The Breakdown - How Nigeria and India Are Dealing With Crypto Bans

Episode Date: February 11, 2021

On today’s episode, NLW examines two governments' attempts to restrict how their citizens interact with crypto. He breaks down: India’s history with crypto bans India’s history with demonetization and financial control What we know about a new bill that would ban crypto and provide a framework for an Indian government digital currency  Recent action by the Central Bank of Nigeria to block banks from interacting with crypto Why the CBN action might be related to the politics of the #EndSars movement. -- Earn up to 12% APY on Bitcoin, Ethereum, USD, EUR, GBP, Stablecoins & more. Get started at nexo.io -- Enjoying this content?   SUBSCRIBE to the Podcast Apple:  https://podcasts.apple.com/podcast/id1438693620?at=1000lSDb Spotify: https://open.spotify.com/show/538vuul1PuorUDwgkC8JWF?si=ddSvD-HST2e_E7wgxcjtfQ Google: https://podcasts.google.com/feed/aHR0cHM6Ly9ubHdjcnlwdG8ubGlic3luLmNvbS9yc3M=   Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW   The Breakdown is produced and distributed by CoinDesk.com

We've been talking a lot about Tesla in the context of inspiring Bitcoin treasury buys, but I wonder if one other impact is to reinforce the space between these two extremes of the game theoretical proposition. In other words, a company like Tesla, a huge globally influential company, buying Bitcoin adds quite a bit of heft to the idea that these bands are completely regressive. Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io and produced and distributed by CoinDesk.

What's going on, guys? It is Wednesday, February 10th, and today we are talking about nation-level crypto bans, specifically bans in Nigeria and an impending ban in India and asking how those communities are dealing with it. I had originally intended to do a brief like normal on this one, but I think it got long enough that it makes sense to just dive right into this main topic. Let's start with a concept I've discussed a few times on this show, which is the idea of a wall of worry. A wall of worry is some reason that people have to not participate in the early stages of a

new bull market in some sector or another. In effect, walls of worries are the biggest or best reason that people are the biggest or best reason that people have to be skeptical that the bull market is real. There have been a number of different fuds competing to be the wall of worry for this particular Bitcoin and Crypto cycle, but I think the one that stands out as most dominant to me is that around government shutdowns. Now, of course, this is a type of fud that's been around for a long time. However, there's definitely a new flavor and a new urgency to it. The specific nature of this fud, which has been discussed by people like Mike Green, who Travis and I talked extensively about the other day, to Ray Dalio,

even in his most recent transitional note about Bitcoin, it basically comes down to the idea that if this sector gets too big, if Bitcoin or other cryptos really start to compete with fiat currencies, in other words, government-issued currencies, those governments are going to do whatever they can to shut it down. You might be noting that there are tons of counterpoints or counter arguments, Bitcoin's treatment as a commodity, for example. Indeed, in some ways, one of the biggest nuances that I've found that most of these discussions lack, at least when it comes from the people who are claiming that this is a reason to be scared of or not participate in Bitcoin specifically, is a cognizance about the difference between Bitcoin and Fiat-denominated stablecoins.

If you look at real animosity from governments around the crypto industry writ large over the last couple years, there has absolutely been dramatically more focus on stable coins. And I think it's pretty understandable why. First of all, there's the Facebook effect. A lot of these governments really started paying attention when Facebook announced Libra. This came into an environment in which private tech was already perceived by both citizens and governments alike as having too much power. It overlaps with concerns about censorship and how these platforms have control over what the public discourse is. In other words, the message is getting overlapped with the messenger

in the case of why people were a little bit nervous about stable coins from the get. The second obvious reason that stable coins have gotten more focus is that they present a more obvious competition to central bank digital currencies. Now, if you're a government, there are lots of very clear benefits to a central bank digital currency, a digital version of your fiat. It's radically more efficient. Think back to last March when they were trying to figure out how they were going to get stimulus payments to people. A Fed account direct with the central bank solves that so incredibly easily. Same when it comes to extracting taxes, huge efficiency gains.

