This past month has been crazy in the crypto markets causing huge selloffs throughout the market and then the birth of a new coin, BSV. I have spent some time trying to unpack everything that has been going on this past month so as to know whether or not investment in crypto is still viable. The story is quite funny and Dary Merckens put it succinctly, “nerds arguing about nonsense”. However, to an investor or trader, it’s not nonsense if it concerns money, and this post is meant for anyone also curious about the goings-on in the crypto-sphere. (Ever asked: Will Cryptocurrencies Recover From Their Price Slump In 2018?)
Counting down to Bitcoin SV
At the moment, we are looking at the latest fork in BTC that led to the creation of Bitcoin SV (BSV). In order to get there, we have to look back at the events that led to this moment. This is not a long story, and I promise to keep it short and non-technical; it’s not like I understand the inner workings anyway.
Creation of BTC Cash
They say be careful what you wish for, and BTC suffered the consequences. For years BTC had been a novelty to be used by enthusiasts and other parties – criminals and money launderers. Satoshi Nakamoto intended to make BTC a global currency, and their wish was granted when the coin became the hottest topic around the world. As more people became aware of cryptocurrency, demand for BTC increased and this started to cause problems. The BTC web was no longer able to handle all the transactions and this reached a crescendo around July, 2017. Transactions within the web would take hours and sometimes even days to get confirmed while also costing a lot. Something had to be done, and some developers came up with SegWit2x. (Do you know: What Will Be The Impact Of A BTC Fork?)
This proposal would increase the block size from 1MB to 2MB and allow more transactions to be confirmed within a minute. Transactions would be faster through the use of sidechains where some information is stored outside and only later incorporated into the ledger. You would think that such a solution would be embraced by everyone, but the nerds had to argue about nonsense. The other proposal was BTC Unlimited where the block size would be scrapped off altogether. This one would never come to happen, although SegWit2x was later implemented into the web.
One faction of developers thought a doubling of block size was not enough and they wanted to raise it to 8MB. There were some more changes too, but the main one was the increase in block size. In order for SegWit2x to take place, it required a majority support among developers, but without this support, a new coin simply sprang up. What happened was that some developers within the web started to confirm transactions using a different protocol than the original BTC protocol. When this happens within the ledger, it essentially creates 2 separate ledgers because they now operate differently. (Have you ever wondered: How Did Tether Cryptocurrency Survive The Crypto Market Selloff?)
This new ledger created BTC Cash (BCH) after BTC’s ledger was transferred to the BCH web. After this fork, everyone who owned BTC suddenly had an equal amount of BCH because the entire ledger was copied onto the new web. From the start, BCH enjoyed a lot of support because it was almost immediately accepted by many major crypto exchanges and wallets. Its price also reflected the interest investors had in it, and it has remained among the top 10 coins ever since it was ‘born’ on the 1st of August, 2017. (BCH Vs. BTC: Confrontation Forecast in 2018)
And then there were five…
As if that was not enough, yet another dispute arose among the BTC community, this time the problem was the centralized nature BTC was taking. It was true that a few BTC miners were responsible for a majority of the mining across the web, and some believed this went against the vision Satoshi Nakamoto had for the coin. Using ASICs, a few companies had set up mining factories that effectively edged out the lowly individual and their personal mining rig. Some developers wanted to make BTC truly decentralized, and they came up with a different protocol called Equihash.
This protocol prevents the use of ASICS, thus allowing anyone to mine BTC. The only problem is that they could not summon the necessary majority to implement a platform-wide soft fork, forcing a hard fork into BTC Gold (BTG). Alas, these developers were beaten by the very system they were trying to overthrow (sound familiar, GOT fans?). Because BTC was dominated by only a few players who did most of the mining, it was nearly impossible to push new protocols, however beneficial, if they meant the demise of these big fish. (These are the: 10 Most Important Resources to a Cryptocurrency Trader)
Just like BCH, BTG was also widely accepted by exchanges and wallets, but it never reached the elite status of BCH. This was probably because it was not backed by any major developer in the crypto-sphere, and the coin has been swimming in double-digit waters ever since its launch on the 25th of October, 2017.
