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Bitcoin Hard Fork: The Game Plan

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Bitcoin’s upcoming fork is arguably its most divisive one yet. Clear battle lines have been drawn, setting the stage for a potentially Lutheran-style schism in the blockchain community. (Note: the author is being a bit dramatic, but all signs seem to show that a serious divergence is building momentum.)

By looking at bitcoin’s price, one would hardly conclude that the original blockchain currency is facing turmoil. Bitcoin added a staggering 24% last week en route to fresh record highs. However, one of the motivations for buying bitcoin is the hard fork itself. If you own bitcoin on fork day, you will also receive equal value of the newly minted digital currency. (If your cryptocurrency exchange doesn’t support the new coin, you can always threaten to sue it like the backers of Bitcoin Cash did to Coinbase.)

SegWit2x

The upcoming hard fork, which is scheduled sometime in mid-November, will create two competing versions of bitcoin. We speculated recently that the new coin is unlikely to create controversy over the “real” bitcoin, but as Jeff John Roberts of Fortune argues, this disagreement is already under way.

Like the hard forks before it, the main crux of the debate is how to best optimize the Bitcoin network. Backers of SegWit2x want to double the size of bitcoin blocks to boost transaction capability.

Backers of the new protocol include bitcoin miners who use advanced computers to compile transactions. In their view, bigger blocks are desperately needed to accommodate the massive growth in the blockchain network, as well as to reduce transaction fees. As Roberts also notes, these miners are part of a consortia that includes “certain exchanges, wallet providers, market makers, and storage vaults.” On the opposite side of the spectrum are those who maintain the core protocol that comprises the Bitcoin network.

Below is a rundown of interplay between bitcoin, Bitcoin Cash and the upcoming SegWit2X hard fork.

Bitcoin (BTC) SegWit Activated No Increase in Block Size
Bitcoin Cash (BCH) No SegWit Activated Increased Block Size to 8MB
SegWi2x (B2X) SegWit Activated Increase Block Size

The Game Plan

As one might expect, the broader implications of SegWit2x likely won’t be known until fork day. But that shouldn’t stop you from formulating a game plan. The big question mark right now is which version of bitcoin will get the much coveted BTC ticker name. As it currently stands, exchanges have not opined about which version of bitcoin they will support, although Bitfinex will run the SegWit2x chain as B2X.

On the GDAX, hash power will decide which chain gets the BTC ticker. So far, there is no news on what Bitstamp, bitFlyer and Kraken aim to do.

Rather than track a couple dozen bitcoin exchanges, investors may want to focus on Coinbase. The San Francisco-based platform has long been viewed as the industry’s proxy; how it chooses to handle the fork (and potential split) will have direct implications on the market.

A hard fork is a software change that runs the risk of splitting the blockchain into two, particularly if the community disagrees about it. (Laura Shin, Forbes)

When it comes time to fork, market participants need to be clear about their intentions. The first question you need to ask is: Do I plan on transacting with the various bitcoin chains anytime soon, or am I keen on holding the coins as long-term investments? If you prefer the latter, then you should be thinking about storing your coins in a wallet. (Note: paper and hardware wallets offer more security.)

Those of us who are speculating in bitcoin need to be aware that the upcoming fork could get very messy. It is unclear which chain the exchanges will list as BTC, which means the price of BTC could differ vastly across the brokerage community. (Note: if you observe vastly different prices for BTC, it means you’re looking at two different coins.)

Adding more confusion is the fact that the SegWit2x protocol will fork without adequate replay protection. This means BTC and B2X transactions will appear identical after the fork. To avoid accidentally spending the new coins, you should avoid exchanging from your wallet all together after the fork. This also includes not accepting payments via mobile wallets, since BTC will mirror whichever coin has more hash power.

Furthermore, claiming your coins will prove difficult until well after the fork when dedicated wallets for both blockchains emerge.

If you’re a trader, there’s even more confusion about whether BTC and B2X will have any price correlation. Following the Bitcoin Cash hard fork, BTH and BTC appeared to be inversely correlated for a while. However, lately, anything named bitcoin has moved in the same direction: Up.

The conclusions that we’ve drawn in this section may annoy some of our members, but complex situations usually call for measured steps. In this case, staying on the sidelines until the dust settles might be the best approach.

Altcoin Advantage?

Altcoins have largely benefited from bitcoin’s meteoric rise – that is, until recently. The latest surge in bitcoin has largely failed to take altcoins along for the ride. This has led to speculation that the altcoin universe is undervalued. An exit from the bitcoin asset class could therefore be a tailwind for altcoins pre- and post-fork.

Currently, the original bitcoin controls roughly 63% of the cryptocurrency market. This figure fell below half earlier in the year as investors diversified away from bitcoin while others became more annoyed by bitcoin’s slow transaction process. If diversification is part of your strategy, now might be the top to consider altcoins. The author sees no reason why the altcoin universe cannot control at least half of the cryptocurrency market, especially if we witness a long-anticipated correction in BTC.