There are for government's surveillance gains, which could be the illicit sort of monitoring behavior of citizens that we all get scared about or something that's a little bit more benign, at least theoretically, in terms of the ability to fight money, laundering, terrorism financing, etc. And then of course, there's totally new territory for monetary policy. Imagine being able to have different rates of money issuance for different types of groups, to be able to target different groups with different types of interest rates. These things become possible when the money is all programmable. Anyway, this is all a way of saying that there is a big distinction between Bitcoin and these stable coins as it relates to this fear of government shutting crypto down. There's also, however, the opposite.

it game theoretical opportunity, which governments and central banks might be acquiring Bitcoin or other cryptos as a hedge. Nick Carter was actually tweeting asking people for their predictions about which major non-pariah central bank will announce that they've acquired Bitcoin first. But then you might ask why would a central bank want this asset? Well, one, speaking of pariah nations, these are countries that might want global access to markets but are politically cut off from the dominant payment rails, such as Swift. Iran, for example, is already in that position. You could see interest from smaller central banks with more volatile currencies that tend towards inflation. You could also see it from opportunistic central banks who are interested in the upside potential or who see a

more broad opportunity around using crypto and new technology to attract a new tax and revenue base. The point of this is that the fud around governments just banning crypto is a lot more complex than it would seem from the people who are pushing that as a real argument. That being said, over the last couple weeks, we've seen some examples of countries seemingly validating that fun. Let's talk about India first. The Indian government has historically been rather hostile to crypto. The Reserve Bank of India, that country's central bank, ban commercial banks from interacting with crypto in any way, including servicing crypto companies in April of 2018. And this really hampered the industry for about two years until in March 2020, the Indian Supreme Court overturned that ban. It seems like despite

that ruling from the Supreme Court, the goal of a cryptoless India remained. At the end of January, a bulletin from India's lower house was circulated showing that the government was planning to begin considering a bill called the cryptocurrency and regulation of official digital currency bill, which at a high level sought a ban on private cryptocurrencies. Simultaneously, this bill would provide a framework for the creation of an official digital currency from the RBI. The bulletin wasn't printed in full, it was just an overview, so ultimately we don't know exactly what they're thinking. A few days later, the Minister of State for Finance discussed this bill a little bit more, saying that, quote, the government does not consider cryptocurrency's

legal tender or coins, and will take all measures to eliminate use of these crypto assets in financing illegitimate activities or as part of the payment system. So it seems like the real question question for the substance of this bill is will it explicitly move to regulate cryptos in a way that formally treats them like stocks or some other type of asset or commodity in so doing also outlawing them as payment or will it in fact be a more total ban? The Indian crypto community, of course, flew into action. Indian exchanges have started a joint initiative to convince parliament to regulate rather than impose a full ban. If you go to India wants bitcoin.org or India wants crypto.net, there is a form for emailing MPs and then sharing to get friends to do the same with a number

of different templates. Nishal Shetty, the CEO of Binance-owned Wazir X, which is an Indian exchange, said that within the first day, over 10,000 emails were sent. If that number surprises you, it might be worth looking at just how big this community is. Even with that outright block from 2018 to 2020, it's still a large and growing group. This group of exchanges estimates that there are 10 to 20 million crypto users in India. There are 340 startups related to the space employing 50,000 Indians. And last year, Indian crypto startups received some $24 million in global venture investment. Unfortunately, this community got some bad news just a couple of days ago. We've learned that the Indian government is looking to fast track this bill. They have something called an ordinance law,

which is maybe a little similar to an executive order in the U.S. effectively, a law is put in placed by the president on the recommendation of the cabinet and is equivalent to an act of parliament. This ordinance process is theoretically only supposed to be used when parliament is not in session, and apparently the prime minister's office and the finance ministry have started preparing the draft details. Looking for the best way to stay on top of your investment game? Nexo.io has you covered in three easy steps with their high-yield savings account for digital assets. Step one, create an account at nexo.io. Step two, transfer assets to your secure NXO wallet with no minimum or maximum limits on funds deposited.