That still wasn’t the last fork, because BTC Diamond (BCD) followed a month later on the 25th of November. This new coin was an idea by Team Evey and Team 007 who are BTC miners. Their idea was pretty similar to that of BCH because they too increased the block size from 1MB to 8MB so as to speed up transaction processing. The most significant difference was to increase the total supply of BCD 10 times from 21 to 210 million. Performance of BTC Diamond was even worse than BTG, and now the coin is number 35 among the top coins according to CoinMarketCap. (Some of the: Cryptocurrency Regulations Around the World)
Then there was BTC Private (BTCP) launched on the 2nd of March, 2018. The story of BTC Private is different, though, because it is not simply a hard fork from BTC, but a fork merge. A fork merge is done simply by taking a snapshot of BTC and Zclassic addresses and then merging them into a single ledger – BTCP. After the fork merge, there were 20.4 million tokens of BTCP out of a total of 21 million, leaving only about 600,000 available for mining. Needless to say, many miners did not jump on the BTCP wagon and the coin is now 75th among other coins by market capitalization.
And now, Bitcoin SV
Except for BCH and, to some extent, BTG, none of the other forks had any significant impact on the price of BTC until BSV, and here is where the story becomes complicated and hilarious. Each year, BCH schedules two forks in order to implement upgrades to the web. The first upgrade was in May, 2018, where the block size was increased from 8MB to 32MB for the web to accommodate even more transactions. The next scheduled fork was meant for the 15th of November, but it didn’t happen. The reason was that there was a conflict among developers on the direction BCH should take. (What Would Happen To BTC Price When It Is All Mined?)
The main group of developers within the BCH web is led by Roger Ver who was the driving force behind the fork of BCH from BTC. His claims that BCH is the ‘real BTC’ have given him the nickname BTC Judas. This group of developers holds the majority of miners’ votes, and they believe that the web does not need any radical changes since its current state is ‘sound’. They do, however, plan to implement numerous changes in future, although conservatively, to include features like smart contracts. This group’s main rival is BSV created in August, 2018 with the aim of making radical changes to the BCH web. They do not have the majority of miners’ support, but the group’s leader, Craig Wright, has declared himself to be the real Satoshi Nakamoto, earning him the nickname Faketoshi.
This group of developers wanted to raise the block size from 32MB to 128MB during the November 15th fork, but they lacked support leading to the hard fork. Finally, is a neutral group of developers with a substantial amount of support from miners labelled BTC Unlimited. They did not have any proposals for the last fork, but wanted the two warring groups to compromise. You can guess how that turned out. Because of a lack of consensus, a hard fork took place within the BCH web leading to the formation of BCH SV, later simply renamed BSV standing for BTC Satoshi Version.
How are these coins performing in the markets?
Even through the selloff in November, BTC still remained the top coin by market capitalization. On CoinMarkeCap, BTC was worth about $6,365 on the 14th of November before dropping down to $3,740 by the 27th of November. The 40% drop was caused by the allocation of hash power toward BCH over BTC by major mining companies. Prior to this, the value of BTC had more or less remained consistent and now it is slowly edging its way back up.
BCH, on the other hand, suffered an even greater loss in value. In anticipation of the fork in the web, people bought more BCH tokens hoping to be rewarded with BSV, which is what happened. This is why BCH grew from $425 at the start of November to $630 by the 7th of November. However, the war between BSC and BCH seemed like it would cause mutually assured destruction, and investors quickly dumped the coin. It would eventually go below $170 by the 25th of November, wiping off over 70% in value and market cap. BCH would also lose its number 3 spot and be relegated to number 5. (These are the: Stellar Lumens (XLM) Price Predictions and Forecast for 2019)
BSV was also not a complete failure, because it has been among the top 10 coins by market capitalization. After the fork occurred, BCH holders all received an equal amount of BSV valued at around $175, but a lot of it was sold off leading to a drop of over 50% to $80. Prices later tapered off and stabilized around $90. As for the other BTC forks, they have not been very successful and still remain under the radar. You could still invest in them, since they follow the general pattern in the crypto markets.
What was the impact of all these forks?
