Bitcoin is dead!

Well, I didn’t say so, but if bitcoin obituaries are anything to go by, bitcoin has died 416 times since its first launch. And there have been several prophecies about the death of bitcoin in the last decade. In January 2015, Matt O’Brien wrote that “if Bitcoin were a currency, it’d be the worst-performing one in the world, worse even than the Russian ruble.” He also noted that “Bitcoin isn’t a currency. [But] … a Ponzi scheme for redistributing wealth from one libertarian to another …” Conversation.com reported that “even if the price of Bitcoin doesn’t go to zero, the chances [of] the Bitcoin community convincing the wider public, governments, and industry that Bitcoin really represents the future of the world’s digital economy will become extremely unlikely.” [^1]

In 2017, Peter Schiff, the Economist, best known for predicting the 2008 Financial Crash, was quoted  to have said that bitcoin and other “[crypto]currencies are going to trade to zero or pretty close to it when the bubble pops,” and that “the only reason why people are buying bitcoin is because the price is going up. When it turns around, they are not going to sell it for the same reason.”

How deep is the dip?

The crypto market recently experienced a plunge in prices of major cryptocurrencies including bitcoin dipping to as much as 50% in value. On Wednesday 12 May 2021, bitcoin price crashed from $58 thousand to as low as $36 thousand by Wednesday 19 May 2021, although it seems to be rebouncing towards $40 thousand presently. In all of these, bitcoin has proven to be the proverbial cat with nine lives.

By the way, it is important to note that although bitcoin price has fallen, the price  is relatively high when compared to the fall in price of previous years. Also, at the current price, bitcoin still remains a big gain for investors or adopters who bought earlier, even as recent as January 2021, before Tesla’s (brief) romance with bitcoin in the Valentine’s Day month of the year

Reasons for the crash in bitcoin price

A major hit was China reinforcing its ban of financial institutions, including banks and online payment channels from providing services related to cryptocurrency transactions. China also introduced e-yuan, its proposed central bank digital currency and effectively a replacement for cryptocurrencies in the country. If you look at it closely, the effect of China’s ban on bitcoin and other cryptocurrencies may not be unconnected with the fact that more than half of bitcoin mining farms are located inside China villages.

CNBC even reports that “China’s Inner Mongolia region has proposed punishments for companies and individuals involved in digital currency mining as it looks to further crack down on the practice.”^[2] This is coming after it announced its ban on all cryptocurrency activity having become necessary to “crack down on Bitcoin mining and trading behavior” [and] to prevent the “transmission of individual risks to the social field.”^[3]

The second reason for the fall in price of bitcoin is connected to Elon Musk—who apparently has become bitcoin’s single biggest influencer—after tweeting that Tesla would no longer accept bitcoin payment for its electric vehicles. According to the Wall Street Journal, “bitcoin’s value against the dollar fell more than 5% after Mr. Musk’s tweet.”

Bitcoin’s Bigger Issues

Though considered to be one of the largest bull market drawbacks in the crypto industry since 2013, the tipping point for bitcoin is the mass adoption of it by institutional investors with Elon Musk making the dailies, daily. Experts in some quarters believe that institutional investors would be best at holding bitcoin. A number of these institutional investors have concerns though—concerns which are arguably historically valid. They range from environmental concerns to illicit activity and cybersecurity risks to speculative investment concerns. Let’s take a look, briefly, at these major concerns.

1. Environmental Footprint

Bitcoin consumes energy to secure its network through a process called mining. The mining process requires lots of energy. And so do other assets in the world anyways. As mining activity increases, institutional investors, particularly those who must be seen to be supporting government’s clean-energy policies, are increasingly concerned about the corresponding carbon footprint, on one hand, and investing in cryptocurrency while sustaining a green environment, on the other hand. However suspicious Elon Musk’s moves may be—such as possible crypto market manipulation—he appears to be the face of this new movement.

Bitcoin drives a green environment.