Step three, sit back, relax, and earn up to 12% compounding interest paid out daily on your crypto and fiat. Your passive income made simple. Get started at nexo.io. If you're wondering why India is so aggressive, or specifically the Indian government, is so aggressive as it relates to crypto, It's important to note, as Nicholas D's State of Crypto newsletter did recently, that the Indian government has a pretty significant history of trying to control the financial system. In 2016, they demonetized 501,000 rupee notes, which were at the time 86% of the circulating currency.

Nominally, this was an effort to cut down on black money or illicitly held money, but this announcement was crazy last minute that Prime Minister came to. on TV said it was happening that night at midnight. Theoretically, they were introducing new bills, a new 500-rupee note and a new 2,000 rupee note at the same time, but they didn't even have close to the supply available, so you saw a 75% drop in available currency overnight. A Harvard research paper from 2019 listed these as some of the impacts. Large contractions in ATM withdrawals, large reductions in economic activity as measured by

satellite data on human-generated nightlight activity and a survey-based measure of employment, slower credit growth, and faster adoption of alternative payments technology, such as e-wallets and point-of-service cards. Ironically, given where the government is now, their demonetization experiment probably inspired a lot of crypto adoption. More on India's wanting to control its population as it relates to finances? In 2018, India started the world's biggest biometric program, the Adharr program and effectively requires it for access to services including but not limited to banking. The community is of course not giving up. Nishal Shetty, who I mentioned before, posted a letter from a minister suggesting that the bill is still in early stages and hasn't yet gotten

cabinet approval. Bologi Shrinivasa actually just announced that he moved to Asia recently and is splitting his time between India and Singapore and he has been discussing India's crypto opportunity extensively, including with a piece called Why India Should Buy Bitcoin. In that piece, he argues that, quote, Prime Minister Modi should launch a digital rupee and back it with digital gold and goes through 10 reasons. First, crypto is now a trillion dollar industry. Second, national security. Crypto means India can't be deplatformed. Third, foreign investment. Crypto brings capital to India. Fourth, remittances in remote, crypto enables the remote economy. Five, strengthen monetary policy, a digital rupee backed by digital gold.

Six, deterring financial fraud. Crypto means mathematically provable accounting. Seven, technological development. Crypto is the financial internet. Eight, digital independence. Crypto is the open source alternative to foreign corporations. Nine, foreign policy. India should back neutral crypto platforms. 10. India should buy Bitcoin, build a stock chain, attract crypto, and encourage decentralization. The way he summarized it, India is on the verge of banning a trillion-dollar industry instead of using it to strengthen its national security, economy, currency, technology, and foreign policy. Now let's jump over to Nigeria. On February 5th, the Central Bank of Nigeria, the CBN,

ordered all banks to close any accounts transacting with cryptos. As you might imagine, social media lit up. Data company Sprout Social said that Nigerian crypto users tweeted the hashtag, We Want Our Crypto Back, over 26,000 times. What's more, companies had to stop certain types of activity. Finance and Bundles suspended deposits in Naira. Two days later, the CBN issued a statement clarifying its position, basically saying that this wasn't anything new.

It was just a reiteration of a position that the bank had held since early 2017. Quote, it is important to clarify that the CBN Circular of February 5th, 2021, did not place any new restrictions on cryptocurrencies, given that all banks in the country had earlier been forbidden through CBN Circular dated January 12, 2017, not to use, hold, trade, and or transact in cryptocurrencies. This clarification statement also listed other countries, that had banned banks from dealing with crypto and said that in China, cryptocurrencies were completely banned

and all exchanges were closed, which is not true. It also used the old chestnut of the threat to retail investors. Quote, in light of these realities and analyses, the CBN has no comfort in cryptocurrencies at this time. It will continue to do all within its regulatory powers

to educate Nigerians to desist from its use and protect our financial system from activities of fraudsters and speculators. So what have this? been the interpretations. Tosin Olegbenga, a Nigerian-based blockchain engineer, thinks that it has to do simply put with the price and growing crypto interest. Quote, they're moving money from Naira to crypto. This is what the CBN sees and has taken issue with. It is not banning crypto trading. It's just telling financial institutions not to allow their platforms to be used to buy or sell

crypto on exchanges like finance. Others see the amplification of a shift to decentralized alternatives. One anonymous Bitcoin user from Nigeria told CoinDesk, quote, There's no stopping crypto. It's the future and we won't let some old fools take our future from us. We're Nigerians. Using the crypto is a way out of poverty for the youth. Nigerian Bitcoin Core contributor Tim Akinbo said, Bitcoin is peer-to-peer, meaning that it can be transacted without intermediaries.

