Bitcoin cash just exploded. Could it go further?

So, bitcoin cash has just exploded in value. What exactly is going on? If you’re keen to cash in on the astonishing economic success story of cryptocurrencies, you really need to download Sam Volkering’s book.

Let’s get started by looking at the scale of the growth. But first, a quick clarification: bitcoin cash and bitcoin are two separate currencies.

Bitcoin cash has roughly tripled in a fortnight; more than doubled in under a week; and is currently trading at just under double its previous all all-time high. That’s really big news, for a currency that was previously seen as very much the “poor cousin” of bitcoin. To give some context, bitcoin has fallen at the same time – dropping nearly a quarter, in the last week.

So, what’s going on here?

The story is all related to the new technical standards for bitcoin – the ongoing SegWit saga. The new currency of bitcoin cash was created as a result of a “fork”. This is where there’s a squabble in the bitcoin community, leading to a schism. One part of the bitcoin community goes one way, another part goes another way. They both end up with two separate currencies – only one of which can be called bitcoin, for obvious reasons. The result of a previous split was bitcoin and bitcoin cash. Since that fork, bitcoin has gone from strength to strength, while bitcoin cash has previously languished.

To understand more about what’s going on here, let’s take a step back and look at the wider story behind these forks. Bitcoin has got many great attributes as a currency, but it has also got some very serious drawbacks. The key issue that’s exercising everyone at present is the fundamentally limited nature of the bitcoin blockchain for processing high transaction volumes quickly. The limited capacity of the blockchain has caused serious bottlenecks in terms of the speed of resolving payments. Despite its rising importance as a global currency, bitcoin has a tiny transaction volume, when compared to other global payment systems (such as Visa). As a result, pending transactions keep getting backed up in the system. This results in huge payment delays, and eye-watering fees to get transactions processed. The situation has gotten so bad that it has become pretty much incompatible with widespread adoption of bitcoin as a currency. That’s just one of the problems, which I covered in “My beef with bitcoin”.

To fix this there have been a variety of proposed technical changes

Recently, there was a plan to create another new technology change for bitcoin (SegWit2x). This threatened to create another hard fork in that currency, which would have spun off yet another type of cryptocurrency, as the bitcoin community split again. The fact that this hard fork was recently abandoned appears to have been the trigger for bitcoin cash’s huge recent boost – although it didn’t occur instantly.

The capacity problem that led to the proposed hard fork remains unresolved. As such, bitcoin cash is perhaps a more technically able currency at the present time. It’s got a transaction volume capacity an order of magnitude higher. This makes its “cash” moniker apt as a distinction – although still hyperbolic, because the bottleneck is still there. As a result, it appears that bitcoin cash has been somewhat undervalued – the volume problem being a key limitation on bitcoin’s wider adoption, and thus its eventual price. What we’re seeing is therefore arguably a northbound correction in bitcoin cash – catching up to its “true” value. It’s not impossible that this could be the start of bitcoin cash’s moment – when it finally gets the attention it deserves. This is already making a real difference to its status. Over the weekend it briefly overtook Ethereum to become the leading “altcoin” – the leading non-bitcoin currency, by market capitalisation.

What could the future bring?

Right now, it appears that there’s been a real wobble in allegiance to bitcoin – and bitcoin cash’s star is certainly rising. In fact, the rapid sell-off of bitcoin has clogged the network – drawing further attention to the currency’s limitations. Not only owners, but also miners, are jumping ship – and heading for bitcoin cash. This could be the beginning of something very big.

Of course, this is a highly volatile market, and if you looking to trade it you will need some expert advice. I would certainly suggest that you read up on the materials which we’ve prepared for you, in the form of Sam Volkering’s book. That way you can learn what might be in store for this volatile and exciting commodity class – one which is making a lot of people like you very rich right now.

How are you planning to profit from cryptocurrencies? Or are you put off by the sector? Let us know – andrew@southbankresearch.com

Best,

Andrew Lockley
Exponential Investor

Category: Blockchain

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