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The past couple of weeks have seen a couple of big crypto-related developments in Nigeria, the very same country which until recently had a complete ban on platform crypto trading.

One is that Nigeria (population: 233 million) is preparing a crypto tax proposal — if the government is planning to tax it, then the government is planning to support its use. Although, as we saw with India , tax policy can be wielded to dampen crypto activity.

Another is that the country’s Securities and Exchange Commission (SEC) has granted its first official licenses to two crypto exchanges, Busha and Quidax. It has also admitted five crypto asset startups (Trovotech, Wrapped CBDC, HXAfrica, Dream City Capital and Blockvault Custodian) into a pre-registration regime designed to “test run” digital asset business models.

Noelle Acheson is the former head of research at CoinDesk and Genesis Trading, and host of the CoinDesk Markets Daily podcast. This article is excerpted from her Crypto Is Macro Now newsletter, which focuses on the overlap between the shifting crypto and macro landscapes. These opinions are hers, and nothing she writes should be taken as investment advice.

This is a big about-face for a government that has so far seemed determined to dampen crypto interest. In 2021, it banned commercial banks from servicing of crypto firms . While financial institutions still can’t trade or hold crypto themselves , the ban was removed last December and initial licensing requirements were established.

No real change

It hasn’t been smooth sailing for the industry since then. Far from it. In February, access to Nigerian exchanges was reportedly blocked (in some cases temporarily ), and officials detained two Binance executives that had flown to Nigeria to help sort out issues with the tax authorities. One later escaped, but Tigran Gambaryan — a U.S. citizen — is currently still in a Nigerian jail , charged with money laundering and currency speculation (the charge of tax fraud was recently dropped ).

In April, four of Nigeria’s leading fintech platforms were blocked from onboarding new customers because of their use by crypto traders , and over 1,100 bank accounts linked to crypto traders were frozen . Not long after, Nigeria’s National Security Adviser classified crypto trading as a national security issue . According to officials, the crypto market is largely to blame for the country’s currency woes, not the eye-watering inflation, fiscal mismanagement and social unrest.

The “big stick” approach seems to be softening, however. In May, the agency appointed Emomotimi Agama , a self-declared crypto and fintech “enthusiast,” to the post of Director General.

Finally, there seem to be moves to encourage crypto ecosystem development, while insisting on regulation. Why the change of heart?

Economics at work

Let’s start with the optimistic scenarios:

It could be that the authorities finally recognize the popular support. According to crypto forensics firm Chainalysis , Nigeria’s “adoption” index was the second highest in the world in 2023 (after India). The rationale could be that removing a few crypto restrictions just might deflect some of the anger seen in last month’s nationwide protests . Branded with the hashtag #EndBadGovernance , these were triggered by the rising cost of living amid inflation of almost 35%, and resulted in more than 20 dead and over 1,000 arrested (some of whom face possible death penalty ).

Another factor for the government’s shift could be the potential for investment. Nigeria desperately needs investors to start trusting its markets again. Capital flight is a deep concern in a country struggling with an “official” depreciation against the US dollar of over 45% so far this year.

Against this backdrop, any boost to capital retention or inflow would be welcome. Nigeria accounts for roughly 60% of all crypto trading volume in Africa, and the size of its potential market could attract investment not just in the assets themselves, but also in businesses building related services.

This could in turn encourage the development of better market infrastructure around the region, as other jurisdictions follow Nigeria’s regulatory lead. A couple of weeks ago, the central bank of Ghana published proposed licensing rules for crypto exchanges.

The real incentive

A more likely motive, however, is the potential for greater control over crypto trading and investment. One of the reported reasons for the arrest of the Binance executives was their refusal to hand over client data. We can assume that the newly licensed platforms will be more cooperative with the state.

And in May, Nigeria’s SEC proposed rules banning P2P crypto trading. I haven’t seen the text, but it’s likely it contains severe penalties for anyone caught doing so. After all, earlier this year, authorities arrested around 200 foreign exchange agents (many of them street traders) for “market manipulation.”

Furthermore, it’s worth noting that the two licenses mentioned above were granted under the SEC’s “ Accelerated Regulatory Incubation Program ,” which allows limited activity with close scrutiny from the regulator, and the possibility of shut-down at any time. None of the companies have full registration yet.

What’s more, banks are reportedly still reluctant to serve the few authorized crypto businesses, due to an understandable lack of confidence in the government’s approval.

So far, this isn’t looking like full support.

Crypto regulation in most of Africa is inevitable, as governments accept that trying to stop activity is futile. Note that Nigeria became the world’s second most “crypto” economy, according to the Chainalysis global adoption rankings, even after a blanket ban on crypto firms accessing fiat. For many of Africa’s youth, crypto trading is one of the very few available sources of income. And, for savers terrified of losing value amid painful inflation and freefall devaluation, holding crypto assets can be not just a lifeline, but also a way to access scarce dollars .

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It doesn’t hurt that, in naira terms, BTC is up almost 380% over the past year.

But obviously, increased regulation comes with greater control, and it remains to be seen just how much Nigerians care about the new framework, especially given the population’s low trust in their central bank and law-enforcement authorities .

Corporates and institutions can now trade/invest in crypto assets, but their participation in the crypto market also puts them on a list somewhere which means they could come under additional scrutiny. Also, their access can change on a whim.

If corporations and banks don’t yet trust the regulatory shift, why would the individual trader or saver? They just might decide that the P2P market, despite its illegality, is worth the risk.

And other jurisdictions developing their frameworks will hopefully take note that talking the regulatory talk is not enough, especially when trust in institutions — one of the key drivers of the very industry the authorities want to control — is low.

Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.