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The Overall Influence of Bitcoin Forks Explained

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Bitcoin fork

In the Cryptocurrency World, a “fork” is a modification to the software of the digital currency that results in the creation of two separate versions of the blockchain with a shared history. When any software change is proposed to a digital currency protocol, users need to show their approval for the new, upgraded version. A fork takes place when many people agree to the need for an upgrade. Bitcoin bifurcated in two when the digital currency officially forked creating bitcoin cash. Bitcoin forked again creating bitcoin gold. The current scenario is dominated by the SegWit2x fork.

The Bitcoin Gold Fork and its Effect

Recently the bitcoin economy went through the bitcoin gold fork and made some interesting market moves as a result. For instance, on Oct. 20, 2017, bitcoin’s value reached the $6,000 mark before quickly hitting $6,200. In such instances, it is quite normal to encounter a chain split, which refers to a break from the Bitcoin network.

In simpler terms, a chain split usually occurs after a fork.  Token holders can suddenly find themselves owning several split tokens which are equivalent to the number of tokens on the Bitcoin network.  The main reason for this is the fact that the new chain is an exact copy of the bitcoin blockchain, till the point the fork occurs.

The chain split for the Bitcoin network is explained in the pictorial below.

Fig 1 Bitcoin fork

Effect of Forks on User’s Wallets

For token holders who use crypto-wallets that support the forked chain’s software, the holder automatically becomes the owner of both digital tokens. In this instance, the chain results in the creation of two digital tokens: the original bitcoin (BTC) and bitcoin cash (BCH).

This results in double ownership of tokens, where existing bitcoin owners became the owners of an equivalent amount of bitcoin cash following the split. For example, if a person owned 10 BTC (bitcoin) before the split, s/he will now hold 10 units of both BTC (bitcoin) as well as BCH (bitcoin cash).

Investor Reactions after the Fork

There are many ways to handle an upcoming fork in the Bitcoin network. As an example, we will take the following scenario:

Person X owns 35,000 BTC which is valued at $5,000 per bitcoin. Hence, his total asset worth comes to $175,000,000.  To remedy the situation, X follows the news and real-time events that may affect his position in a particular market.  Suppose X has knowledge of the fork beforehand and knows that a new token (bitcoin cash) will be created. Coincidentally, X also learns that the crypto wallet that he uses will also support the supposed fork’s software. As mentioned earlier, this means X will get both the 35,000 BTC as well as the same amount in bitcoin cash tokens.

This may result in X creating a “buy” wall to drive the price up since X now is a large player in the market. Hence, whatever amount X increases will result in the increase of bitcoin cash tokens under his ownership.

In a case where X turns out to be an educated trader or investor, he may choose to increase his position in the bitcoin market. This is done so that X can amass 50,000 bitcoins before the fork occurs.  As a result, X will have 50,000 BCH in addition to the 50,000 BTC he already owned.

Effect on Value after Fork

When a fork occurs in the Bitcoin network, the value also split into the forked chain. On July 23, 2017, the value of bitcoin dropped from $2,800 to $2,700, following the fork. This resulted in the creation of bitcoin cash, which at the time of launch was valued at $555.

Opening and Closing Prices of Bitcoin (July 21st, 2017 from Coinbase)

Instances of Past Forks and Their Effect on Bitcoin Values

The bitcoin cash fork took place on August 1, 2017, and the SegWit took place on August 23, 2017.

Bitcoin Gold

Ideally, the user transactions are gathered into blocks that are turned into a complex math solution. The block miners operate high-powered computers and work out solutions to verify if the transaction is possible. Once other miners determine that the puzzle is correct, the transactions are accepted and the miners are rewarded in bitcoin. The need for high-tech machinery has necessitated the mining process to be controlled by a small group of people equipped with powerful computers. Bitcoin gold was invented to change this process. The idea is to allow more people to mine bitcoin and with less powerful machines. This would allow the process of further decentralization of the network so that it can be accessed by a wider user base. The collective minds behind bitcoin gold designed a code that creates a fork or split in the bitcoin blockchain. This split took place on Oct. 25, 2017. As a result of this fork, bitcoin gold came into existence. However, it quickly plunged 60%. Bitcoin hit a low of $5,374.60 before recovering nearly $300.

