(Ecofin Agency) - Nigeria's Securities and Exchange Commission (SEC) has announced new measures to oversee the cryptocurrency sector to combat financial crime. This move addresses a growing market while posing challenges for millions of Nigerians seeking to protect themselves from accelerating price increases.

Under the new regulations, Virtual Services Asset Services Providers (VASPs) must register with the SEC and share weekly and monthly trading statistics concerning Nigerian users. They are also required to maintain a physical presence in Nigeria.

Authorities say the regulations are necessary to combat money laundering, terrorism financing, and currency rate manipulation. The government is particularly concerned about the potential impact of crypto transactions on the stability of the naira, the national currency. These concerns are amplified by recent tensions with Binance, accused of facilitating speculation that contributed to the naira's depreciation.

These restrictions come as Nigeria's cryptocurrency market continues to flourish. From July 2022 to June 2023, crypto transaction volumes reached $56.7 billion, up 9% year-over-year. Nigeria is one of the global leaders in cryptocurrency adoption, with about 33.4% of the adult population engaged in trading or using digital assets, according to Chainalysis, a platform specializing in cryptocurrency monitoring.

Nigeria's regulatory approach has evolved in recent years. After a total ban on crypto transactions by banks in 2021, the country has gradually softened its stance. In December 2023, the Central Bank allowed banks to open accounts for VASPs, indicating a willingness to balance innovation and control. With the national currency's value declining and inflation rising, cryptocurrencies have become a refuge for millions.

However, the government has recently intensified its crackdown on the crypto market. In March 2024, two Binance executives were arrested, and the platform was forced to cease operations in the country. This was followed by the Nigerian Communications Commission blocking access to several crypto exchange websites.

These new regulations will likely impact market players. Data sharing requirements and the mandate for a physical presence in Nigeria might prompt some companies to reconsider their operations in the country. Users may turn to decentralized exchanges (DEX) to preserve anonymity, though this could limit their access to traditional financial services.

Looking ahead, Nigeria must strike a delicate balance between regulating the crypto sector and harnessing its economic potential. Continued adoption of cryptocurrencies by Nigerians, driven by the search for alternatives to inflation and naira depreciation, might encourage authorities to adopt a more pragmatic approach.

The challenge will be to create a regulatory framework that protects the national economy while enabling the innovation and financial inclusion that cryptocurrencies can offer. Ultimately, Nigerian regulators overlook that illicit crypto transactions accounted for only 0.32% of global volume in 2023.