By Olivia Nnorom
Bitcoin has been one of the most talked about digital currencies in recent years, with its value soaring to unprecedented levels. However, volatility is a term that is strongly associated with the cryptocurrency market, therefore it is no surprise that bitcoin experiences significant price drop from time to time.
A drop in bitcoin’s rate is predicted to affect a country’s economy, with Nigeria as a case study, depending on the level of its integration into the system.
In the last one year, Bitcoin has experienced fluctuation in price, moving bearish most of the times.
The coin broke the $30,000 resistance on 10th April, 2023 and then fell 9.42% from May 5 to May 12 to trade at $26,365 per coin.
This fall was traced to Bitcoin congestion issues, rooted in the growing backlog of transactions exacerbated by the network surpassing 5 million ordinal inscriptions, fueled by the arrival of memecoins in the form of BRC-20 tokens, a fungible token standard built on ordinary protocol.
As a result, Bitcoin supply on exchanges fell to a five-year low of 5.84% past week. Crypto analytics from Santiment said that in line with the recent event, there is an indication that long-term holders are increasingly taking self-custody solutions.
Why Nigeria might be affected
Statistics have shown that Nigeria has the highest trading volume of Bitcoin in the African continent and one of the top ten in the world, with many Nigerians trading the digital coin as a means of investments or for remittances.
Also, experts have explained that a fall in bitcoin always leads to a fall in other cryptocurrencies, including Meme coins and Altcoins. This is to say that a fall in bitcoin price could lead to a significant loss in value for Nigerian bitcoin investors.
This is why there could be a ripple effect on the country’s economy, considering that a significant majority of the younger generation rely heavily on financial gains associated with cryptocurrencies from airdrops, mining, investment gains, and staking.
A fall in Bitcoin can hence lead to a reduction in the purchasing power of many Nigerians, and eventually their standard of living.
Additionally, a significant drop in bitcoin value could undermine the efforts of the Nigerian government to diversify the economy and reduce reliance on oil exports.
Also, crypto-based companies in Nigeria will experience a significant amount of loss that could lead to its packing-up. If this happens, there would be loss of jobs which further impacts government’s activities, programmes and plans.
It could also lead to reduced investment capacity as affected Nigerians would not have the financial strength to invest in other sectors.
While there could be negative impacts of digital currencies
The industry presents exciting opportunities for growth, which is why the Nigerian government should address the challenges especially as it concerns its citizens.
One way to do this is through regulation, to strike a balance between protecting investors and promoting innovation in the digital currency sector, by developing a clear regulatory framework that provides certainty and stability for businesses operating in the industry.
Education is also one of the biggest challenges the sector has faced, as many are only interested in the financial gains without understanding how it operates while others are entirely unfamiliar with digital currencies and how they can be used to drive economic growth.
The Nigerian government and stakeholders can, however, collaborate to educate the public on the benefits and risks of the crypto world and how they can be used to drive economic growth.
In the country’s quest to adopt cryptocurrencies, it is important to invest in infrastructural development, as the sector requires robust technology infrastructures to operate efficiently and securely. For starters, it requires payment gateways, storage solutions and exchanges that can support the efficient functioning and the growth of the industry.
In conclusion, while the price of bitcoin could have a significant impact on Nigeria’s economy, the extent will depend on a range of factors that are difficult to predict with certainty.
Also, right measures from the government and stakeholders could shape the response to bitcoin’s price movements in the country.
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