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Bitcoin’s Brexit Moment Happening Now (Full Explanation)

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Hi everyone,

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You may have heard about the bitcoin scaling issue that is currently playing out so I would like to offer the following as a simple yet comprehensive explanation of what is about to happen.

U.K.’s Brexit referendum on June 23rd, 2016 caused the British Pound to lose 10% of its value in a single night, which is a massive move for a regular currency. For cryptocurrencies, a move of 10% in a day has become a regular occurrence, so the price effects could be far more significant here.

Hope you enjoy and appreciate any questions, comments, and feedback.

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@MatiGreenspan
eToro, Senior Market Analyst

Please note: All data, figures, and graphs are valid as of July 19th. All trading carries risk. Only risk capital you’re prepared to lose.

The History

It’s great to see that the bitcoin network is growing rapidly. However, the rate of growth has become quite alarming lately as the network was not initially setup to handle this much traffic.

At the moment, each block in the bitcoin blockchain contains 1 Megabyte of data, which can hold approximately 1,000 to 2,000 transactions. Usually, it takes about 10 minutes to mine a block. So if there are more than a few thousand transactions in a short time it results in the network getting clogged and people can wait a long time for their transactions to be processed. Sometimes even a few days.

True, bitcoin is a decentralized currency so we don’t have any government or central bank deciding on monetary policy, but it’s clear here that the community needs to make a decision to improve the protocol.

Bitcoin is controlled by the miners. People who run the bitcoin software and confirm transactions. There are many different types of software that are used around the world. In the old days, you could mine bitcoins with a laptop. These days it requires a lot more computer power. So miners have begun to form groups called mining pools. They all link their computers together and when they mine a block, they divide the rewards among themselves.

There are about twenty major mining pools at the moment. These are the guys who are currently arguing about the best way to improve bitcoin.

The Possibilities

So far there have been about 200 different proposals to improve bitcoin. Seeing that things were not moving, one of the proposals BIP148 put a hard deadline on this issue of August 1st. Less than two weeks from the time of this writing.

The goal of BIP148 is to force other miners to upgrade to the SegWit protocol. Without getting too technical, SegWit is a way of improving the bitcoin protocol in a way that each block can hold more transactions.

The idea is that anybody who does not upgrade their software to allow the implementation of SegWit will be rejected, causing a split (hard fork) in the network.

Wait… what’s a fork??

A hard fork is a major split that causes two different currencies to be created. This is what happened with Ethereum and Ethereum Classic about a year ago. Ether classic was the original form and Ethereum that we know today was the secondary currency that was created.

A soft fork is a simple change in protocol that does not split the network. For example, if everybody upgrades their software to BIP148 then it will upgrade the protocol to SegWit without causing a split. Of course, that’s a big IF.

However, some people were not happy with this solution. They quickly put together another proposal that would take effect before the August 1st deadline called SegWit2x.

The software that allows for SegWit2x should be available this Friday, July 21st and if it is adopted it will implement SegWit as a first step in the solution. Then, over the next six months will actually increase the block size from 1 MB to 2 MBs per block.

The setback is that this type of change to the bitcoin blocks would require the creation of a new currency. Yes, another possible hard fork.

For your convenience, we’ve put together a flow chart so that you can visualize the different possible paths that bitcoin faces at this time.

This image can also be found online at: http://imgur.com/a/0nWwn

Special thanks to everyone who helped put together this diagram. Our creative director Elior Abecsis, Moriah Waterland who is a leader in our efforts to put eToro on the blockchain, and Zach Chester our brand new Cryptocurrency Analyst.

Hoping that everything goes smoothly and wishing you a very pleasant day ahead.

This content is provided for information and educational purposes only and should not be considered to be a investment advice or recommendation.

The outlook presented is a personal opinion of the analyst and does not represent an official position of eToro.

Past performance is not an indication of future results. All trading involves risk; only risk capital you are prepared to lose.

Featured image from Shutterstock. Story image from eToro.

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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5 Comments

5 Comments

  1. knightofone

    July 19, 2017 at 11:56 am

    The segwit2x client is already avaimable, and miners started signaling ahead of schedule

  2. embersburnbrightly

    July 19, 2017 at 4:59 pm

    Nice explanation and diagram; thanks!