Total Cryptocurrency Market Cap With Bitcoin

Total Cryptocurrency Market Cap Without Bitcoin

 

Final Considerations

There’s no guarantee that bitcoin prices will plunge after the hard fork. Regardless of which blockchain emerges as the BTC candidate, bitcoin is enjoying plenty of upside thanks to growing institutional support from the major exchanges. Both CME Group and CBOE have announced plans for bitcoin futures relatively shortly. a strong sign that institutional capital will flow like never before.

To recap:

  1. Secure your coins in a paper or hard wallet for extra safety.
  2. Avoid transacting the BTC symbol before and after fork day.
  3. After fork day, access your coins only when you see dedicated wallets for both blockchains.
  4. Take advantage of the undervalued altcoin universe if bitcoin becomes volatile.

As fork day looms, keep your wits (and coins) about you and stay out of trouble.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 773 rated postsChief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi




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1 Comment

  1. benb

    November 5, 2017 at 10:25 pm

    Well written, thank you for the write up. Do you think the exchanges will still allow trading while the wallets are locked for deposits and withdrawals?

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Altcoins

Why Investors Should Be Paying Attention to Aelf

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So far, each iteration in the evolution of cryptocurrencies and blockchain companies has come with its own issues and setbacks. This is because the scale of the companies is actually fairly limited, and not as comprehensive as the promises made by blockchain fanatics.

Part of this the lack of connectivity between blockchains, but there is also the issue of the blockchains not having the scalability necessary to accommodate huge companies. When you have a bunch of separate blockchains functioning out of sync, it is hard to build anything significant, as the “ecosystem” is coming to find.

A Natural Evolution

The evolution of the space started with Bitcoin – there were coins before, but nothing that caught on – which was the equivalent of a “simple app”. It could be traded and used the basic functionality of blockchain, but there was nothing complicated about its use case.

Then there was Ethereum, which allowed for smart contracts and other protocols to be built out upon it. This results in a lot of different apps functioning on the same platform, much like an app platform.

Finally, the hope is that Aelf will be able to create a blockchain operating system (much like Linux) that will add an infinite level of scalability to the platform. It would be developer and consumer friendly and function with high reliability.

Two Key Innovations

This blockchain operating system depends on two major innovations: side chains and a unique governance system. By using a multi-chain architecture rather than a “main” blockchain, they avoid many of the pitfalls of NEO or Ethereum. Ideally, this will allow Aelf to be highly available and have a high transaction-per-second capacity.

Additionally, companies will be able to rent out nodes (nodes as a service) to help process their side chains when they’re having scaling issues. This is one of the many benefits of operating on an operating system-esque model.

The governance system for Aelf must be unique, since regular consensus algorithms wouldn’t work when confirming information from side chains on tho the main chain. Therefore, a Delegated Proof-of-Stake algorithm is used, which helps you vote on which nodes will become mining nodes and have the ability to confirm transactions.

Current State of Aelf

Aelf is currently in a big growth period. The main net launch is scheduled for 2019, with the development team publishing consistent updates along the way.

The protocol uses their proprietary token, ELF, as a utility token that permits users to access, interact with, and directly participate in DAPPS and other services. No ICO occurred for ELF and it was instead financed using a private token sale.

Breakout Potential

Currently ranked 89th in terms of market capitalization and available on Binance, ELF had a rough December, with a recent recovery occurring during a consolidation period.

The current prices around 3,000 to 3,500 satoshis represent a good buying area while waiting for a breakout. ELF is a fairly volatile coin and with consolidation occurring rapidly, it isn’t unreasonable to think it could hit 4,500 satoshis.

Additionally, with the pending development and release of its mainnet, the fundamental could potentially change very quickly. This could assist the technicals and create a highly profitable breakout, which makes it a good short- or medium-term trade.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Analysis

Crypto Update: Litecoin Leads Pullback in Majors

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The major cryptocurrencies are all lower today following the test of the recent swing highs. Yesterday, the early leader of the current short-term uptrend, Litecoin hit the key $51 resistance, and today the coin pulled back sharply, triggering a broad correction in the segment. The leaders of the rally are all notably lower, but they are still holding on to the bulk of their recent gains, and the rising short-term trendlines are all intact.

From a short-term technical perspective, the current pullback is orderly, and as the coins clear the overbought momentum readings, traders could re-enter smaller, speculative positions with strict risk management rules. The long-term technical picture continues to warrant caution, and bear market rules still apply despite the consolidation of the recent months.

LTC/USD, 4-Hour Chart Analysis

Litecoin’s performance continues to be an important tell for the whole segment, and after yesterday’s downgrade in our trend model, the coin’s pullback is weighing on the whole market today. That said, volume patterns and price action in general, are still in line with a short-term uptrend, and traders could be looking for re-entry points and the overbought momentum readings get cleared.

The key $51 resistance level, which halted yesterday’s move, could be in focus again in the coming days, while a deeper correction could see the test of the $44 level. For now, our trend model remains on a neutral short-term signal, while the long-term signal is still clearly negative, with further support levels found near $44 and $38, and with strong resistance also ahead near the $56 level.

