Bitcoin has certainly seen quite a drop in value recently, going from close to $8,000 on November 8th 2017, all the way to below $6,000 over the following weekend. Is this the end of Bitcoin? Should you switch over to Bitcoin Cash? Do you even know about Bitcoin Cash or how it's different from Bitcoin?
What Happened To Bitcoin?
Let's first take a look at why Bitcoin suddenly surged to over $7,800. The reason for this spike was because everyone anticipated that Bitcoin would split due to SegWit2x, and then the fork was cancelled, at least for now. The reason for what is referred to as SegWit2x was to make it possible for Bitcoin transactions to be verified and cleared faster. With the current configuration, Bitcoin faces some real transaction clogging problems. The irony is that these restrictions were part of the initial design of Bitcoin, but at the time, no-one had anticipated that it would grow as fast as it did.
The solution to the traffic problem would be to “widen the road”, so to speak, and potentially also create an extra road or two, that can handle additional traffic. That may be a very superficial overview of what SegWit2x was going to try and achieve, but these topics are so technical that it makes it far more understandable to use analogies, since especially in this case, it is pretty close to what the plan was.
One of the problems with SegWit2x was that they did not plan on any “replay protection”, what that means is that if you spent your regular Bitcoins, the “new” Bitcoins after the fork would also go with it, and vice versa. The supporters of SegWit2x did not see this as a problem, since the idea was to replace the current Bitcoin, but since we've seen Bitcoin Cash implement replay protection, everyone else appears to have expected to end up with both old and new Bitcoins, both protected. That did not happen, and I believe that's what ultimately led to the fork not happening.
On the contrary, Bitcoin Cash created a “road” that's 8x larger than regular Bitcoin, but there has been some concerns about the security of the network, since it is potentially favoring speed over security. Some parties have weighed in heavily with support for Bitcoin Cash recently, so much so that they have preemptively declared regular Bitcoin to be dead. That has certainly not happened, and current market movements indicate that it is way too early to call for the demise of traditional Bitcoin.
To Fork Or Not To Fork
Currently the issue is that eventually there will have to be a Bitcoin fork, since it simply cannot continue as is. It is not sustainable over the long term. On the other hand, according to a recent article in Forbes, Bitcoin's total market capitalization currently sits at over $100 Billion. That's a lot of money that a lot of people have an interest in keeping, and growing.
My take on it is that a fork will happen, it has to, but hopefully it will be planned better and coordinated in such a way that it achieves all of the objectives, without the drawbacks that hampered previous forks and attempted forks.
What Makes Bitcoin Tick?
If you're new to Bitcoin and cryptocurrencies, you might not fully understand the volatility involved, so let's that a quick look at that. Firstly, you have to understand that investing in things like crypto-currency coins or tokens is very risky, you could easily lose your whole investment. This has not stopped people from flocking to investing in them, but it's good to understand from the outset that these instruments are not a sure thing, far from it.
Secondly, you might be surprised to hear that a lot of what happens in the crypto-currency space is dictated by the miners. Miners? Yes, miners, the people that use their own computer hardware, often custom-made, to do the mind-boggling math required to “mine” Bitcoin and other crypto coins. In essence, the “mining” involves solving math problems, and the more people start using coins like Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Dash, etc., the more computing power is needed to keep everything running smoothly.
The miners are of course not doing all of this purely for the benefit of others, they want to make money too, and the way they make money is by basically getting paid each time they solve a math problem to make the whole system work. The thing is, as the network grows, the difficulty rate is increased artificially, this is to keep everything in balance, but it also means that if miners can make more money elsewhere by solving simpler problems, they jump ship.
Over the weekend of the 11th of November, the rate at which Bitcoin transactions were completed dropped from an average of 10 minutes, to 20 minutes, which was a very big and sudden drop. This happened because a lot of miners switched their machines over to mining Bitcoin Cash, instead of regular Bitcoin. If this had continued, it could have lead to Bitcoin dropping even more, because the network would have become less useful, leading to people potentially selling their Bitcoin in favor of alternatives, thereby exacerbating the decline. Do you see how quickly things could have changed?
There is no central controlling body that ensures that everything keeps working, all of this is purely driven by market forces and the greed and fear of people. On the other hand, Bitcoin is one of the “oldest” and most trusted of all the cryptocurrencies, and the odds are good that it will continue for years to come, purely because a lot of people have only heard about it now, giving it a lot of potential going forward.
There are some major organisations that are only now starting to invest in Bitcoin, as well as other cryptocurrencies like Ethereum, or even Ripple, which is already used by a number of big banks for their transactions. The point is we are only seeing the start of this whole revolution now, and yes, there will be casualties along the way, but if you're brave enough (and have some cash to spare), it's going to be an interesting ride.
Bitcoin Price Predictions For 2017 And 2018
Take a look at the chart below, and you will see just how resilient Bitcoin has proven to be. Actually, it looks like a lot of other high-volume charts, with the difference that it is just reacting faster. The patterns and rhythms are exactly as I would expect to see from any regular Forex chart.
What I'm seeing here is an Impulsive Wave (yes, I depend a lot of Elliot Waves), that leads us up to the 5th wave spike that almost reaches $8,000. The major point to recognize here is that it behaved exactly as expected, and of course, after finishing up with those five waves, we would expect it to correct. That's precisely what happens with a Flat corrective wave indicated by the A, B and C waves, the C wave being composed of another Impulsive 5-wave move.
Take a look at the image below, and you'll see that it is text-book:
It is a little early to identify exactly what will happen next, but based on what I can see for the start of the new wave, the price of Bitcoin will probably recover back to $7,600 over the next few days. After that, it might venture downwards again, or simply break through and rocket all the way back to $8,000. We will have to wait and see.
As long as the price of Bitcoin stays above $4,400 I do not see any danger in it crashing completely, and thus far all of the market moves that might have appeared to be chaotic actually charts out as expected. A drop below $4,400 would signal a systemic problem and a break in the expected pattern, and that's when I would start to get worried about the future of Bitcoin. We're nowhere near that currently, and I don't expect to see it fall to those price levels based on what I see in the charts.
Personally I feel that Bitcoin Cash is a great idea, but until it is as widely available as regular Bitcoin, it will not see widespread adoption. Established online providers like Coinbase.com and Coinmama.com need to start supporting it for everyone before it will truly gain momentum, in the meantime, we still have regular Bitcoin.