Nigeria watchdog probes crypto market manipulation after currency crash

Nigeria watchdog probes crypto market manipulation after currency crash
Crypto trading blamed for Nigeria's currency woes. Credit: Rita Fortunato/DL News
What you'll learn
  • Nigeria’s naira fell massively on Wednesday, and crypto trading is being blamed.
  • Crypto detractors say the market is being used to manipulate the dollar exchange rate.
  • Nigeria’s naira has lost 90% of its value against the dollar in the last eight months.

Binance and other crypto exchanges offering services to Nigerians are at the centre of a storm of controversy over currency speculation and forex market manipulation.

That’s because Nigeria’s fiat currency, the naira, experienced massive volatility against the US dollar on Wednesday. First, the naira sunk to 1,900 against the dollar, an all-time low, followed by a sudden rise to 1,358 mere hours later.

It was recently trading at 1,691 naira against the dollar — a 90% decline in only eight months.

Price manipulation

After clamping down on forex traders, Nigeria’s government is targeting crypto trading platforms for their alleged role in currency manipulation, but Binance is distancing itself from any allegations.

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“It is important to note that foreign exchange rates are influenced by various complex factors, which Binance has no influence on,” the exchange said in a blog post.

The case against Binance reportedly lies in its market 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. The NGN can be exchanged for other cryptocurrencies.

NGN isn’t 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.

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One official of Nigeria’s anti-graft agency who spoke to DL News on the condition of anonymity said the agency is investigating a coordinated effort to manipulate the country’s forex market via crypto trading on Binance.

The purported market manipulation involves wash trading of the USDT–NGN trading pair on the Binance spot market. Bad actors are allegedly creating fake buy and sell orders to crash the value of NGN against USDT on Binance, the official said.

Binance didn’t respond to a request for comment.

Crypto ban fears arise amid alleged forex manipulation on Binance

Those actions reportedly create a fake value for the US dollar in the Nigerian market as Binance peer-to-peer merchants also use the price feed from the spot market for their quotes.

The alleged USDT exchange rate manipulation is reportedly spilling over into Nigeria’s parallel forex market. Bureau de Change operators are reportedly using Binance quotes for the USDT–NGN pair for their transactions with the public.

That’s even though Binance’s spot trading volume for NGN against USDT, Tether’s US dollar-pegged stablecoin, is a mere $3 million per day — several orders of magnitude lower than the $251 million in average daily turnover from the country’s official forex market.

As for other exchanges, their volumes are even smaller.

‘Victim of its success’

“It’s a data problem,” said one Binance trader who wished to be known only as Bayo. “These Bureau De Change guys have never had real-time data for their market, and Binance offers an easy source for them to get real-time quotes.”

“Binance is a victim of its own success,” said another trader who declined to be named. “Crypto’s trading footprint in Nigeria might be small when you compare it with the official market and Bureau de Change agents, but it’s electronic and very popular, especially among the youths.”

Last year, blockchain forensics firm Chainalysis reported that crypto trading in Nigeria grew 9% between 2021 and 2023. The firm ranked Nigeria second place in its global crypto adoption index.

Binance also addressed claims of market manipulation earlier this week.

The exchange said it noticed a “temporary suppression of prices” that reached its system limit, which forced the platform to make adjustments to allow trading to continue.

Another crypto ban

Speculation is rife within the country of a looming crypto ban. Unconfirmed reports say the government has ordered telecommunications companies that offer internet services to block access to crypto trading websites.

Crypto trader Bayo warned the government could use the current situation as an excuse to prohibit crypto trading in Nigeria.

Government officials contacted by DL News weren’t immediately available for comments.

Last year, the Association of Bureaux de Change Operators of Nigeria called for a ban on Binance. Alhaji Aminu Gwadabe, the association’s chairman, said Binance had unfortunately become the benchmark for forex trading in Nigeria.

Nigeria’s government itself has historically cast a jaundiced glance at the crypto market. The country’s central bank banned commercial banks from servicing crypto exchanges in 2021, but that order was reversed in December.

A crypto ban would be the latest punitive action taken by Nigeria’s government against perceived currency manipulators as the Naira continues to weaken.

Nigeria’s government has raided the offices of several Bureau de Change operators, including in Abuja, the nation’s capital.

Osato Avan-Nomayo is our Nigeria-based DeFi correspondent. He covers DeFi and tech. To share tips or information about stories, please contact him at osato@dlnews.com.