BTC/USD, 4-Hour Chart Analysis

Bitcoin remained within its short-term consolidation pattern, as the $3850 level provided support, so far, during the broad pullback in the segment. The MACD indicator is now pointing to an ongoing short-term correction, but the relatively weak short-term uptrend is still clearly intact.

Traders could hold on to their positions here despite the pullback, as the momentum indicators haven’t reached extreme overbought levels, leaving our trend model on a short-term buy signal, but we would with entering new positions until the pullback runs its course. While the long-term technical outlook is clearly negative for BTC here, a move above the key $4000-$4050 zone could lead to a test of the next major zone near $4450, while support below $3850 is still found near $3600 and just above $3450.

Ethereum and EOS Remain Stable as Ripple Fails to Show Strength

ETH/USD, 4-Hour Chart Analysis

Ethereum continues to trade in a bullish short-term correction pattern near the $145 resistance level. The uptrend is clearly intact in the coin, and although the short-term momentum indicators continue to show overbought readings the rally could soon continue, with the $160 price level still being in sight. Support levels are still found near $130 and $112, while the next major resistance zone is found near $180, and the long-term downtrend is still in no danger here.

EOS/USD, 4-Hour Chart Analysis

EOS, which has also been among the leaders of the rally, continue to show stability amid today’s pullback, but as it got severely overbought during the recent upswing, our tend model is on a neutral signal. Traders should wait for the correction to run its course before re-entering their positions, since the long-term setup in EOS still warrants caution. Support is found near the current price level at $3.80, at $350 and near $3, while resistance is now ahead near $4 and $4.50.

XRP/USDT, 4-Hour Chart Analysis

Ripple remains the primary concern for bulls here, as the relatively weak coin failed to show signs of stability falling back to the vicinity of the $0.32 level. The coin got stuck below the dominant bearish short-term trendline, and our trend model is now on a short-term sell signal, despite the broad rally in the segment.

With the long-term technicals still being hostile even in the case of a new swing low in the coming week, traders should remain cautious with XRP and focus on the stronger currencies with regards to trading positions. Below $0.32, further support zones are found near $0.30, $0.28, and $0.26, while short-term targets are still ahead near $0.3550, and $$0.3750.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 469 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Altcoins

Stellar Price Analysis: XLM/USD Bulls Run into Resistance and Profit Taking Following IBM Boost

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  • Stellar’s XLM price was seen cooling in the session on Thursday, as the bulls ran into a barrier of resistance.
  • IBM detailed it has several letters of intent from banks to leverage IBM-Stellar technology.

Stellar’s XLM price has managed to pick itself up from the recent low area, where it was moving within the total abyss. The decent falling for XLM/USD was pushing it into totally unknown territory, where the price has not traded before. A low was produced down at $0.07330000 before the bulls kick-started the recovery. It has now gained a chunky 30% over the last two weeks, with upside momentum particularly gathering decent pace in the past four sessions.

The most recent jump north came following the price escaping a nine-session range-block formation. The low of the mentioned range was observed down at $0.07590000, with the high up at $0.08330000; the bulls forced a breach of this level on 18th February. Upon the move above, a fresh wave of buying pressure came into play, with XLM/USD moving to its highest level in almost four weeks. At the time of writing a pullback can be observed, which could be potential profit-taking after the decent run.

Several Banks to Join IBM’s Stellar-based Service

According to a representative from IBM, several confirmations have been received from banks on their intent to incorporate digital assets, including their own stablecoins via IBM World Wire and Stellar. The head of Blockchain at IBM Jesse Lund said:

“We’ve got a launch announcement coming out soon. We’re going to be supporting more than 50 countries out of the gate, 30-40 currencies, and enough market makers to drag along 30 or 40 banks. So we’ll have a significant portion of the world covered. Our goal is to continue to expand that network and to provide global coverage within 3-5 years where you can actually send remittances in a consistent way, immediately, at a very low cost, from anywhere in the world to anywhere in the world.”

Several banks have confirmed their plans to release digital assets, including their own stablecoins, based on IBM World Wire and Stellar. According to the IBM representative, the company has already received several letters of intent from a number of banks around the world.

Technical Review – XLM/USD

XLM/USD daily chart.

Given the recent price cooling, eyes will be on a possible return down to the breached range-block area. A move as described would complete the technical breakout and retest of the mentioned zone. Should this fail to provide necessary comfort to the falling price, then eyes will be on another test of the low, $0.07330000. If a further breach is observed here, then this opens the door once again to a move within an unknown territory, moving within the abyss.

Looking to the upside, if XLM/USD completes the break retest scenario and the bulls capitalize on this, then a decent push back north may be seen. A near-term supply area tracks above from around $0.09350000 up to $0.0980000. Should the bulls force a break above the mentioned supply, then a retest of the 2019 high area would be eyed. In other words, a move back within the range of $0.13-0.1400000.

Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

 Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 125 rated postsKen has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.




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