Five days prior to the bitcoin gold fork, the price of BTC reached a new all-time high; on Oct. 20, the valuation of bitcoin surpassed 6$,000 for the first time before adding another $200. There are 21 million solutions to the bitcoin encryption puzzle. Each solution represents a coin or token which affects the bitcoin price. Coinmarketcap reported that on a weekly basis BTC was up by 3.3 %, while on a monthly basis, BTC had increased by 55%. After the bitcoin gold fork, the price of BTC fell to a five-day low. Other than the creation of bitcoin gold, the drop from the record high can be blamed on overbought conditions.

Since its circulation, bitcoin gold has been getting traded at just over 161$ per coin, as per reports of Coinmarketcap data. Investors started selling-off the cryptocurrency, which indicated a lack of faith in the market about the newly-created bitcoin gold. The fork had other adverse impacts on bitcoin as well. The website for the new version of the cryptocurrency i.e. bitcoin gold, suffered a denial-of-service attack. Many cryptocurrency exchanges have not even started trading in bitcoin gold yet, signaling a lack of faith in the protocol. By comparison, the current value of the BTC/USD exchange rate is roughly $17,000.

Bitcoin Cash

Bitcoin had undergone a similar fork, which created bitcoin cash. As a result of the fork, the newly- created bitcoin cash witnessed an initial surge in price. The price hit an all-time high of $914.45. However, prices declined steadily after the surge and subsequently traded at only $330. Backers of SegWit, also known as the Bip141, opposed bitcoin cash on ideological grounds. Instead, they proposed SegWit as an upgrade for the following reasons:

  1. SegWit could effectively increase the volume of transactions that fit into each block without raising the block size parameter. This means more transactions per second can be registered on the blockchain. Thus SegWit can elevate the transactional capacity of bitcoin.
  2. SegWit removes transaction malleability, which is the result of a cryptographic trick to change a signature without changing what it stands for. If this issue is resolved a number of network improvements could take place.
  3. SegWit has the potential to decrease the data need for bitcoin nodes.

The SegWit2x hard fork and its effect on Bitcoin value

On Nov. 8, 2017, bitcoin recovered recovered north of $7,400 after briefly falling below $7,000. This dip was caused by the market’s sustained support for the original version of the cryptocurrency over the SegWit2x. Several analysts have stated recently that this subsequent surge in the price of Bitcoin should be credited to the allocation of funds from investors hoping to obtain B2X from the SegWit2x hard fork. However, it might be an exaggeration to claim that the recent upsurge in the price of bitcoin is prompted by the SegWit2x movement. That is because the majority of investors do not have the technical expertise to understand the implications of SegWit2x.

After dipping below $6,000 earlier in November, the price of bitcoin skyrocketed recently to a level as high as 8040 dollars on one of the largest exchanges in the world called Bitfinex. Bitcoins prices have made their gains since falling to a level of 7829 dollars on Bitfinex. This price was slightly lower than the globally weighted average high price.

As most readers are no doubt aware, bitcoin’s value has skyrocketed over the past month. This recent surge has triggered primarily by expectations of rising institutional interest in bitcoin. Established investors are increasingly foraying into the territory of cryptocurrency. The rise in the price of bitcoin has also been credited to the anticipation regarding the SegWit2X fork.

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 9 rated postsHira Saeed is a tech geek girl with a passion to write on latest technology trends. She is the Founder of Tech Geeks community in Pakistan and also runs her copywriting and social media agency, Digital Doers. Follow her on @heerasaeed.




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Bitcoin

Bitcoin’s Third Bear Market Showing Little Sign of Letting Up: Analyst

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Despite several attempts to rationalize bitcoin’s yearlong downturn, the leading digital currency remains locked in a protracted bear market that is showing little signs of letting up, according to veteran analyst Willy Woo. Based on this view, there’s little evidence to suggest that a reversal is imminent.

