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Bitcoin Rally: One Man’s Hell Is Another Man’s Heaven

20 November 2018 16:12, UTC
Anastasia Ermolaeva

The recent hardfork of Bitcoin Cash led to the fall of the entire crypto market, the capitalization of which declined by 31% after the week since the event - from $210 bn on 14th of November to $144.4 bn on the 20th. Why did the division of the once fourth-largest cryptocurrency transactions into two different coins provoke such a significant collapse?

In pursuit of their business interests, each of the opposing camps stated that his view of the further development of BCH was the only true one, and in the competition of the two technologies only one must survive so that the hashwar began. Each side started to build up its computing power to gain control of 51% of the network in order to make a “51% attack”, which would lead to the destruction of the opponent. Before the fork, the BCHSV supporters controlled 75% of all BCH hashrate.

The Satoshi Vision camp openly declared that they would use their hash superiority to attack BCHABC by exclusively mining empty blocks and reorganizing its blockchain until their rival would capitulate and all the BCH investors and traders would switch to the SV side. However, when hardfork was executed on the block №556767 for some reason the Craig WRIGHT’s camp did not use their hash advantage and since then they managed to overcome Roger VER’s camp only once - on 19th of November when the BCHSV hash superiority was 55% while the BCHABC was mined by 45% operators.

Moreover, prices for new coins paired with stablecoins on crypto exchanges tell about the BCHABC edge as well. So, the BCHABC/USDC pair is traded at $214.75 on Poloniex.

While the BCHSV/USDC pair is having lower estimation and can be bought at the average price of $40. Our expert Seth LIM, who is the Founder of one of the Singapore blockchain-company, considers that BCHABC gets bigger support as the BCH concept was based on the idea to introduce alternative full-node implementations during the BTC/BCH fork: “There are more the BCHABC supporters as it would be a shame to see BCH's vibrant full-node ecosystem replaced with a single piece of software controlled by one person”.

Moreover, the influence of Roger VER together with Jihan WU’s, who is running the biggest mining company in the industry, that is currently controlling over 42% of the Bitcoin hashrate, is a force, with which nobody is able to compete right now on the market. Given that, influencer himself, John MCAFEE took the BCHABC side saying: “Those who stand against Jihan Wu are idiots who don’t see the realities of the playing field.”

But why is this battle having such a significant impact on Bitcoin and therefore the market? As I mentioned earlier, both sides were increasing their mining powers and in order to achieve the superiority over their opponent they were selling their bitcoins, in which they had a significant amount of assets. Moreover, being not fools, miners agreed to provide their services only in case payments were made in the most liquid assets, which are USD and bitcoins on the digital market. According to BitMEX research, both sides in total paid $8.1 mn to miners by 19th of November.

Hence that, massive bitcoin sell provoked its rate decline by 30% up to the lowest price of the year - $4,500, which immediately concerned other crypto investors and traders. “With the recent civil war between ABC&SV, there are too many negative news floating everywhere such as threats by Dr. Craig Wright that he was going to send the Bitcoin price down to $1,000. Many Bitcoin traders and investors base their decisions on the charts. With the heavy fall of BTC, it creates a panic sell on the entire cryptocurrency market”, - continues Mr. LIM, emphasizing the prevailing number of speculators still operating on the market in comparison with the number of people, who bought digital assets and expected to practically utilize them, but now hold them.   

Our other expert Harpreet SINGH MAAN, who is the CEO and developer at a blockchain firm in Malaysia, points out that the recent hashwar on the BCH field caused a drain of mining powers out of the Bitcoin network and thus the protocol hashrate has been falling, which also contributed to the price clash. Indeed, Roger VER announced that all the Bitcoin.com computing powers would be transferred from the BTC to the BCHABC mining for a certain period of time and his example was followed by Bitmain’s mining pools.

Nevertheless, this hashwar cannot last eternity as miners are already bearing losses. Again BitMEX research shows that despite the fact that the difficulty of the BCHABC mining is two times higher, which makes electricity costs higher, the BCHSV miners make bigger gross losses by $440M - $1.4M comparing to $960M of the BCHABC expenses. Considering all that, the SV is losing positions at all fronts and the BCHABC camp seems to be winning this race, which should be ended soon as nobody is making profits. And therefore our experts ask Bitcoin-investors not to fall for the panic.

“Bitcoin is substantially controlled through 51% consensus by just a handful of individuals so it is highly unlikely that they will agree to destabilize the main currency. Besides them, Bitcoin is also supported by both emerging legal institutions and a host of illegal but yet large scale transactions, and neither of these parties are going to be devaluing their holdings – the latter not having alternatives in place”, - insists the blockchain professor Olinga TAEED, adding that there will be retail fluctuations but there are too many interested parties supporting Bitcoin for it to collapse.

On top of that, the whole crypto community is expecting big money coming but it will never come when the price is high, claims Vladimir POPOV, the Founder of one of the Russian blockchain company. Our expert believes that institutional investors drop any market when entering it. Mr. LIM supports this position by saying: “We can expect more institutional money to come into the crypto market. If the price was high, they would never jump into BTC immediately and make all the early buyers rich in the process. With the weak hands in place, they can scoop up everything they want for fractions of the price”. Which could be also the case for both sides of the BCH battle.

Roger VER, Craig WRIGHT and Jihan WU with Bitmain were previously partners in the BCH project and all of them were big BCH investors while CoinGeek of Calvin AYRE was the main BCH pool that controlled over 28% of the BCH hashrate back then. So what if this war is just a play to drop the market? In this case, all initiators could sell their BCH assets, which did not manage to prove to be more liquid than BTC and buy bitcoins instead at much lower prices. We will never know it for sure, but what we know is that by this point too many people have got involved in the crypto movement and none of them is interested in the leading cryptocurrency to fail irrevocably.