Summary:

• Bitcoin price slumped 30% after reaching all-time high but has partially recovered
• Some miners look for alternatives now that SegWit2x has failed
• Bitcoin Gold has had a slow start

Last few weeks brought about a massive volatility in Bitcoin (BTCUSD on xStation platform) prices. This market is never short of extreme price swings that often represent market response to news on cryptocurrency acceptance or bans on trading. However, this time it was about something bigger. In this analysis we take a look at mysterious Bitcoin forks and try to explain recent price volatility.

Where it all started?

Bitcoin is a clear precursor in the crypto world and a pioneer of block chain technology. The very same thing that makes it popular also means that it faces an intense competition from newer and more efficient solutions. Developers behind a bitcoin block chain seem to be aware that if the currency is about to live up to its hype, it needs to be improved. However, there is no consensus on how to do it to the point, that we now have three different versions of Bitcoin that compete for dominance and investors’ interest!

3 Bitcoin forks

Bitcoin Cash emerged on 1 August offering a block size which is 8 MB versus 1 MB in case of Bitcoin. It was launched in order to accelerate the verification process and could be drawing more and more attention of market participants as it offers lower fees along with faster time of transactions’ processing resulting in higher profits for miners. Bitcoin Cash supporters believe that SegWit was attacking Bitcoin’s strengths such as decentralization and democratization. Bitcoin Cash had a slow start and at first it seemed like it could be marginalized by an improved version of an original Bitcoin. However, a lack of consensus on how to upgrade Bitcoin blockchain has led to an increase of interest in Bitcoin Cash lately.

After a period of calm, interest in Bitcoin Cash has exploded recently. Source: coinmarketcap.com 

 Bitcoin Gold went live on 12 November and was aimed at making mining system more accessible to users and allowing more people having less efficient hardware to mine the new digital currency. Bitcoin Gold has its block size equal to 1 MB (adjustable up to 4 MB though) being a smaller one compared to Bitcoin Cash. There are many uncertainties relating to Bitcoin Gold, though. It’s being sponsored by a hardware producer and some miners were able to create some coins before the launch, questioning a legitimacy of this new currency.

SegWit2x hard fork was one of the most contentious plan pertaining to the genuine Bitcoin initially scheduled to take place in mid-November. At first, a plan was just to improve the original currency but as the consensus behind its implementation could not be reached, SegWit supporters sought a hard fork. They planned to create Bitcoin 2x that would dominate and eventually replace the original Bitcoin. Eventually, a set of issues had a detrimental effect on support for SegWit and this hard fork did not materialize.

Explaining price dynamics

Bitcoin price surged by nearly 165% from a low of $2970 in mid-September to a record high of $7862 on 8 November. Initially it looked as market participants flocked to Bitcoin in a belief that regardless of the number of hard forks to come, buying Bitcoin will guarantee that they will receive the new currencies as well.

A 30% correction in November is being explained as a consequence of failure to introduce SegWit2x. Even though the original Bitcoin prevailed, its scaling issues remained in place leading some to believe that more technically sophisticated Bitcoin Cash could be a better solution. As Bitcoin price tumbled, Bitcoin Cash soared but both moves were significantly reversed. Does it mean that the original Bitcoin has won for good? Not necessarily. The block chain still needs to be able to handle more transactions in a more efficient way and unless developers can agree on a single solution, another hard fork could loom in the future.

On the chart     

BTCUSD remains in an upward trend. Source: xStation5  

Even though a 30% slump in BTCUSD was spectacular it was nothing unusual after a rapid rise that took place earlier. In fact this correction was smaller in percentage terms that the one from September that was caused by a ban of Bitcoin exchanges in China. Technically an upward trend remains intact, especially as local lows from October have been defended.