Bear Market Continues

In a recent tweet, Woo emphasized that bitcoin’s downtrend is likely to continue for longer and that there was no evidence of a reversal anytime soon. This view is reinforced by a historical analysis of bitcoin’s trajectory, which suggests that sideways trading is the best the market can hope for at the moment.

“Bitcoin has seen only 3 bear markets in its history,” Woo said. “We are in the third one now. One signal we can use to determine the end of the bear is for the price to cross above its 200 day moving average.”

Woo’s position isn’t bearish on the value prospects of bitcoin; it merely suggests that the bulls aren’t out of the woods yet.

The view that bitcoin is still in the middle of a downtrend contradicts several leading opinions on the matter. Wall Street crypto analyst Tom Lee has predicted that a return to record highs is possible this year, while billionaire investor Mike Novogratz has said that an exhaustion of the current downtrend will likely generate a bullish reversal in the foreseeable future. Although some of these viewpoints are backed by fundamental research, fear, uncertainty and perhaps manipulation have undermined bitcoin’s revival. This comes despite a wave of positive developments regarding institutional adoption, business innovation and even regulation.

Bitcoin’s most recent collapse had all the fingerprints of a whale

As Hacked recently showed, bitcoin’s latest price collapse appears to have been set in motion by a prominent whale moving hundreds of millions of BTC to multiple wallets. A large chunk of those assets were then transferred to leading digital currency exchanges where they may have been sold.

BTC/USD Update

Bitcoin is currently trading at $6,331 on Bitfinex, where it is little changed compared with the previous session. Data from CoinMarketCap suggests the BTC price has gained roughly 1% over the past 24 hours on trading volumes of $4.4 billion.

Bitcoin’s momentum indicators suggest lateral moves are likely to continue in the short-term as neither the RSI nor the MACD is showing signs of breaking out. The leading digital currency slumped at the start of the week after failing to make new highs. The BTC price appears to have formed a double-top above $6,500, which eventually paved the way for a reversal.

At current values, bitcoin is capitalized at $109.6 billion, which represents 55.3% of the entire market.

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 604 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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Analysis

Crypto Update: Market Remains Weak Despite Ripple’s Surge

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Ripple made headlines today in the cryptocurrency segment, as the third largest coin jumped by more than 15% after trading in a narrow range for several days. Most of the major coins joined the rally, but the gains were muted and the technical setup remained unchanged in most cases, with the long-term outlook still being bearish, while the short-term picture remaining mixed.

Ethereum, which has been in the center of the trends in the segment for weeks rallied back above $200, but stayed below the recent swing high, leaving several questions unanswered concerning the short-term trend. Bitcoin also got stuck near the $6275 level yet again, and the total value of the market is still below the $200 billion mark, with still no clear signs of major capital inflows in the segment.

ETH/USD, 4-Hour Chart Analysis

Ethereum quickly recovered above $200 after dipping below the weekend lows yesterday in late trading, retaining the short-term buy signal in our trend model. That said the coin still needs to show stronger bullish momentum to avoid a resumption of the clearly declining long-term trend. As sustained dip below $200 would still warn of a move to last week’s lows, while a move above $235 would open up the way towards $260 and the confluence resistance near $275.

BTC/USD, 4-Hour Chart Analysis

Bitcoin has been showing weakness in the last couple of days, and although the coin is still on a short-term buy signal, similarly to Ethereum, a quick recovery above $6500 would be needed to avoid a bearish turn.

Traders should hold on to their positions here, but given the still bearish segment-wide trends, we still don’t advise full positions even in the stronger coins. Below $6275, weaker support is found at $6000, close to the key long-term zone near $5850, while resistance is ahead at $6500, $6750, and $7000.

Ripple Needs Follow Through For a Buy Signal

XRP/USDT, 4-Hour Chart Analysis

While today’s spike in Ripple is encouraging, the coin needs to show further signs of strength, as the recent sudden spikes in the majors were quickly sold as the bearish trend remained dominant in the segment.

With that in mind, despite the broken resistance levels, XRP remains on a neutral short-term signal in our trend model, while still being bearish from a long-term perspective. The coin is currently trading right at the $0.32 level, with support found at $0.3130, $0.30 and near $0.30, while strong resistance is ahead at $0.35.

