As sure as the sun rises and sets, as sure as Trump hires and fires, Bitcoin news is jolting the cryptomarkets higher and lower.
Bitcoin was created following the global financial crisis of 2009. Early participants had a simple goal: to be part of a truly international currency market that wasn’t controlled by the individual Central Banks of the various countries.
As the market developed, Bitcoins were being used more and more as an actual currency. From individual retailers to big businesses, the list of companies that accept Bitcoin has been growing. Compared to standard money transfers and payments, Bitcoin offers speed at virtually no extra charge.
For investors and traders, the Bitcoin market was tempting for both investing and speculation. The growth of other cryptocurrencies, like Etherium and Ripple, just added to the mix. For those who wanted a position to hold on to, here was the opportunity to get in at a “ground floor.” In 2010, Bitcoin was trading at 6 cents; it is now trading over $3000. For those looking for quick hits, Bitcoin was a ripe market.
Why Did Bitcoin Split?
As Bitcoin gained acceptance and popularity, it was increasingly facing difficulties with the speed, or lack of speed, required to perform transactions. The technology is based on what is called a blockchain, and this technology could not keep up with market demand for producing (mining) new bitcoins and registering transactions. The Bitcoin community had been debating different models to solve this, and the answer came as a “hard fork” – a split in the decision-making. Some held on to the old method, with a revamped system that should double its speed from 1MB to 2MB, and others went for a new system, now called Bitcoin Cash or Bcash, which increases speeds to 8 MB.
In advance of this split, cryptocurrency companies had to decide what to offer their customers. The basic offer was one token of Bitcoin Cash for each token of Bitcoin. If you owned 700 tokens, in addition to those original 700, you received 700 Bitcoin Cash tokens. But that doesn’t mean the value doubled. What is a token worth? The Bitcoin Cash tokens have fallen and risen since this split. They reached a high near $770, and has fallen back to its current low near $210. But this is still just a fraction of the original Bitcoin, which is worth close to $3200 these days.
What about Investors?
Arthur Hayes, the CEO of BitMex, a bitcoin derivative exchange, told Business Insider he thought a fork would benefit the cryptocurrency in the long run after some short-term volatility and confusion. “There are people with billions of dollars of skin in the game,” Hayes said. “And they will ultimately go with the superior bitcoin network, and the market will follow.”
In the days leading up to the split, investors were cautioned that there were major changes coming. Some companies held on to their positions, with huge margin demands, but others opted for liquidation until the market settled.
The future of the Bitcoin Cash market is still uncertain, as individual bitcoin exchanges decide whether to accept the new cryptocurrency. It will probably remain uncertain for the near future as the market waits to see if the original Bitcoin actually makes the expansion to 2 MB (scheduled for November). In the meantime, investors and users alike are waiting to see if Bitcoin Cash can match the reliability and security of the Bitcoin software. With each passing day since Bitcoin “forked,” more cryptocurrency exchanges have decided to accept Bitcoin Cash.
Still the question I asked in a recent article remains: Are they for real, a major Ponzi scheme, or just another in a long history of asset bubbles like the tulip mania, the South Sea bubble, and the 1929 stock market?
A sign of confidence in the future of Bitcoin can be seen in the recent approval given to LedgerX, a cryptocurrency trading platform, by the Commodity Futures Trading Commission. LedgerX would be the first regulated Bitcoin options exchange in the US. This will increase trading activity.
Furthermore, after rejecting the Winklevoss twins (of Facebook fame) Bitcoin ETF (COIN) in a March 10 decision, the Securities and Exchange Commission is now reconsidering their approval. If indeed there were ETF trading in the cryptocurrencies, there is no telling what kind of explosion there would be in the market. Much as the volume of other investment mediums erupted after ETFs were established, the Bitcoin market may truly be in its infancy.