Cryptocurrency Transactions and Exchange Rate Movements in Nigeria: A Vector Autoregression Approach

Abstract

This paper delved into ascertaining the influence of the cryptocurrency market on the exchange rate situation in Nigeria. The study utilized monthly data from January 2018 to May 2025. The analytical techniques hinge around the ordinary least squares (OLS) approach and the vector error correction model. The OLS indicated that both the Bitcoin and Ethereum transactions in the cryptocurrency market positively affected the exchange rate in Nigeria. Thus, rising crypto market transactions therefore spurs exchange rate depreciation. The impulse response function obtained from the VAR model further indicated that exchange rate responded to shocks in crypto market transactions during the study period hence, the Nigerian foreign exchange market is not immune to crypto market distortions. The paper therefore recommended that the Nigerian monetary authority should resort to the regulation of the crypto market in order to curb excessive and uncontrolled transactions which can trigger unnecessary fluctuations of the domestic currency.