Bitcoin faithfuls are not silent on this. They are pushing a different narrative. They hold that mining activity also increases as the value of  gold rises which itself has a negative environmental impact. So many  are asking why cryptocurrency is treated as the black sheep in the fold when other assets, such as gold, use  twice the energy consumption of bitcoin. “To slander crypto-mining as an inherently dirty business appears intellectually dishonest.”^[4]

2. Bitcoin being used for illicit activity

The story about bitcoin being used to facilitate criminal activity is not new. Nigeria’s Central Bank re-emphasized this fact in its directive earlier this year noting that “cryptocurrencies  have  become  wellsuited  for  conducting  many illegal  activities  including  money  laundering,  terrorism  financing,  purchase  of  small  arms  and light  weapons, and tax evasion.” In his work on the  risks  and  threats  of  the  use  of  cryptocurrencies in  Nigeria  for illegal activities, Senator  Ihenyen, says that “one thing is clear: Nigeria’s increasing cryptocurrency adoption is presently not only one of the highest in the world but also one of the safest.” And that “[t]he biggest use cases for cryptocurrency in the country remain speculative investment and peer-to-peer remittances or cross-border transactions.” It is reported that there is less illicit activity on the Bitcoin system than the traditional banking system..

3. Cybersecurity risks

The Bitcoin technology which technically runs on the blockchain is arguably considered the technology nearly impossible to hack.  To break through or hack the blockchain technology, a 51% quorum must be reached—what is known as the 51% attack. The Bitcoin blockchain for example has an incentive system where miners are rewarded for mining. It is important that core developers consider “adopting a governance framework that safeguards the collective interests of the protocol. Whether through proof of work (eg, as adopted by Bitcoin and Ethereum) or proof of stake (eg, as adopted by EOS), a strong incentive system helps to minimise the risk of 51% attacks on the blockchain.”^[5]

4. Bitcoin as a speculative investment

It is true that today a number of cryptocurrencies including bitcoins are mainly used as speculative investments and not as alternative currencies or medium of exchange. But adopters are not necessarily a “conglomeration of desperate, disparate, and unregulated actors” as they were described by the CBN in its recent response following its cryptocurrency directive. Several regulatory authorities around the world have classified bitcoin and similar  virtual assets as commodities, making  them  tradable. In fact, Nigeria’s Securities and Exchange Commission (SEC) took the same position in its September 2020 statement on digital assets in Nigeria. As one of the key stakeholders mentioned in the proposed National Blockchain Adoption Strategy by the National Information Technology Development Agency (NITDA), CBN can help to significantly improve the intergovernmental coordination that appears to be currently missing in digital-assets regulation in the country. I have written more on this here.

Conclusion

Bitcoin seems to be currently battling for dear life. This battle becomes bigger with the renewed debate on the environmental impact of bitcoin and other similar cryptocurrencies on climate change. Also, increasingly, more central banks or reserve banks  are considering introducing their own central bank digital currencies (CBDCs). China continues to resist crypto adoption in its financial system. And lastly, crypto volatility which is a major concern to both regulators and investors remains one of crypto’s biggest battles. Whether bitcoin will shake these off like it has in other times and return to its all-time high (ATH) or even exceed the numbers remains to be seen. So will this episode be the final death of bitcoin or will it be yet again another obituary with an empty grave? Time will tell.

^[1] Note that bitcoin operates both as a currency and a technology—the blockchain technology. When referred to as a technology, it is spelt with the first letter ‘B’ in capital. But when it is used as a currency, it is spelt with a small letter ‘b’. Its usage in the quoted texts and other places are deliberate in order to maintain editorial integrity and comply with rules of grammar where applicable.

^[2] Arjun Kharpal, ‘Major Bitcoin Mining Region in China Sets Tough Penalties for Cryptocurrency Activities’, CNBC,  May 2021

^[3] ibid

^[4] Lawrence Wintermeyer ‘Bitcoin Energy’s Consumption is a Highly Charged Debate’, Forbes.com, March 2021

^[5] Senator Ihenyen, ‘The Comparative Guide to Blockchain 2020 (Nigeria)’, Mondaq.com, May 2020

Join me to welcome Dr. Leonard Azimoh to Tekedia Institute. Dr. Azimoh is developing a new course titled Energy Economics and Future for Tekedia Mini-MBA. Many of our members in the oil & gas sector have been asking for this course. So, I am very happy that it is coming. We also do believe that most of the startups in the energy sector would find it very useful. 