  3. Mati Greenspan

    July 19, 2017 at 5:01 pm

    Thanks embers. 🙂

  4. Nachshol

    July 19, 2017 at 8:28 pm

    So…. What we, as crypto investors, should expect towards this occurrence?
    Is it possible to assume that the newer coin would be “better” then the old (like ETH and ETH classic)?

  5. Mati Greenspan

    July 21, 2017 at 10:12 am

    Great question. It’s still not clear. A segwit2x coin with larger blocks would very likely be better than the current version. However, getting to that point is quite dangerous.

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Analysis

Crypto Update: Coins Hit 6-Week Highs as Rally Continues

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Bullish price action is still dominant in the cryptocurrency segment today, despite the recent lofty gains, and the overbought short-term picture in the ace of most of the majors. Correlations continue to break down, as more and more coins are in confirmed uptrends, with the total value of the market hitting $400 billion for the first time since early March.

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The top digital currencies are mixed today in the generally positive environment, with Bitcoin Cash, IOTA, Ethereum Classic, Dash, and Monero showing relative strength, in the face of the slightly overbought short-term momentum readings. While this is not the best moment to enter new short-term trades with regards to the majority of the coins, the long-term setup favors further gains in the coming weeks.

BTC/USD, 4-Hour Chart Analysis

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Altcoins have been leading the market higher in the last couple of weeks, and Bitcoin is still stuck below the $9000 level, as it continues to slightly lag behind from a short-term perspective. The coin ran into the strong resistance zone between $9000 and $9200 after breaking out of the broad declining trend.

Now a pullback is likely, given the slight weakness, with a possible test of the prior swing high at $8400. In case of a bullish move, the next target is at $10,000, and long-term investors should still add to their holdings on the short-term dips.

ETH/USD, 4-Hour Chart Analysis

Ethereum kept on creeping higher to marginal no rally highs in the last couple of days, nearing the $650 level despite the overbought short-term picture. Short-term traders should still not enter new positions here until the overbought readings are cleared, while long-term investors could still add to their holdings during the pullbacks.  Resistance zones are ahead near $735 and $780, while primary support is between $555 and $575.

Altcoins Diverging but Bulls Remain in Control

XRP/USDT, 4-Hour Chart Analysis

As we noted, the correlation between the coins is lower than during the downswing, and that confirms the bullish price action in the segment. Ripple is trading in a consolidation pattern near the $0.84 level, and although the overbought momentum readings are not yet fully cleared, the trend is clearly bullish and a new short-term buy signal is likely in the coming days.

Among the other recent leaders, IOTA triggered short-term sell signal, reaching the strong resistance zone near $2.2. EOS, Stellar, Cardano, and NEO are consolidating their gains, while Dash, Monero, and ETC are trading slightly above last week’s highs, but traders shouldn’t chase them higher here, as a short-term correction is likely soon.

Stay tuned for our detailed long-term technical analysis coming out later on today.

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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4.5 stars on average, based on 229 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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Analysis

Bitcoin and Gold are Trading Inversely With One Another

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Advocates of bitcoin often compare the digital currency to gold for its finite supply and store-of-value characteristics. While BTC hasn’t come close to dethroning gold as the world’s most trusted safe-haven, it has steadily outperformed bullion amid the latest recovery. This has some people asking whether virtual currencies are eating away into gold’s demand.

Inverse Relationship

Strategists have identified a strong inverse trading pattern between gold and bullion stretching all the way back to the fall, right around the time that cryptocurrencies rebounded from a China-induced selloff. As bitcoin and other cryptos surged, gold experienced a steep fall from a high above $1,351 in early September to a low of $1,241 just three months later.

As bitcoin cooled down in the new year, gold resumed its upward trajectory and eventually peaked near $1,370 at the end of January.

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Below are the charting patterns for gold and bitcoin going back one full year.

The latest divergence is easy to spot. Since hitting a settlement high of $1,360 on Apr. 11, bullion has declined 2%. Over the same period, bitcoin surged 27%.

Bitcoin’s oversized percentage move relative to gold is a reflection of underlying volatility in the cryptocurrency market. Crypto assets as a whole are but a tiny fraction of gold’s $7.8 trillion worth. That said, the digital asset class peaked above $830 billion earlier this year, making the case for a trillion-dollar market more believable.