DASH/USD, 4-Hour Chart Analysis

Dash is among the stronger coins from a short-term technical standpoint, trading in a bullish consolidation pattern just below the key $200 level. That said, the coin failed to show strength today amid Ripple’s rally, and that still points to a dominant bearish trend in the segment. With that in mind, traders should wait for further positive signs before entering new positions, especially since a bullish leadership still hasn’t developed.

IOT/USD, 4-Hour Chart Analysis

IOTA is still weaker than average, together with NEO, EOS, and ETC, and the coin is still just above the August lows, clearly being in a broad downtrend, despite holding up above the lower boundary of its short-term range. A test of the lows is likely in the coming weeks, and the coin remains on sell signals on both time-frames, with support found between $0.455 and $0.475, and near $0.405, and with key resistance ahead near $0.57 and $0.64.

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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4.6 stars on average, based on 348 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

Bitcoin, Ether and Ripple Up in the Air as SEC Delivers a Sobering Reminder

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The U.S Securities and Exchange Commission just delivered a sobering reminder to the crypto community regarding the legal status of Bitcoin and Ethereum. SEC Director of the Division Corporation Finance William Hinman originally told a San Francisco conference in June that:

“…based on my understanding of the present state of Ether, the Ethereum network and its decentralized structure, current offers and sales of Ether are not securities transactions. And, as with Bitcoin, applying the disclosure regime of the federal securities laws to current transactions in Ether would seem to add little value.”

SEC Clarifies Crypto Security Stance

Today the SEC Chairman Jay Clayton released this official statement in which he reminded everyone that media statements made by SEC personnel should not be taken as legal pronouncements. Clayton stated:

“The Commission’s longstanding position is that all staff statements are nonbinding and create no enforceable legal rights or obligations of the Commission or other parties.”

In a particular sentence that may have been included specifically to cool the enthusiasm generated from his colleague Hinman’s original statement, Clayton states:

“…our divisions and offices, including but not limited to the Division of Corporation Finance, the Division of Investment Management and the Division of Trading and Markets, have been and will continue to review whether prior staff statements and staff documents should be modified, rescinded or supplemented in light of market or other developments.”

The last part about ‘modifying, rescinding or supplementing’ future documents suggests that the SEC are starting to worry about the effects their own words have on the very market they’re attempting to regulate.

When the original statement by Hinman hit the headlines in June, Bitcoin immediately surged by around 6%. Ethereum benefitted even more from the news and spiked 10% within the space of an hour.

Consequences for Bitcoin, Ether and Alts

The reminder from the SEC is unlikely to affect the average bag-holder, who in all likelihood disregards much of what comes out of such traditional institutions as the SEC. The news is more likely to strike hesitation into the minds of large-scale, corporate investors who thought all of this uncertainty was already behind them.

It could also spell either good or bad news for Ripple, which is currently fighting five lawsuits – including two federal lawsuits – against claims that its token sale represents a security issuance.

Director Hinman’s original statement back in June suggested that decentralization was key to avoiding being classed as a security. He suggested that coins and tokens from centralized blockchains would have a harder time with the SEC:

“Over time, there may be other sufficiently decentralized networks and systems where regulating the tokens or coins that function on them as securities may not be required. And of course there will continue to be systems that rely on central actors whose efforts are a key to the success of the enterprise. In those cases, application of the securities laws protects the investors who purchase the tokens or coins.”

With XRP being the third largest capped coin in existence, its prominence has made it a prime target for those suspicious of the currency’s relationship to the Ripple company. As the lawsuits began to pile up, many began to question what Hinman’s words would mean for XRP.

Today’s clarification by Chairman Clayton could be seen as a reprieve for XRP, as it essentially shelves the decentralization issue for the time being. On the other hand, it could mean that even if XRP is proved to be wholly decentralized, it may have even larger requirements to fill before gaining a positive classification – as could the rest of the entire crypto market.

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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4.4 stars on average, based on 58 rated postsGreg Thomson is a full-time crypto writer and digital nomad. He eats ICOs for breakfast and bleeds altcoins. Wherever he lays his public key is his home.




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