Bitcoin Cash Skyrockets, Bitcoin Price Drops As Civil War Continues
Well, get your popcorn after all.
Earlier this week, a planned hard fork on the Bitcoin blockchain that threatened to create two new coins, causing disruptions on exchanges and potential losses for users on both sides — but also possibly one of the most exciting chapters in Bitcoin’s history — was called off.
But in the last few days, a previous fork of Bitcoin (BTC) called Bitcoin Cash (BCH) that was launched in August and immediately dismissed by many Bitcoiners and the wider crypto world alike, has skyrocketed in value. After languishing in the $300 range for a while and jumping up to the $600 range in November, it has now nearly quadrupled to around $2,500 a coin as of press time — it had traded as low as $650 on Friday.
Meanwhile, Bitcoin, which was trading at an all-time high of around $7,800 on Wednesday, is now down to around $6,000 as of press time but had dipped as low as about $5,500.
(Update: shortly after publishing, the Bitcoin price took back some ground and Bitcoin Cash lost some. For the latest, check Coinmarketcap.com.)(Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment. Disclosure: I own some Bitcoin and Ether.)
The surge by Bitcoin Cash led it to overtake Ethereum in market capitalization to $40 billion and become the second-largest crypto. (Earlier this year, as Bitcoin’s market share of all crypto tokens was dropping precipitously and Ethereum was on a tear, many in the crypto community wondered about when they might see what they called “the flippening” — when the market capitalization of Ethereum would overtake that of Bitcoin’s. Instead, a different kind of flippening has occurred: Bitcoin Cash surpassing Ethereum. Even Ethereum founder Vitalik Buterin congratulated the most vocal early supporters of Bitcoin Cash on Twitter.)
— Vitalik Buterin (@VitalikButerin) November 12, 2017
Several active crypto players surmised that the market moves had to do with the disaffected group who did not get the hard fork that they supported, known as SegWit2x, shifting their money over to Bitcoin Cash, which is more in line with their vision of Bitcoin. The side that prevailed regarding the hard fork were known as 1xers because they supported keeping the block size limit at 1MB as opposed to increasing to 2MB as the supporters of the hard fork (so-called 2xers) wanted. The 2xers felt increasing the block size limit was necessary because blocks have become full, causing transaction fees to rise, making it hard to justify using Bitcoin for small transactions.
But in the weeks leading up to the proposed split, Bitcoin futures markets seemed to indicate that 1x coins would retain 85% of Bitcoin’s current value and 2x coins only 15%. The 2x side eventually decided not to go through with the proposed hard fork, and the day the news was announced, Bitcoin reached a new all-time high.
That was Wednesday. Saturday has been an entirely different story as the price of Bitcoin Cash has skyrocketed and that of Bitcoin slumped.
“What a plot twist,” wrote Jacob Eliosoff, manager of Trevi Digital Assets Fund, in a message. “Right after 1x’s big day of glory, and especially after 1xers spent the last month talking about how the market would decide and was clearly validating them!”
But overall, he said, it’s natural that backers of SegWit2x “have nowhere to turn but BCH. It’s not surprising that SegWit2x’s loss has been Bitcoin Cash’s gain.”
Kyle Samani, managing partner of MultiCoin Capital, wrote in a message, “There were lots of Bitcoin Cash whales who were in early on Bitcoin who were waiting to see what would happen with 2x. Now they’re making their move. They’re dumping BTC for BCH….I know many Bitcoin OGs who have dumped $10m+ of BTC for BCH … Turns out there were a lot more BCH ideologues than we all thought.”
Samani said Multicoin sold BTC for BCH in the last 48 hours as well. “Ideologically, I gave up on Bitcoin long ago but I’m a fiduciary now so I have to make money on the swings,” he wrote.
One such whale, Roger Ver, nicknamed Bitcoin Jesus for his personal proselytizing of Bitcoin during its early years and one of the biggest holders of Bitcoin historically, told Forbes via email that he is selling his Bitcoin for Bitcoin Cash. “Bitcoin Cash is useful in commerce, and therefore can also be used as a store of value,” he wrote, referring indirectly to the high transaction fees on Bitcoin; Bitcoin Cash has much lower fees. When asked if he was trying to move the price, he said, “Of course not. No trader ever wants to be the one to move the price.”
Another big proponent of Bitcoin Cash, Jihan Wu, the CEO of Bitcoin mining equipment manufacturer Bitmain and mining pool Antpool, wrote via WeChat, “Right now we have both BCH and BTC, but we believe BCH has more potential.” He denied that he or his companies sold Bitcoin for Bitcoin Cash on Friday or Saturday during the price gyrations.
According to Coinmarketcap, the price of Bitcoin Cash on Korean exchanges was slightly higher than on other exchanges around the world, suggesting it also played a role in the price movement. However, data from CryptoCompare showed overall trading volume of Korean Won to Bitcoin Cash was down compared to recent weeks, while trading of Bitcoin to Bitcoin Cash was up.
Part of the debate around the potential hard fork was around the vision for Bitcoin: whether it should be a store of value only, like digital gold, or a store of value as well as a means of exchange, like digital cash.
“The OGs believe in Bitcoin as digital cash and not as gold,” wrote Samani, “and they’re sick of core,” he said, referring to the Bitcoin core developers who mainly led the crowd who believed Bitcoin should mainly be a store of value and that payments should occur in a layer built on top of Bitcoin but not processed on the Bitcoin blockchain itself.
Bitcoin Cash has a few other things going for it — namely the fact that it is now 2.2 times as profitable for miners who can secure blockchains to mine Bitcoin Cash than to mine Bitcoin. That means the Bitcoin blockchain has lost so-called hash power, which will mean it will take longer for transactions to be processed.
As Eliosoff explained, “As BTC loses hash, its blocks slow down, confirmations take longer, and of course fees spike up as we’re seeing now.” While that could take weeks to correct, it could also cause a downward spiral as people flee to another blockchain that doesn’t have those problems — such as Bitcoin Cash.
However, Bitcoin Cash’s recent streak may not last. Even during the writing of this article, it began to reverse some gains and Bitcoin took back some losses. The ideological battle marches on.
Posted with permission of Forbes Media LLC.
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