Bitcoin’s multiple personalities

Financial markets are often full of contradictions and paradoxes — this is proving to be especially true when it comes to crypto assets.

On August 1st, 2017, the civil war that had been raging between the two camps in Bitcoin finally resolved itself… or so we thought.

The “Big Blockers”, a group of blockchainers unofficially led by Roger Ver, managed to “hard-fork” the Bitcoin blockchain ledger to create a parallel ledger that is now called “Bitcoin Cash”. The war involving r/Bitcoin, r/btc, Bitcoin core, Small Blockers, Big Blockers and Bitcoin miners is not going to be re-hashed here, for that, check out this, this, this and this.

If this sounds technically confusing, all you need to understand is that we now have 2 versions of Bitcoin — the original “Bitcoin” (BTC) and this month-old “Bitcoin Cash”(BCH).

There are some who would passionately argue that Bitcoin Cash is a naked attempt to make money by creating a new “alt coin” and that there is only one true Bitcoin. There are also those who would argue the opposite side with equal fury and animation.

Regardless of where you stand politically (assuming you stand anywhere), if you look at the charts — the Bitcoin schism on August 1st looks like great news! Bitcoin broke above $3,000 for the first time three days after the fork and it is currently siting above $4,000 as of this writing.

The birth of Bitcoin Cash was as volatile as you may expect, considering the reputation of its big brother. On it’s first day of trading, BCH flailed between a low of $130 to a high of $1,000. Since then, BCH has found support from r/btc, traders, miners and exchanges — which are the key ingredients to its short-term survival. It now sits just above $600. Concerns that a contentious hard fork would ruin Bitcoin appear unfounded all of a sudden.

So… everybody wins? Bitcoin holders went from owning one token that is worth ~$2,700 to owning two tokens that are collectively worth almost $5,000. The “big-block” crowd can scale to their hearts content, while Bitcoin core can focus on their small-block solutions to reducing fees and scalability. Did the Bitcoin scaling wars just end in peaceful co-existnece?

Even though things seem peachy if you look at the price action, it is very important to keep an eye on this evolving sibling rivalry. Just today, Segwit, an important technical development crucial to the scaling plans of the small-blockers, went live on the Bitcoin blockchain (BTC).

Despite this, the average fee for sending Bitcoin has soared to an all-time high of over $7, as pointed out by Jeff Garzik. Now, it is important to note that this was expected and that the effects of Segwit were expected to take time to become implemented.

This has lead to an audible uproar amongst the r/bitcoin faithful that Segwit was not all that it is cracked up to be. Meanwhile, the big blockers at r/btc are basking in “I told you sos”.

There is also talk of “oscillation” of the mining capacity as the Bitcoin twins adjust their difficulty, which in part dictates which one of the two is more profitable to mine.

Keep an eye on these two ruffians as they square off. Consider what the second, third and fourth order implications may be.

Old Whales Bringing New Money

The other development that is worth tracking is the emergence of new money in the crypto asset space.

It seems that there have been a number of big funds that are moving into this space, a phenomenon arguably started by Polychain.

There are also a couple of traditional financial vehicles which could provide exposure to Bitcoin for institutional investors that are trying to get the SEC’s blessing.

Prices may continue higher because these newly minted whales may not care, or even know about, the simmering war between the two bitcoins.

Asset management in the era of the Mad King (Donald Trump)

After trading crypto for many years, you develop a bit of a thick skin due to the obscene volatility that is inherit in these assets.

In the last year or so, we have seen the DAO hack, Ethereum’s Hard Fork (which gave birth to ETC), the ICO gold-rush and now Bitcoin cash (without mentioning the seemingly weekly hacks of exchanges, ICOs etc). You come to expect carnage, unexpected plot twists and gut-wrenching peaks/valleys.

Recently, I have noticed that these unexpected twists and turns are popping up in the “normal” world as well. Nowhere is this more evident than the breathless reporting you hear from political commentators (I am a political podcast junky). It appears that the new President of The United States has introduced a bit more volatility to everybody’s lives.

It seems like every week there is a shocking new development that seemed inconceivable just a year ago. From the never-ending revelations about Russia, to racially-charged remarks to the destruction of norms and the unprecedented challenges this poses to the legal and political framework of the largest economic and military power-house on earth.

As this story continues, I’ve noticed that people are becoming acclimated to this madness. After a while, it starts to feel normal.

In a world like this, you can be forgiven for thinking that the safest place for your money is some math-based digital asset that relies on cryptography and distributed computing to function…