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The last couple days have been some of the most exiting moments in crypto-history since the hard fork in August. Bitcoin Cash spiked to unbelievable levels, at over $2,800 for a short period of time as well as Bitcoin falling to $5400 on the same night. Prices have since recovered, BCH and BTC going at $1,300 and $6,500 respectability at the time of writing this. Why have prices spiked so much? There are many reasons why, and different players in the cryptocurrency sphere are to blame.

On Novemeber 11th the Segwit 2x hard fork was cancelled to the rejoicing of many in the community. In case you are unaware, the Segwit 2x hard fork was made to be a compromise between the two polarizing sides of the scaling debate in early August. It was to be launched in mid November and it would have Segwit and larger blocks so both sides would be happy. It was made in a meeting behind closed doors earlier in the summer, where everyone from big miners to wallet companies compromised in order to avoid a more contentious hard fork. Since the BCH hard fork ended up happening, many people in the community now did not see a reason to continue the Segwit 2x fork and therefore it did not have very much popular support. As a result, the fork was cancelled, and this is what caused some of the price action.

Why did the cancellation of the fork send BTC prices plummeting?

Bitcoin transaction fees are the biggest problem Bitcoin is facing in my opinion. The limited block size combined with the growing demand for transactions have sent fees higher over time as well as an ever-growing Mempool. The adoption of Segwit by the main Bitcoin chain has helped, but the transaction fees are still too high for Bitcoin to be used as a practical currency at $2-3 on average to be confirmed to the next block. Only 10-12% of transactions are Segwit enabled, and this has made people very hesitant that it would solve the transaction problem. In its defense, Segwit is only meant to be a temporary solution to the problem, as other avenues such as the Lightning network are being explored by Core developers. Also, many people are transferring their Bitcoins to certain wallets/ exchanges to trade, that do not use Segwit. Some people saw 2x as an alternative to the increasingly expensive Bitcoin chain, and it combined the benefits of both scalability solutions. Others saw 2x as a centralization ploy, because the agreement was made between large players in the cryptosphere without much input from the community itself. Either way, some people lost hope in the Bitcoin chain that day, and changed their allegiance to the Bitcoin Cash chain. as their fees are on average, cheaper than Bitcoin fees. This was the first of the domino effect that sent BCH to parabolic levels.

Why rumors may have played a role as well

Rumors are one of the most powerful forces in any market, and can change prices by significant amounts very fast. Roger Ver, one of the most influential Bitcoin developers was the main voice behind the BCH fork. Since he got involved with Bitcoin when it was literally less than a dollar in price, he is what traders call a “whale”. Whales have the power and influence to change and to even manipulate markets. There were rumors of him transferring 25,000 BTC to Bitfinex which worried many investors that he would subsequently sell all of the BTC and buy BCH. This caused BTC investors to sell and buy BCH as they predicted the price would spike. Ironically, Ver has not sold any BTC on that exchange at the time of writing this, but BCH prices still went up. I don’t necessarily believe this rumor myself, as if Ver wanted to safely and efficiently sell his BTC, he wouldn’t sell all of them at once, he would dollar cost average them over time. Also, Ver being seen as a market manipulator would not only hurt his reputation, but would cause people to back out of investing in BCH.

There are also conspiracy theories surrounding the New York Agreement, which was the meeting behind closed doors I mentioned earlier in order to enact Segwit 2x. People are saying the entire meeting was just a ploy, in order to cancel the hard fork and to cause confusion in the marketplace. The insiders of this ploy would keep BCH prices down until the cancellation and then profit off of the chaos. While the people behind many of the largest cryptocurrency institutions are very intelligent, I don’t believe they possessed the almost psychic insight to predict such an outcome. Conspiracy theories have been around since the dawn of time, and have been used to explain events such as 9/11 or the JFK assassination. Hindsight is 20/20, and people are jumping on board with this conspiracy because it makes perfect sense after these events happened. It strikes me as odd that with this very popular meeting attended by many cryptocurrency companies, discussing this very immoral and arguably illegal scheme, that news wouldn’t leak out about the cancellation beforehand. Of course I cannot prove this theory wrong, for all I know it may be true. New information may arise, but as it stands now I don’t believe this conspiracy. In my opinion, I think the largest reason for the price action we’ve seen is because of irrational traders in the marketplace.

How hedging and FUD caused the price chaos we saw

Hedging is defined as ” strategically using instruments in the market to offset the risk of any adverse price movements”. Many people who were bearish on Bitcoin scalability moved some of their assets in order to protect themselves against a price drop. BCH was seen as a good alternative for many, since it is popular, and possesses the Bitcoin brand. This caused BTC to drop and BCH to initially rise. This force was nothing compared to the FUD (Fear, Uncertainty, doubt) that erupted in the marketplace though. Because of Bitcoin not having a way to fix fees in the near future, people feared the Bitcoin network would lose its spot as the most dominant chain to BCH which has a way to fix scalability. BCH proponents said it would become the “new Bitcoin” and would even take the ticker symbol BTC at some point in the future. This cause investors to panic and sell BTC in a parabolic manner. At the same time, many investors saw the BCH price nearly double in one day, and they did not want to miss out on that 100% profit. “Fear of missing out” caused people to irrationally sell their BTC to buy BCH and the price skyrocketed even higher until the prices nearly tripled in just a few days.

Why the FUD cycle continued for so long

As the BCH price went up and BTC price went down, miners soon discovered that for a temporary amount of time, BCH was more profitable to mine. This caused an explosion in the price of BTC transaction fees which went to an all time high of over $14 just to be confirmed in the next block . There is also a hard fork for BCH which would address its problems with the difficulty adjustment that some argued would make BCH better to mine.Less miners mining BTC meant that confirmation times were even slower than usual. This in turn caused many traders to fear that the BTC network was collapsing, and BCH would be king. This continued until BCH passed up Ethereum in market capitalization for the first time at $28B, when weeks earlier, Ripple was higher than BCH at $8B.

Overall, there were a myriad of reasons contributing to the insane price action we saw over these last couple days. Hard forks, big traders, fear, and miners all had a role to play in the explosion of BCH that is here to stay. Even though I do not think BCH will ever “replace Bitcoin” BTC has lost many proponents due to its transaction fees, while BCH may have lost proponents due to the rumors and proposed market manipulation. The biggest reason in my opinion is not the politics behind Bitcoin, but by the irrationality and short judgement of many traders in the market.

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