Systemic Risks

Proponents of bitcoin’s safe-haven status generally agree that the cryptocurrency is well suited to outperform the market during periods of heightened economic and political instability. This is generally believed to be the period in which gold prices thrive. However, unlike gold, bitcoin has also outperformed during periods of relative calm.

The second-largest bull market in history started off as a positive for gold as prices crossed $1,900 a troy ounce in 2011. However, bullion hasn’t been able to hit anywhere near those levels ever since. Bitcoin, on the other hand, has been the world’s best-performing currency (if one calls it that) in six of the past eight years.

Although the charts seem to indicate an inverse relationship between gold and bitcoin, it’s much more difficult to prove that investors are swapping one asset for the other at any given time. There’s some anecdotal evidence to suggest this is the case but a lack of trading data makes it difficult to conclude definitively one way or the other.

Supply and demand factors must also be weighed in analyzing the price trajectory of both assets. Gold’s total supply is increasing by an average of less than 2% annually, according to the World Gold Council. At the other end of the spectrum, the final bitcoin is expected to be mined in 2140, with total supplies engineered to decline until that date.

On the demand side, gold has been losing its allure as investors continued to pile into stocks. In 2017, appetite for bullion fell by 7%, with gold-backed ETFs plunging to one-third of the previous year’s demand. On the other hand, bitcoin’s demand has skyrocketed as more traders noticed its meteoric rise.

One area in which bitcoin has an advantage over gold is non-correlation. As the above examples clearly demonstrate, BTC is not correlated with the broader market. Gold, on the other hand, is influenced by risk-off sentiment, geopolitics, interest rates and inflation, among others. At present, these factors may play into the hands of bullion as investors prepare for the new business cycle.

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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4.5 stars on average, based on 344 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Altcoins

Cryptocurrency Market Approaching $400 Billion as Bitcoin Tests $9,000

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The cryptocurrency market extended its bullish rally on Sunday, as bitcoin and the major altcoins continued to test multi-month highs. Buy orders accounted for the overwhelming majority of transactions, giving rise to expectations of a more sustained upswing in prices.

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Cryptocurrency Rally Continues

The combined value of all cryptocurrencies peaked at $397.2 billion on Sunday, the highest since Mar. 8. At press time, the market was valued just below $394 billion.

Transaction volumes ebbed on Sunday, with daily turnover amounting to $20.8 billion. Volumes were up around $25 billion on Saturday.

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In terms of individual currencies, bitcoin crossed the $9,000 mark for the second time in as many days. The digital currency was last seen trading at $8,932, having gained 4.8%. However, its share of the total market decline to around 38%.

All major altcoins contributed positively to the rally, with Ethereum gaining nearly 5% to $632. The value of Ripple XRP rose 2.6% to $0.886. Bitcoin cash also extended its bullish rally, climbing nearly 7% to $1,226.

Since bottoming at $249 billion on Apr. 6, the cryptocurrency market has added nearly $150 billion in value. Since the market crash of early February, coins have crossed the $500 billion mark on only one occasion, and that was roughly two weeks later. The total market has been capped below $400 billion since early March.

Bulls in Firm Control

The dramatic recovery in cryptocurrency prices can be summed up in one vital statistic: nine out of every ten trades have been buy orders. That figure was as high as 92.9% on Thursday, according to TurtleBTC.

Cryptocurrency trading is largely governed by investor sentiment, especially among speculators entering the market for a quick profit. This environment, when combined with thin volumes, often generates sporadic trading conditions that are characterized by extreme volatility.

Sentiment has been overwhelmingly positive over the last two weeks as investors looked to capitalize on extreme oversold conditions. Traders have seemingly shrugged off negative news headlines concerning India’s crackdown on cryptocurrency trading as well as the state of New York’s inquiry into exchanges.

There’s strong reason to believe that South Korean traders are playing a major role in the price recovery. According to the most recent volume rankings, three South Korean exchanges are among the top-five in total trading volumes.  They are: OKEx ($1.8 billion in daily volume), Upbit ($965 million) and Bithumb ($751 million).

With the recent spike in volume, cryptocurrencies are once again trading at a large premium in South Korea. This is generally the norm during bull cycles due to high demand and supply constraints. These premiums drew negative attention to exchanges last year as government officials began equating cryptocurrency trading with gambling.

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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4.5 stars on average, based on 344 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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