Bitcoin Cash, What Happened

Last week we discussed hard forks in the Bitcoin network and the recently cancelled 2MB block upgrade (from 1MB). Despite general consensus that the network needs to improve to increase the volume of transactions that it can process, most of the network’s miners and developers believed that cancelling the hard fork was the best outcome for Bitcoin in the short term, except for a few…

Bitcoin Cash (BCH) was a spin off of Bitcoin that was created in August 2017 with an 8MB block size. The founders of BCH are strong proponents of increasing the block size as a scaling mechanism to increase the number of transactions that can be processed by the network. However, in creating BCH they did not gain a majority share of the miners and developers, meaning that despite a theoretical improvement, in reality the network is significantly slower and less economical to maintain.

BCH founders and developers saw the cancellation of the 2MB fork as a weakness in the bitcoin community and took the chance to launch an attack to try and obtain dominance over the network. Over the weekend they released media articles from disgruntled members of the Bitcoin network and poured their own Bitcoin stores into Bitcoin Cash to:

  1. Increase the supply and deflate the price of Bitcoin and,

  2. Decrease supply of BCH by chewing through order books and inflate the price

  3. Move over the mining power to BCH from Bitcoin to facilitate larger blocks and more transactions, simultaneously slowing down the Bitcoin network

This caused the the market to panic, while BCH was growing 20% per day, Bitcoin holders were unable to quickly move funds creating significant urgency. When you create panic, you create opportunity for the patient. And it temporarily worked! Over the weekend the BCH price increased from ~$600 to $2,200 whilst the Bitcoin legacy price fell from an all time high of $7,800 to ~$5,500 momentarily. In this short space of time, BCH became the second most valuable cryptocurrency by market cap and the original founders were able to make millions in the process. Then as expected, came the dump - systematically blocks of 10,000 BCH were sold off in Bitfinex. By Monday, there had been 3 major sell off events creating a price drop to $1500, and now hovering above $1,100. This was a major political move strategically orchestrated by some of the biggest names in Crypto. This is definitely not the last of the Bitcoin/BCH wars.    

 

Magnet’s take

This was a strong message that gained momentum to demonstrate to Bitcoin developers that enough users are frustrated with Bitcoin’s scaling issues and lack of proactive action. Bitcoin will be susceptible to future attacks if tensions divides the network. The scalability discussion is far from over, this will continue to be a point of contention as the asset class develops.

Bitcoin Cash is already planning a hard fork to improve the profitability for miners on the network, in turn increasing the rate of transactions. If the Bitcoin network don’t build a clear, executable roadmap to improve scalability and this proposal gets enough support we could easily see BCH becoming the ‘real bitcoin’ in 2018. However, for the time being, Bitcoin’s adoption continues to grow, the general forward direction of cryptocurrencies continues to develop and Bitcoin continues to be a standout performer.
 

Bites

24/7 Market -  Equities markets open at 10am and close at 4pm on the ASX, Monday to Friday. Per week, that’s 30 hours, 50 working weeks a year it’s 1,500 trading hours to learn from. Cryptos don’t close, there is no downtime, the market is open 24/7 giving you 8,736 trading hours annually. This is 6x the exposure per year than you would receive from traditional markets.

 

Weekend Trading - The most erratic movements in Bitcoin and alternative cryptos typically stem from weekend volatility. There are many theories; opportunity advancement, weekend warriors, instill panic, move the market with less risk - none are proven to be true, the golden rule was don’t trade on weekends, that has morphed into trade carefully on weekends and soon will be get ready for the weekend.

 

Magnet Update

Magnet Capital is now live! We officially launched and issued first units on the 7th of November. The next available entry for Magnet Capital will be on the 31st of November and monthly thereafter.

 

Adoption

  1. CME bitcoin futures are likely to start trading on December 11. The initial contract released will each represent 5 bitcoins and will be tradeable on the CME Globex and CME ClearPort systems.

  2. A 6 month long blockchain trial tracking swaps contracts between banks including JPMorgan and Goldman Sachs has successfully been completed. If implemented, the program could reduce valuation disputes, improve reconciliation processes and provide real time access to data.

  3. American Express and Santander have teamed up with Ripple for direct cross-border payments. This partnership is significant for Ripple as it will allow for the immediate settlement of funds between corporate customers of Amex with businesses in the UK that bank with Santander.

  4. Visa has launched a pilot for its business-to-business blockchain based payments platform. Planned to be commercially rolled out in mid 2018, the platform will help facilitate cross-border, near-instant, business to business payments between global customers.

  5. The Australian Government has granted $8m for the development of a blockchain-powered smart utilities project. The project aims to provide smart cities of the future with distributed energy and other utilities through utilising blockchain technology and data analytics.

 

The Market

  • Bitcoin again had a record setting week reaching another all time high this morning just over US$8,200. Despite a minor setback as discussed in ‘Bitcoin Wars’ above, bitcoin has managed to continue its momentum in anticipation of the upcoming futures market and increased adoption

  • As expected at the news of no hard fork, alternative crypto assets to bitcoin have experienced an appreciation in value

  • Monero has been a top performer over the last 10 days (up ~60%) following news that it is close to releasing an update that will make it easier and more secure to transfer the token on the network

Hope you all have a great weekend!
Benjamin and Egor

Egor SidelskaComment