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How Will Traders and Investors Fare Going Forward as a Cryptocurrency Civil War Gets Underway

How Will Traders and Investors Fare Going Forward as a Cryptocurrency Civil War Gets Underway

Reading Time: 4 minutes by on November 16, 2017 Commentary

Cryptocurrency is fundamentally a form of digital money designed to be secure, counterfeit-free, trackable, quasi-anonymous, and supported by the dynamics of supply and demand without the influence of any centralized authority. Cryptocurrency essentially seeks to take economic power from governments and the traditional financial institutions to create a global economic landscape that levels the playing field for all actors.

One of the major expressions of Bitcoin; it has displayed undeniable resilience as money despite the neverending stream of attacks, regulatory hurdles, and outright insults from the traditional financial institutions. In 2009, bitcoin was practically negligible – it cost about 10,000 bitcoin to buy $20 worth of pizza. Now, bitcoin’s market value has outperformed all known fiat currencies; you’ll need more than $7,000 to buy one bitcoin.

A Civil War Rocks the Cryptocurrency Market

The cryptocurrency market is currently at war as dissensions in the Bitcoin community threaten the ability of digital currencies to present a united front to displace fiat currencies. In August, a fork in the Bitcoin ecosystem birthed a different version of the cryptocurrency; Bitcoin Cash (BCH). Bitcoin is the core but evolved cryptocurrency while Bitcoin Cash is the alternate version that seeks to preserve the “original” idea of Satoshi’s Bitcoin.

The August fork did not cause much disruption in the Bitcoin ecosystem other than the fact that people who owned Bitcoin had to navigate a maze of managing core Bitcoin and Bitcoin Cash. Quite a number of cryptocurrencies have also recorded forks in the past, Ethereum and Ethereum Classic are examples that readily come to mind.

Another type of Bitcoin hard fork, SegWit2X was planned for mid-November; the hard fork was supposed to increase the block size for Bitcoin and solve some the scaling problems, among other things.

Interestingly, the supporters of the new hard fork decided to suspend the move because “unfortunately, it is clear that we have not built sufficient consensus for a clean blocksize upgrade at this time.” The suspension of the hard fork, in turn, caused some investors to become more optimistic about the prospects of the cryptocurrency. The increase in bitcoin demand, in turn, pushed the price of bitcoin to an all-time high of $7,888.

Mati Greenspan, Senior Analyst at eToro, noted “when BitGo first announced that they were calling off the 2x hard fork the initial reaction in Bitcoin was a sugar rush that propelled the price to new all-time highs. What ensued was a vicious thumb war between the ‘big blockers’ and the ‘purists.’ Those advocating a bigger block size decided quickly that Bitcoin Cash was their best bet and started to move funds out of Bitcoin Core, which was then showing elevated prices.”

“The war lasted for about three days with the old bitcoin eventually regaining composure. However, the more interesting thing to watch now are the bystanders. The other established cryptocurrencies like Dash, Litecoin, and Ethereum have all gained significant ground over the past week and are now in breakout territory.”

A section of the bitcoin market that had been rooting for the hard fork was not pleased with the decision not to activate SegWit2X. Hence, they started moving their funds out of bitcoin (BTC) into bitcoin cash; thereby causing a sharp drop in the price of bitcoin.

Bitcoin Cash (BCH) saw a marked increase in its price from around $300 in October to an all-time high of $2,497.00. The market cap of Bitcoin cash also surged to more than $41 billion for to displace Ethereum as the second largest cryptocurrency by market cap.  The inflow of funds into Bitcoin Cash, however, triggered an outflow from Bitcoin (BTC), the cryptocurrency fell to a low of $5650.65. 

Cryptocurrency is King on Wall Street

The cryptocurrency industry is a fledgling new upstart with big dreams of altering the course of history. Cryptocurrency has displayed an incredibly latent potential to disrupt the global financial and economic spheres. To begin with, the very idea of cryptocurrency seeks to challenge the direct area of influence of the traditional financial institutions that rule on Wall Street.

Apart from the fact that cryptocurrency is reducing the influence of governments on the global monetary landscape; cryptocurrency has shown impressive ability to steal the attention of investors away from traditional assets on Wall Street.

Now, a whole industry is being birthed for the trading of cryptocurrencies with different kinds of new digital currencies showing up in the market. There’s also a new market to trade cryptocurrency futures as traditional investors start to pay more attention to the trends of the cryptocurrency markets. More so, many VC firms are starting to look for opportunities to back blockchain companies as the growth of Internet companies starts to reach a peak.

Retail investors who invested in cryptocurrencies such as bitcoin, ether, and litecoin have also had reasons to smile consistently to the banks. The chart above shows the year-to-date performance of bitcoin in relation to other assets available on Wall Street.

From the chart, the NYSE Bitcoin Index has gained an about 849.9 percent in the last year. In contrast, the leading Wall Street indices have only gained low double digits. The NASDAQ Composite is up 28.91 percent in the last one year, the Dow Jones is up 24.27 percent, and the S&P 500 is up 19.31 percent in the same period.

Right now, trading conditions in the cryptocurrency market are choppy as investors continue to struggle what to make of the markets. However, the extreme volatility will not continue indefinitely, and a sense of balance will return to the market. There is only one way for cryptocurrency in relation to fiat currencies, and that way is up.

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