11:00 AM 19 August 2017 by Brett Garman, SC Bitcoin and Blockchain
Around 15:00 EST August 17th, Bitcoin Cash, the derivative of Bitcoin began a climb to $900 as of this writing. Personally, I didn't start asking myself why until it moved above $600.
I have been following Bitcoin since the end of 2014 and know the philosophical debate within the community well enough for me to invest my savings into it.
I am very neutral and am only interested in the lowest risk investment for me and my family. Therefore, I set out around 21:00 EST 18 Aug to get to the bottom of the recent spike in Bitcoin Cash (BCH/BCC). Here is what I found:
- The usual tribes of thought are still separated philosophically and for valid reasons. I do not think this fact will ever change. A good video by Omar Bam (who has been recently banned by r/Bitcoin) gives a good view of how this plays out from a well-established crypto-moderate. IMO.
- Many folks (crypto-right) are saying that the volume increase in BCH is coming from South Korea and possibly Japan. Therefore, since the BCH hard fork was initiated by Bitmain and that is their region of the world, it makes sense the hype around their new coin can result in a pump. On the other hand, Roger Ver (crypto-left) frequents South Korea and spends most of his time in Japan giving BCH even more boost for BCH in that region.
- My biggest concern was the fact that this weekend (in probably about 100 blocks from now) Bitcoin Cash’s difficulty will adjust downward 30% or more. This gives it the appearance of being more profitable to mine. However, such calculations fail to factor in the 1.5BTC per block in transaction fees Bitcoin miners get. In comparison, BCH miners get very little ($50ish) per block they mine. Furthermore, little consideration is given to the fact that Bitcoin mining profitability is not as big of a factor as the crowd currently thinks it is. Just consider the other SHA-256 coins available to mine and have been more profitable to mine than Bitcoin. So you have to ask yourself why don’t miners switch over to mine other coins if they are more profitable than Bitcoin? The answer could be: Liquidity, Global Acceptance, Brand Recognition.
- Bitcoin is more liquid than BCH. It only takes 2-3 confirmations for an exchange to allow a sale. BCH still takes 20-100 confirmations, that means if a miner wants to spend their BCH they will have to wait 20-30 hours. Bitcoin is much quicker still. This is due to the long history of trust created by global acceptance and brand recognition.
- Most of the Alt-coins out there are declining rapidly, while Bitcoin and Ethereum are only down slightly. That tells me that the investors in BCH are most likely the same ones that feel like they missed out on the Bitcoin rise and want a chance to strike it rich by getting in early on what they think may match or exceed the rise of Bitcoin. If I am right, these people are not HODLers and will sell it off just as quickly as they bought in as they probably are not looking at the fundamentals that I listed. They have no long term vision other than to get rich quick and a strong sense of FOMO (fear of missing out).
- Worst case scenario, if BCH equalizes hashing power with Bitcoin then the value of Bitcoin is gone and it will all come crashing down. This is because Bitcoin’s value is derived from the community’s belief in it. If Bitcoin Cash and Bitcoin are not dissimilar enough then why own either? This will not be a problem though because I think the FOMO will end and the money will flow back into ALT coins soon enough.
- Even if some miners leave Bitcoin to mine BCH, 2016 blocks later the difficulty will adjust and the difficulty for BCH will adjust inversely. The only problem will be a few weeks of slower block times. Bitcoin will survive.
- Nobody knows who is mining Bitcoin Cash (90% is the same miner), while we know who is mining Bitcoin.
Given the above results of what I hope is nonbiased research, I am HODLing. I still believe that Bitcoin is the Honey Badger of money.
P.S. I liked this Tone Vays clip in the end. He has an interesting view and it is less technical than I am used too, but I think you will like it if you are a quasi-neutral party like me.
Disclaimer: All of the above is not financial advice. It is my opinion based on my research and sentiments and used solely for my personal investment purposes.
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