Dr Azimoh  holds a Doctor of Philosophy (Ph.D.) in Energy Engineering and Environmental Technology from Mälardalen University. He earned a Master’s Degree in Electrical Engineering (Power Systems) from University of Cape Town. But it all began from the amazing University of Benin where he studied Electrical and Electronics Engineering, graduating with a Bachelor of Engineering.

From mining bitcoin to running factories and charging cell phones, the world of commerce runs on energy. We will understand the economics even as we get a clearer picture on what the future holds. Welcome to the Institute, Dr. Azimoh.

Next week, the biggest academic festival in continental Africa begins. Yes, the 5th edition of Tekedia Mini-MBA will begin. Thousands are coming. I invite you to join as we begin another excursion into the mechanics of market systems, going through the paths of innovation, business execution and growth.

Our Faculty members come from companies you admire and they are amazing. The program: 12 weeks, self-paced, and online with thrice weekly Live sessions. It costs $140 or N50,000. Register today and beat the early bird deadline which ends June 1 for tons of extra benefits including my books.

Education is the liberation of the mind – and we understand the physics of markets. Accelerate your leadership and management ascent with the best school. Register here.

Just over two months after Flutterwave became a unicorn, another African fintech startup has joined the ranks, making them five African startups to attain the unicorn status.

Chippercash, a three-year-old startup that facilitates cross-border payment across Africa, closed a $100 million Series C round to expand its products and services, which reportedly put its valuation at $1.2 billion.

The Series C round was led by SVB Capital, the investment arm of U.S. high-tech commercial bank Silicon Valley Bank. Existing investors; Deciens Capital, Ribbit Capital, Bezos Expeditions, One Way Ventures, 500 Startups, Tribe Capital, and Brue2 Ventures, participated in the round.

“Obviously, we’re not getting into our valuation, but we’re probably the most valuable private startup in Africa today after this round. So that’s a reflection of the environment that regulators like CBN have created to allowed innovation and growth, ” cofounder and CEO Ham Serunjogi said when asked about the company’s valuation.

Chippercash has recorded a swift growth to unicorn for a company founded in 2018. With its other major series happening in 2019 and 2020. In November 2020, the African cross-border fintech startup raised $30 million Series B led by Ribbit Capital and Jeff Bezos fund Bezos Expeditions. This was after closing a $13.8 million Series A round from Deciens Capital and other investors in June 2020. Hence, Chipper Cash has gone through three rounds totaling $143.8 million in a year. However, when the $8.4 million raised in two seed rounds back in 2019 is included, this number increases to $152.2 million.

Chippercash expanded the scope of its financial services by adopting the blockchain technology, using cryptocurrency to facilitate swifter cross-border payments.

Serunjogi told TechCrunch that besides Ghana, Uganda, Nigeria, Tanzania, Rwanda, South Africa and Kenya; the company has expanded to Europe. “We’ve expanded to the U.K., it’s the first market we’ve expanded to outside Africa,” he said.

Chippercash is offering a variety of services according to the peculiarities of countries where it operates, an idea it aimed to fulfill with its Series B fund. “We’ve launched cards products in Nigeria and we’ve also launched our crypto product. We’re also launching our US stocks product in Uganda, Nigeria and a few other countries soon,” Serunjogi said.

Though its crypto services are not available in Nigeria due to the central bank’s ban, which prohibits regulated financial service providers from offering cryptocurrency services, it has stoked the volume of transactions carried out in Chippercash. The number of users on Chipper Cash has increased to 4 million, up 33% from last year. And the company averaged 80,000 transactions daily in November 2020 and processed $100 million in payments value in June 2020. Currently having more than 200 employees, Chippercash plans to increase its workforce by hiring 100 staff throughout the year.

This latest round that places Chippercash on the unicorn table illustrates the resilience of the African fintech market in the face of the COVID-19 pandemic that has sent many sectors of the global economy sprawling.

Interswitch, Fawry, Flutterwave and now Chippercash have come along the $1 billion valuation terrain, though through varying pace.

OPay, the Chinese-backed payment company, is expected to get on board soon. The company is on the verge of raising $400 million that will put its valuation at $1.5 billion.