Well, what a week it has been for Bitcoin investors!
If you remember back to last weeks post, we were celebrating that Bitcoin had breached $3,500 after the market had begun pricing in SegWit. Yesterday, Thursday 17 August 2017, saw several exchanges reporting Bitcoin blaze through to reach yet another all time high at $4,500, securing a market capitalisation of $74 million, topping that of Netflix. The price has since retracted slightly and settled around the $4,300 mark.
It is at times like these that I find browsing bitcoin related news articles somewhat amusing. For each positive headline highlighting the strengths and drivers of Bitcoin’s impressive growth and adoption, there is bound to be a negative one claiming the Bitcoin bubble is about to burst, or flat out disputing the validity of Bitcoin.
Naturally, being keen proponents of Bitcoin, we will generally dismiss the latter, and simply hope that one day the authors will ‘see the light’ and come to understand that bitcoin is no bubble or fast fad. It has not been driven by investors looking to make a quick profit, but rather by its growing utility.
The lead up to the Bitcoin Cash (BCH) split from the main Bitcoin network on 1 August 2017 left many with concerns of how the hard fork would impact Bitcoin. It turned out to be a rather smooth transition, and after an initial, natural retracement, BCH price has stabilised around 10 - 15% of Bitcoin value. To date, it has not been much of a ‘threat’ to Bitcoin in that the team and supporters have been focussing solely on their own development and not pushing for any open ‘battle’ of the two chains.
With the split now in the rearview mirror, cautious investors have found a renewed sense of ease and confidence, indicative in the Bitcoin price rally since the beginning of the month. The impressive surge over the last week can also be attributed to the lock in of SegWit on the network. SegWit offers a fix to the malleability issues hindering the implementation of much anticipated utility and functionality such as smart contracts and micropayments, while alleviating congestion on the network by enabling faster processing speeds. This combination puts Bitcoin in a strong position for scaling and far broader adoption than before.
The market will continue to find its price level in the lead up to SegWit activation and the short-term settlement of the scaling issue will lead to fresh private and institutional investors entering the market.
Goldman Sachs have recently pointed at institutional investors to get involved, stating that it is getting ‘harder for institutional investors to ignore cryptocurrencies’.
You may recall that SegWit activation is the first phase of a two-step scaling solution as per the New York Agreement, dubbed SegWit2x. Essentially, following the SegWit activation, a hard fork is to happen to enable the block size to increase from its current 1MB limitation to 2MB.
On 16 August 2017, the SegWit2x developers announced the activation block for the 2MB hard fork, scheduled to take place on 21 November 2017 at block 494,784, and in their statement highlighted that larger blocks would have ‘more than 90%’ support from miners. This sounds like a positive prediction, however it is important to note that Blockstream, a major funder of the Bitcoin Core team, did not actually sign the agreement as they do not support the idea of a increase in the block size.
For this reason, if enacted, SegWit2x could result in another chain split taking place, and another version of Bitcoin being created. Should the block size increase not be implemented, we may see miners and users who want to use bigger blocks shift across to the Bitcoin Cash network, which would give BCH a considerable boost and potentially ignite a new wave of ‘competition’ between the on-chain and off-chain supporters.
Given that shortly after the announcement BCH surged by more than 70%, to break through $500, could it be that this game is already afoot?
Either way, it is most certainly an exciting time to be involved in cryptocurrency!