In November, coin arena lost about 45% of the total market capitalization from a high of around $220 billion to a low of $120 billion. Toward the end of the month, though, there were some gains and market cap closed above $130 billion. Nevertheless, this is a far cry from the 8th January levels above $828 billion, almost close to a trillion. Most of this decrease, at least in November, can be attributed to the fallout following the hard fork of BSV from BCH.
As it happened
Prior to the fork, BTC had been rising in value because the SegWit2x fork had been suspended. This assured certainty in BTC unlike BCH where developers had not agreed on a way forward and a hard fork seemed inevitable. Investors were therefore stocking up on BTC in over BCH, causing the former to rise in value while the latter decreased. Eventually, the hard fork occurred in the BCH camp, and that caused trouble throughout the coin arena. (These are the: 5 Most Popular Uses of BTC and other Coins)
Unlike other hard forks where the groups quietly went their separate ways, these ones decided to go to war, metaphorically speaking. The war also forced exchanges to halt trading until the dust settled and a clear winner emerged, and thus commenced the hash wars. To prove which coin was winning, the developers had to show they possessed the mining power necessary and could create more blocks faster than the other. Each of the sides had to prove to the exchanges and users that they were better than the other to earn the top spot. On the side of BSV, Craig Wright was supported by companies such as CoinGeek, BTC.org and CalvinAyre. Backing BCH are Coinbase, Bitmain, Binance and BTC.com. (You should learn these: 5 Tips to Choosing the Ideal Cryptocurrency Exchange?)
Leaders from both sides took to Twitter to voice their views, leading to quotes like “continuous competition until one dies” by Craig Wright. The mining pools they own also shifted from mining BTC toward their respected forked version. At the peak of the hash war, hash rates for BCH had risen to 15.43% up from 9.54%, similar to that of BSV. However, BCH beat BSV in proof-of-work by about 50% meaning that the former had won the hash war. Following their success, BCH were awarded the BCH ticker by crypto exchanges and the other BSV. Meanwhile, hash rates for BTC had fallen from 90.46% to 84.57%, indicating that indeed the miners had shifted their resources away from BTC.
The crypto selloff
The result was clear because the value of BTC fell as soon as the hash wars began, but so did the rest of the crypto markets. The entire crypto market experienced a 45% drop in market capitalization from $220 billion to $120 billion. This indicated a massive selloff in coins across the industry by investors. It was also fuelled by the warring parties in both BCH camps who had to sell BTC and other coins to get money for renting hashing power from miners. These people hold a lot of coins, and when they started to sell, it caused crypto markets to fall. (Avoid being a victim: Learn How Crypto Scams Operate And Avoid Them)
Inasmuch as the war was meant for the nerds who understood the actual technology, they made their grievances public and attracted a lot of media attention. Investors do not like uncertainty, and therefore they simply dumped their coin holdings. This technology that was once considered to be revolutionary could now be viewed as a passing fad implemented by some nerds with computers. The main story has shifted from the actual technology to a war of egos and personalities, and investors have been torn between the main characters.
The debacle displayed a lack of consensus among crypt developers and also a lack of leadership, both important aspects that investors consider in an asset. In fact, management and leadership is among the three factors that Warren Buffet advised people to consider before making any investment. This is why some experts like Dary Merckens, CTO of Gunner Technology, told Finance Magnates that no one wants a group of ‘hard-headed nerds’ managing a currency. (These are: The Most Prominent Crypto Hacks and Scams You Should Know)
In come the conspiracy theories, or are they?
Now there are even some who believe that the entire BCH debacle is simply all a conspiracy by some conniving investors. As the theory goes, there is a group of miners and investors based in China who hold a large portion of BCH tokens. They initially got these tokens the moment the hard fork occurred last year and their value was low, so they simply accumulated a lot of them by buying them off the market. By creating demand, they were able to increase the value of BCH and consequently, their wealth. Following the suspension of SegWit2x on BTC, they spammed BTC to make transactions slower and to make BCH seem favourable. Given BTC’s scaling problem, it is as easy as sending multiple small transactions across the web to slow down the platform. (Do you know: Which Are The Most Influential Cryptocurrency Markets By Country?)
As a result, the more investors bought BCH and dumped BTC, the higher their wealth grew since they held a majority of the tokens. Apparently, that wasn’t enough, so they dumped a lot of the tokens in the market, causing prices to drop and investors to panic also dumping their few tokens. Then while prices were low, they once again bought up the tokens at low market prices to accumulate an even bigger proportion of the BCH tokens.
