News
Nigeria Watchdog Investigates Crypto Market Manipulation After Currency Collapse – DL News
What you will learn
- The Nigerian naira dropped massively on Wednesday and cryptocurrency trading is to blame.
- Cryptocurrency critics say the market is being used to manipulate the dollar exchange rate.
- The Nigerian naira has lost 90% of its value against the dollar over the past eight months.
Binance and other cryptocurrency exchanges offering services to Nigerians are at the center of a firestorm of controversy over currency speculation and forex market manipulation.
This is because Nigeria’s fiat currency, the naira, experienced huge volatility against the US dollar on Wednesday. First, the naira fell to 1,900 against the dollar, an all-time low, followed by a sudden rise to 1,358 a few hours later.
It recently traded at 1,691 naira against the dollar, a 90% decline in just eight months.
Price manipulation
After cracking down on forex traders, Nigeria’s government is targeting cryptocurrency trading platforms for their alleged role in currency manipulation, but Binance distances itself from any accusations.
“It is important to note that exchange rates are influenced by various complex factors, over which Binance has no influence,” the exchange reads She said in a blog post.
The case against Binance reportedly concerns its marketplace for trading USDT against NGN, a digital cash representation of the naira on the exchange.
Binance introduced NGN in November 2022 as it allowed users to deposit cash from their local bank accounts to Binance. NGN can be exchanged for other cryptocurrencies.
NGN is not the only digital cash on Binance as the exchange also has similar options for fiat currencies such as the Ghanaian cedi, Kuwaiti dinar, and Philippine peso.
Join the community to get our latest stories and updates
An official from Nigeria’s anti-corruption agency he spoke to DL News On condition of anonymity, the agency is investigating a coordinated effort to manipulate the country’s forex market via cryptocurrency trading on Binance.
The alleged market manipulation involves wash trading of the USDT-NGN trading pair on the Binance spot market. The bad actors are alleged to be creating fake buy and sell orders to bring down the value of NGN relative to USDT on Binance, the official said.
Binance did not respond to a request for comment.
Such actions reportedly create a false value for the US dollar in the Nigerian market as Binance peer-to-peer traders also use the price feed from the spot market for their quotes.
Alleged manipulation of the USDT exchange rate is reportedly spreading to Nigeria’s parallel forex market. Bureau de Change operators are reportedly using Binance quotes for USDT–NGN couple for their dealings with the public.
This is even though Binance’s spot trading volume for NGN against USDT, Tether’s US dollar-pegged stablecoin, is just $3 million per day, several orders of magnitude lower than the market’s $251 million average daily turnover official forex of the country.
As for the other exchanges, their volumes are even smaller.
“Victim of his success”
“It’s a data problem,” said a Binance trader who wished to be known only as Bayo. “These guys at Bureau De Change have never had real-time data for their market, and Binance gives them an easy source to get real-time quotes.”
“Binance is a victim of its own success,” said another trader who wished to remain anonymous. “The commercial footprint of cryptocurrencies in Nigeria may be small compared to the official market and Bureau de Change agents, but it is electronic and very popular, especially among young people.”
Blockchain forensics firm Chainalysis reported this last year Cryptocurrency trading in Nigeria grew by 9% between 2021 and 2023. The firm ranked Nigeria second in its global cryptocurrency adoption index.
Binance also faced allegations of market manipulation earlier this week.
The exchange said it had noticed “temporary price suppression” reaching the limit of its system, forcing the platform to make changes to allow trading to continue.
Another ban on cryptocurrencies
Speculation about an imminent cryptocurrency ban is rife in the country. Unconfirmed reports say the government has ordered telecommunications companies offering internet services to block access to cryptocurrency trading websites.
Cryptocurrency trader Bayo has warned that the government may use the current situation as an excuse to ban cryptocurrency trading in Nigeria.
Government officials contacted by DL News They were not immediately available for comment.
Last year, the Association of Exchange Office Operators of Nigeria called for a ban on Binance. Alhaji Aminu Gwadabe, president of the association, said Binance has unfortunately become the benchmark for forex trading in Nigeria.
Nigeria’s own government has historically cast an angry eye on the cryptocurrency market. The country’s central bank banned commercial banks from serving cryptocurrency exchanges in 2021, but the order was rescinded in December.
A ban on cryptocurrencies would be the latest punitive action taken by Nigeria’s government against perceived currency manipulators as the Naira continues to weaken.
The government of Nigeria has done so broke in the offices of several Bureau de Change workers, including in Abuja, the nation’s capital.
Osato Avan-Nomayo is our DeFi correspondent based in Nigeria. He covers DeFi and technology. To share story tips or information, contact him at osato@dlnews.com.