Your bank may be able to shut down your account, but no one can shut down your Bitcoin wallet. This development, while concerning, will not be the end of Bitcoin in Nigeria. Now, we have to take a moment to at least acknowledge the political dimension of this or the potential political dimension of it. If you heard one thing about Nigeria in 2020, it might have been about the N-Sars movement, a huge nationwide protest movement that started specifically about police brutality but was really about power more broadly, an economic opportunity and the youth of that country fighting for something different. As N-SARs got rolling, the bank accounts for the organizations helping support the protests such as the feminist coalition were shut down. To deal with this, many of those organizations switched to Bitcoin. Indeed, they even had to go through a number of different wallet options as banks played whack-a-mole before finally getting set up with a self-custodied BTC pay server.

You have to wonder if the central bank was watching Bitcoin be a tool to literally get around these bank account shutdowns on the formal rule. rails. I also think, while I don't want to go too deep into it at the risk of over-speculating, it's worth considering to what extent there is a China dimension. China is very clearly, as we've discussed numerous times on this show, developing a central bank digital currency, the digital yuan, in part as a way to extend its sphere of economic influence and move more of the world, not just China, but more of the world as a whole, off the U.S.-led swift system and onto a new Chinese-dominated system. Nigeria and China are extremely close trading partners and economic partners, and I wonder to what extent China is exerting its influence behind the

scenes to have some of these important trading partners, especially nations that represent a huge portion of the world's population like Nigeria does, to clamp down on anything that might ultimately be a threat to their economic dominance. There's no indication of any back-channel conversations or anything like that in this, I just wonder about that as sort of the background radiation and noise of all of these things happening around the world. Companies in Nigeria that deal with crypto are trying to adapt. Yeli Batamose, who's the CEO of Bundle, who's on this show last year talking about Nsars and Nigerian crypto more broadly, tweeted out, on behalf of the team and myself, I apologize for the inconvenience caused by the disruption to our service over the last few days.

As we continue to work with our payments partners to resolve delays and processing Naira withdrawals, I'd like to share our immediate plans. One, we will add alternative cash-in, cash-out methods. Two, we're expanding. Bundle already works in Ghana, and we're concluding integrations that will add support for over 160 Fiat currencies. Three, we're building our P-2-P platform, and four, we will engage with regulators. This is an incredibly difficult thing for any company in this space to handle, so I wish them nothing but good luck. With that, let's try to wrap up with one quick takeaway.

As I mentioned at the beginning, there is this fascinating game theoretical challenge emerging in front of our face as it relates to Bitcoin and Crypto more broadly. On the one hand, there is an understandable attempt on the part of some governments to cling to control over the monetary system. On the other, addressing or acting upon that particular impulse, has the possibility of further removing your economy from a key global emergent financial technology and new financial network. It could be incredibly dangerous and deleterious to the citizens of a country and to the country as a whole to completely miss and avoid and not connect with a new financial internet,

which is ultimately what this Bitcoin-centered movement is. We've been talking a lot about Tesla in the context of inspiring Bitcoin Treasury Buy. but I wonder if one other impact is to reinforce the space between these two extremes of a game theoretical proposition. In other words, a company like Tesla, a huge globally influential company, buying Bitcoin adds quite a bit of heft to the idea that these bands are completely regressive. I have long felt in the U.S. specifically that the more corporations get involved, the harder it is for the government to take extreme actions. And I wonder if that spills over even to international environments. For now, this question of bannings is likely to remain a key

debate, certainly for the people who are in these crypto communities and crypto economies, it's a central defining challenge of the year year. I will certainly keep track of it as it evolves and let you know what I'm seeing as it plays out. For now, guys, I appreciate you listening and until tomorrow, be safe and take care of each other. Peace.