Since the price of bitcoin surged to over $8,000, a new debate has flared upon whether it should continue to be used as currency or relegated to just an asset like gold.
The cryptocurrency which went down two weeks ago by nearly 16 per cent at $1.365 billion is back on the groove recovering by about 15 per cent to reach $1.575 last week on the Nigerian market.
Analysts at Nigeria bitcoin exchange, Naira Exchange (Nairaex) who spoke to BusinessDay via email said the price resurgence was being driven primarily by inflation which persists around the country.
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“While the banks have attempted to solve the problems of inflation by leaving key rates at record highs of 14 percent, many economists agree that in the short term we will not see many financial benefits. Furthermore, people are considering bitcoin as an alternative to the naira, as it offers greater freedom to buy any currency around the globe as well as increased financial stability,” they said.
Tim Akinbo, the co-founder of Tanjalo.com, another bitcoin exchange, said the high prices could be a result of global prices affecting local prices.
“So long as the price keeps increasing, more and more people will get convinced to put more and more capital into it (bitcoin),” Akinbo said.
He added the activities of speculators could be another factor.
“But I’m not certain there are a lot of Nigerians speculating on its value. The reason is that there isn’t enough awareness about it (first and foremost) and then second the knowledge on how to do so,” he said.
Rising prices to over $8,000 forced some analysts to question the use of bitcoin as a currency. As at the time of writing, the price was $8,281.99 on the Coindesk Bitcoin Price Index.
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Vinny Lingham, chief executive officer of CivicKey, a blockchain platform, and one of the leading voices on bitcoin globally, led the way of the argument in two tweets.
“You can’t use bitcoin anymore to transact for small amounts. How do you expect for someone to pay $1 for a load of bread if fees are $20? Bitcoin can no longer be a replacement for a national currency. It is basically becoming gold and gold is a store of value, not a currency.
“Bitcoin becoming “Digital Gold” has closed the opportunity for it to be used as a global currency. We should prepare ourselves for a world where the government may issue their own crypto, possibly backed by BTC, but bitcoin itself will likely never be practically used as a currency,” he tweeted.
Nevertheless, analysts at Nairaex said the price of bitcoin rising beyond $8,000 may not mean a bar on its use a currency given that smaller divisions of the crypt can still be used daily.
Tim Akinbo also buttressed the Nairaex position saying that what is important are the uses that people employ bitcoin to. 1 bitcoin can split into 100,000,000 smaller components “Just the same way 1 naira can be split a maximum of 100 places,” Akinbo noted.
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He further explained that when people use bitcoin, they do so for different reasons. Some use bitcoin as a means to make international payment, the price does not matter. As long as users can convert their naira to bitcoin and then bitcoin to Zambarian kwacha, for instance, they do not care if 1 unit is $1 million as long as they can buy enough for their N5, 000 transactions.
“People, who are concerned about the price, worry that the currency has little room to still expand at the rate it has done historically. And their main concern is because they are interested in also investing. Then what they should be looking at is not the individual price of one unit but for the entire market capitalisation.
“At just over $100 billion, it is not a lot for a global currency. Apple is more valuable as stock than all the bitcoins in existence,” Akinbo said.
According to Nairaex, the problem customers and retailers could encounter is in the rising fees which have become costly for everyday users.
“However, scaling solutions such as the Lightning network may bring back low fees for smaller transactions. We must wait to see if the implementation does go according to plan as the technology is unveiled later,” Nairaex said.
They agree that the stability that bitcoin has achieved so far does give it the edge as an asset storage medium when commodities such as oil are volatile.
So far, Nairaex said it is yet to see a change in bitcoin users attitudes as a result of price increases.
“With bitcoin exchanges serving customers at market premium rates, fees and costs have only risen marginally for everyday users. Investors around the country have become much more aware of the investment opportunities bitcoin poses as margin trading yielded large profits in line with price fluctuations,” Nairaex said.
