The Impact of cryptocurrency use on the Nigerian Financial System - a case for Bitcoin and Ethereum

Abstract

Cryptocurrency adoption is transforming financial systems globally, offering decentralized alternatives to traditional financial instruments. In Nigeria, this adoption is particularly significant due to a high unbanked population, inflationary pressures, and the rising prominence of remittance flows. While prior research highlights cryptocurrencies' potential for financial inclusion and inflation hedging, limitations exist in their focus on speculative trading, with insufficient exploration of macroeconomic impacts. This study employs a reproducible quantitative research approach, analysing daily, monthly, and quarterly datasets from 2018 to 2022 to assess cryptocurrency adoption's influence on Nigeria's economy. Analytical methods include descriptive statistics, Auto ARIMA and Vector Autoregression (VAR), supported by pre-estimation tests for robustness. Findings reveal that cryptocurrency adoption positively correlates with increased remittance efficiency and serves as a hedge against inflation. Volatility analysis demonstrates significant clustering in cryptocurrency prices, with spillover effects observed on exchange rates and remittance flows. These results underscore cryptocurrencies' dual role as economic disruptors and stabilizers, offering opportunities for financial inclusion while presenting risks of speculative volatility. The study's implications extend to policymakers and financial institutions, emphasizing the need for balanced regulation to harness the benefits of cryptocurrencies while mitigating associated risks. This research fills critical gaps in understanding cryptocurrencies' broader economic impacts, particularly in developing economies like Nigeria.