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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 Price Unable to Break Downward Spiral as Speculation Drives Market

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Bitcoin’s price touched new yearly lows on Saturday, as the broader cryptocurrency market risked further capitulation in the days and weeks ahead. According to the CEO of BitPay, bitcoin’s price is driven predominantly by speculation regarding future adoption and is less concerned with current market forces. If that’s the case, there’s a reasonable case to be made for a strong rally in the new year.

BTC/USD Update

The bitcoin price reached a low of $3,130 on Coinbase in early-morning trade, the lowest since August 2017. The U.S.-based exchange last quoted BTC/USD at $3,147. Exchanges Bitstamp, Bittrex and Gemini show similar levels, while Bitfinex maintained a $100 premium.

Market-wide data provided by CoinMarketCap show an average bitcoin price of $3,207, down 2.7%  over the 24-hour period.

Trading volumes across the virtual exchange market reached $4.1 billion, according to the latest available data. BitMEX saw its share of the total volume rise to 24.4% as derivatives continued to drive the market. BitMEX and other futures markets allow traders to profit from bitcoin’s decline. This avenue has increased in popularity since the selloff began last month.

Bitcoin’s market capitalization has experienced a significant drop over the course of the selloff. Now valued at $55.9 billion, bitcoin’s market cap is down a staggering $56 billion compared to early last month.

Speculation Drives Market

Speculation about bitcoin’s perceived utility in the future continues to influence market behavior far more than its actual use in today’s market, according to Stephen Pair, CEO of BitPay. Although BitPay is focused on supporting the actual market for bitcoin payments, this segment has little impact on how BTC is priced by investors and speculators.

“A very big component of the price is certainly speculation,” Pair said in a recent interview with CNBC’s Squawk Box. “It’s investors speculating on the future usage and adoption of this technology. A small component of the price is actual utility, and that’s what BitPay is focused on — using the platform and delivering products to our customers that they find valuable.”

BitPay is hoping to radically alter how bitcoin is priced in the future – not by manipulating the market, but by expanding adoption of cryptocurrency payments. Currently, BitPay processes roughly $1 billion in transactions per year, a figure Pair believes should grow ten-fold in the coming years.

Although bitcoin is accepted by hundreds of thousands of merchants globally, its primary utility continues to be as a store of value for investors looking to capitalize on the alternative asset class. Now that the initial crypto craze is over, adoption as a payment mechanism is the next great hurdle facing BTC and its peers.

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 700 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Bitcoin

Bitcoin Price Scrapes the Barrel While Stellar (XLM) Losses Fall in Line

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Bitcoin returned to its lowest valuation of the year on Friday, as the last week of cautious upward movement by the crypto market came to a crashing halt.

Just last week BTC fell to a dollar valuation in the high $3,200 range – a fifteen-month low at the time. After seven days of false hope and another rinsing of weak hands, BTC returned to the same valuation early on Friday morning – a sign that $3,000 is destined to act as a baseline in the short-term?

Meanwhile, after months of positive developments and upward momentum, Stellar (XLM) is finally feeling the pinch and may be about to fall back in line with average market losses. XLM’s valuation is down over 18% for the week, and 7.5% for Dec 14th alone – leaving Tether (USDT) waiting in the wings to take over XLM’s 4th spot ranking by market cap.

Bitcoin Price – BTC/USD

Bitcoin fell 4.75% leading into Friday morning, compounding 10% losses over the last five days. From the daily high of $3,448, BTC found itself trading as low as $3,200 on some exchanges, while the aggregate valuation drawn from all exchanges remains closer to $3,300 at time of writing.

Bitcoin volume remains high while overall trade volume has declined. This has sent BTC dominance to over 55% again, and may be the beginning of a trend which sees altcoin gains continually cashed out to the more trusted BTC (via USDT) for the duration of the bear market.

Stellar Price – XLM/USD

A portion of those gains may now be coming from the Stellar market, which is being dominated by USDT and BTC trades as of Friday.

From the daily peak of $0.111740, XLM’s valuation fell to £0.103288 by noon Friday. That’s a 7.5% decline for the day, and comes on top of 18.3% losses over seven days as Stellar finally seems to be falling in line.

Stellar had kept the bears at bay for much of the prolonged market dip in the last few months, even rising in the rankings to become the 4th highest capped cryptocurrency. Fuelled by prominent announcements and almost constant speculation regarding a Coinbase listing, XLM managed to buck the trend and hold onto its value while all around it were losing theirs.

Now, this latest dip has singled out XLM specifically, leaving the coin’s losses firmly in line with ETH and the major alts’ +60% losses since mid-November. Once valued at nearly $17 billion by market cap at its peak, Stellar is now valued at less than $2 billion, and only the slightest fluctuation by ‘stable’ coin, Tether, would drop XLM out of the top four ranked cryptos.’

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 105 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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Crypto Update: Majors Testing Lows Following Broad Selloff

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The major cryptocurrencies have been once again under pressure in the past 24 hours and most of the coins got very close to their recent lows, even as the losses are limited for now. While the top coins avoided a breakdown, given the overwhelmingly bearish long-term picture and the steep short-term trend, odds continue to favor new lows in the coming weeks, so traders and investors should still remain defensive.

Dash/USD, 4-Hour Chart Analysis

The continued technical weakness in the lagging coins, like Dash, and the lack of a relatively strong leadership is still apparent, and it reinforces the bearish overall picture. That is true even as the long-term momentum indicators are showing deeply oversold readings and investors sentiment remains very negative which could lead to a larger scale correction after a short-term trend change. That said, traders shouldn’t enter new positions here until we see meaningful short-term technical improvements.

BTC/USD, 4-Hour Chart Analysis

Bitcoin failed to regain momentum despite the weekend bounce and the coin is back near its recent low trading near the $3250 level today. The key $3600 level is out of reach for the most valuable coin, and with that in mind, our trend model remains on clear short- and long-term sell signals.

The current weakness of BTC is a negative sign for the whole segment, and a test of the key long-term $3000 level is more and more likely. Further string resistance is ahead between $4000 and $4050, and traders and investors shouldn’t enter positions here.

ETH/USD, 4-Hour Chart Analysis

Ethereum has been trading in a very narrow range in recent days, and the coin is still stuck below the key $95-$100 zone, as it failed to show relative strength despite being among the most oversold majors. ETH also faces strong resistance near $120 and $120, with the next major support zone found between $73 and $75, and traders and investors should still stay away from the coin.

Litecoin Breaking Down Again?

LTC/USD, 4-Hour Chart Analysis

Litecoin is threatening with another break below support today, with the $23 support level looking very weak now, and the steep short-term downtrend remains clearly intact in the coin. LTC continues to be relatively weak from a short-term standpoint, and traders shouldn’t consider even ultra-short term positions here, despite the deeply oversold broader picture.

The next major support zone is found between $20 and $20.50 and odds favor a test of that zone as soon as in the coming days, with strong resistance found near $26 and $30.

XRP/USDT, 4-Hour Chart Analysis

Ripple continues to hover around the $0.30 level, still being very weak on the short-term time-frame, and being on sell singles both short- and long-term in our trend model. XRP faces strong resistance near $0.32, $0.3550, and $0.3750, while primary support is found at $0.28, with the prior bear market low being at $0.26. We expect at least a test of the lows in the coming weeks, despite the still relatively strong long-term technical setup and new low bear market lows are also likely in Ripple.

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 417 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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