samoa, claiming it isn’t a “hybrid ponzi-pyramid scheme” as it doesn’t fir the definition of these schemes, and that it is a centralized, closed cryptocurrency.

According to the Samoa Observer, the Central Bank of Samoa claimed OneCoin is a “hybrid ponzi-pyramid scheme” that “laundered money through New Zealand to Samoa.” It also claimed the organization was targeting local residents through churches.

The organization, widely believed to be running a pyramid scheme using the cryptocurrency space, sent a statement to the Observer defending itself, claiming it’s neither a pyramid nor a Ponzi scheme. It’s worth noting individuals associated with OneCoin have been arrested and charged in various countries, including China and India.

In its response, OneCoin argued that Ponzi schemes see the revenue of old investors be “generated through the investment of new investors,” and that it doesn’t require its agents, known as Independent Marketing Associates (IMAs), to recruit others in order to earn bonuses.

Its defense revolves around IMAs not being “obliged to incur any additional expenses or recruit a new IMA,” and that they are rewarded for the “value of [their] sales,” not for recruiting new agents.

The organization added pyramid scheme regulations are these for “consumer protection,” and that its IMAs aren’t consumers. This, as when they join the organization they sign a contract classifying them as “self-employed business owners.”

The users which are part of the OneLife Network are NOT consumers. They are IMAs, meaning they are self-employed business owners.

As CoinDesk notes, OneCoin argues it isn’t a pyramid scheme because its agents aren’t seen as consumers and, as such, it can’t be classified under a dictionary definition of a pyramid scheme, and doesn’t force its IMAs to recruit new agents, although they’re incentivized to do so.

OneCoin, instead, argue it is a “centralized, closed cryptocurrency” with strict anti-money laundering (AML) and know-your-customer (KYC) rules, which make it “much more compliant than decentralized [cryptocurrencies].”

As reported, OneCoin’s leaders Ruja Ignatova and Konstantin Ignatov were recently indicted by the U.S. Attorney for the Southern District of New York (SDNY) on charges of wire fraud, securities fraud, and money laundering. Konstantin was arrested in March of this year.

Moreover, earlier this month former OneCoin investor Christine Grablis filed a lawsuit against the organization’s promoters, with Grablis’ attorney claiming OneCoin’s founders created a multi-billion dollar ‘cryptocurrency’ company based completely on lies and deceit.”