Proponents of this theory point to the timely increase in BTC’s transaction costs following a spam attack and the rapid crash of BCH prices almost overnight. While the theory may be a conspiracy, that does not rule out the possibility of market manipulation by the whales in the industry.
What does this mean for the future of coins?
Last year, in 2017, coins were all the rage leading to spectacular growth in market capitalization across the industry. There was also a lot of hope and expectation when some financial regulators stepped in to regulate the industry such as the SEC that declared ICOs to be a form of securities. Now these hopes have been dashed thanks to the prolonged downtrend that has dominated all through the year. Enthusiasts and investors who were once hopeful about the industry’s comeback are slowly acquiescing to the doom and changing their tune. Back in January, Mike Novogratz claimed that BTC would reach $40,000 by the end of 2018. Novogratz is a popular BTC bull who created Galaxy Digital to be a digital asset bank. Now he has trimmed down his predictions, saying that BTC won’t go above $9,000 in 2018, although he is optimistic about a rally in 2019. (Do you know: What Is The Future Of Crypto In Finance?)
Today, there is a general attitude among experts that the industry may have all been a bubble that is now starting to pop. Take as an example the words of Robert Johnson, professor of Finance in Creighton University, who told Finance Magnates that cryptocurrencies were only fuelled by speculators. These speculators were not in the coin arena to invest in the technology or because they believed in it, but only to make a profit when prices went up. Since now investors are finally realizing that crypto is not a viable investment, there is no one left to buy the coins and the speculators are just dumping their coins. This seems like a plausible idea considering that coins have still not acquired widespread use in the real world. The main idea of cryptocurrencies initially was to replace conventional payment systems, but they still haven’t succeeded. (Investing In Cryptocurrencies: Watch These 5 Profitable Cryptocurrencies)
There have only been problems in the industry that have hindered the development of the technology, such as the latest fork in BCH. These kinds of disputes have held back the growth of cryptocurrencies, and they have lost their purpose. Even coins like Ethereum that hoped to use smart contracts for decentralized systems have still not been able to garner the necessary support and infrastructure. Generally, therefore, crypto markets have remained stagnant, and finally investors/speculators are tired of waiting.
Meanwhile, Jeff Stollman, a consultant with Rocky Mountain, attributed the dip in crypto markets to increasing regulation and oversight. In his opinion, the main driving force behind crypto markets were individuals in totalitarian countries like China with strict money controls who say crypto as a way of moving money out of the country. This would explain why ICOs raised a lot of money thanks to these individuals trying to move money out of their restrictive countries. These days it’s not so easy because all the major exchanges enforce Know Your Customer (KYC) requirements that require the individual to reveal their true identity. Those people who once favoured crypto for its privacy and secrecy like money launderers, terrorists and criminals are now wary of it and shying away. Basically, this all means that the true enthusiasts were not investors but people taking advantage of the technology’s principles. (Does BTC Stand A Chance To Becoming The Worldwide currency?)
In my opinion, it is Warren Buffet who made the right call about coins and their future in the long-term. He had compared the coin arena to the car industry at the start of the 20th Century. Back then there were so many companies making cars – anyone with the knowledge could crank out a few units and sell them. Over time, though, only those companies that could mass produce cars and sell them at a cheaper cost survived and now there are only a handful of automotive companies left. Today there are over 2,000 coins, but not all of them will survive. In fact, a lot of them will fail over time leaving only a handful with actual use in the real world. This is why Warren Buffet advised investors to simply short a basket of coins over a long period of about 5 years and wait for them to start falling in prices. (These are the: BTC Price Prediction Update And Forecast For Autumn 2018)
Indeed, the majority opinion is that coins will still continue to fall even in the first half of 2019 when they will finally reach a support level, a floor. The only hope for the industry lies in the hands of regulators and institutional investors who can give people confidence in crypto once again. Unless this happens, the industry will probably never recover and continue going down, squeezing out smaller coins as predicted by Warren Buffer and leaving only a few survivors.
For an update on the hash war and the winner between the two camps, here is a quick video detailing what you missed: